UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
Commission File No. 0-22531
PanAmSat Corporation
(Exact Name of Registrant as Specified in its Charter)
Delaware 95-4607698
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
One Pickwick Plaza, Greenwich, CT 06830
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: 203-622-6664
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
As of June 30, 1998, an aggregate of 149,199,433 shares of the Company's Common
Stock were outstanding.
<PAGE>
Cautionary Statement For Purposes Of The "Safe Harbor"
Provisions Of The Private Securities Litigation Reform Act of 1995
This Quarterly Report on Form 10-Q contains certain forward-looking statements.
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for certain forward-looking statements. When used in this Quarterly Report on
Form 10-Q, the words "estimate," "project," "anticipate," "expect," "intend,"
"believe" and other similar expressions are intended to identify forward-looking
statements and information. The Company identifies the following important
factors which could cause the Company's actual results to differ materially from
any results which might be projected, forecasted, estimated or budgeted by the
Company in forward-looking information: (i) risks associated with technology,
(ii) regulatory risks, and (iii) litigation. Such factors are more fully
described under the caption "Risk Factors" in the Company's Registration
Statement on Form S-4, as amended (Registration No. 333-56227). Reference is
also made to such other risks and uncertainties detailed from time to time in
the Company's other filings with the Securities and Exchange Commission. The
Company cautions that the foregoing list of important factors is not exclusive.
Furthermore, the Company operates in an industry sector where securities values
may be volatile and may be influenced by economic and other factors beyond the
Company's control.
<PAGE>
PanAmSat Corporation
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 102,655 $ 91,739
Accounts receivable-net 78,060 41,030
Net investment in sales-type leases 21,488 27,757
Prepaid expenses and other 101,618 77,891
Deferred income taxes 38,451 46,940
Insurance claim receivable 162,510 -
----------- ------------
Total current assets 504,782 285,357
SATELLITES AND OTHER PROPERTY AND
EQUIPMENT-Net 2,663,504 2,506,082
NET INVESTMENT IN SALES-TYPE LEASES 231,090 324,689
GOODWILL-Net of amortization 2,466,018 2,498,498
DEFERRED CHARGES AND OTHER ASSETS 52,681 67,808
----------- ------------
TOTAL ASSETS $ 5,918,075 $ 5,682,434
----------- ------------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements
<PAGE>
PanAmSat Corporation
CONSOLIDATED BALANCE SHEETS - (continued)
(in thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 4,106 $ 16,398
Accounts payable and accrued liabilities 71,510 26,828
Deferred gains on sale-leasebacks 34,303 42,870
Deferred revenues 12,449 18,822
----------- ------------
TOTAL CURRENT LIABILITIES 122,368 104,918
DUE TO AFFILIATES (PRINCIPALLY MERGER-RELATED
INDEBTEDNESS) 1,800,238 1,802,195
LONG-TERM DEBT 859,208 640,123
DEFERRED GAINS ON SALE-LEASEBACKS 138,629 191,882
DEFERRED INCOME TAXES 230,000 179,267
OTHER LIABILITIES AND DEFERRED CREDITS 87,629 103,029
ACCRUED OPERATING LEASEBACK
EXPENSE 54,148 100,184
----------- ------------
TOTAL LIABILITIES 3,292,220 3,121,598
----------- ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock, $0.01 par value 400,000,000
shares authorized, 149,199,433 shares issued
and outstanding 1,492 1,491
Additional paid-in-capital 2,503,257 2,501,344
Retained earnings 121,106 58,001
----------- ------------
Total Stockholders' Equity 2,625,855 2,560,836
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,918,075 $ 5,682,434
----------- ------------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements
<PAGE>
PanAmSat Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Six Months Ended June 30, 1998 and 1997
(in thousands, except share data)
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
----------- ------------
<S> <C> <C>
REVENUES:
Operating leases, satellite services and other $ 367,065 $ 209,561
Outright sales and sales-type leases 17,040 52,184
----------- ------------
Total revenues 384,105 261,745
----------- ------------
OPERATING COSTS AND EXPENSES:
Cost of outright sales and sales-type leases - 20,476
Leaseback expense, net of deferred gain 25,584 30,883
Depreciation and amortization 118,917 45,574
Direct operating costs 46,547 16,347
Selling, general and administrative expenses 28,298 18,856
Provision for loss on Galaxy IV 6,314 -
----------- ------------
Total operating costs and expenses 225,660 132,136
----------- ------------
INCOME FROM OPERATIONS 158,445 129,609
INTEREST EXPENSE, NET (46,640) (16,687)
OTHER INCOME - 385
----------- ------------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 111,805 113,307
INCOME TAXES 48,700 47,737
MINORITY INTEREST - 3,815
----------- ------------
NET INCOME $ 63,105 $ 61,755
----------- ------------
NET INCOME PER COMMON SHARE - BASIC AND DILUTED $ 0.42 $ -
----------- ------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 149,652,612 -
----------- ------------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements
<PAGE>
PanAmSat Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Months Ended June 30, 1998 and 1997
(in thousands, except share data)
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
----------- ------------
<S> <C> <C>
REVENUES:
Operating leases, satellite services and other $ 185,277 $ 123,034
Outright sales and sales-type leases 5,803 11,158
----------- ------------
Total revenues 191,080 134,192
----------- ------------
OPERATING COSTS AND EXPENSES:
Cost of outright sales and sales-type leases - 4,054
Leaseback expense, net of deferred gain 11,822 15,466
Depreciation and amortization 60,915 30,989
Direct operating costs 24,226 8,189
Selling, general and administrative expenses 14,234 13,396
Provision for loss on Galaxy IV 6,314 -
----------- ------------
Total operating costs and expenses 117,511 72,094
----------- ------------
INCOME FROM OPERATIONS 73,569 62,098
INTEREST EXPENSE, NET (24,432) (14,909)
OTHER EXPENSE - (847)
----------- ------------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 49,137 46,342
INCOME TAXES 21,380 22,625
MINORITY INTEREST - 3,815
----------- ------------
NET INCOME $ 27,757 $ 19,902
----------- ------------
NET INCOME PER COMMON SHARE - BASIC AND DILUTED $ 0.19 $ -
----------- ------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 149,725,807 -
----------- ------------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements
<PAGE>
PanAmSat Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Months Ended June 30, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
----------- ------------
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income $ 63,105 $ 61,755
Adjustments to reconcile net income to
net cash provided by operating activities:
Gross profit on sales-type leases - (33,572)
Depreciation and amortization 118,917 45,574
Deferred income taxes 59,222 (28,987)
Amortization of gains on sale-leasebacks (18,988) (21,435)
Provision for uncollectible receivables - (4,534)
Accretion of interest on senior subordinated discount notes - 5,585
Interest expense capitalized (28,984) (19,139)
Minority interest - 3,815
Provision for loss on Galaxy IV 6,314 -
Changes in assets and liabilities, net of acquired assets
and liabilities:
Collections on investments in sales-type leases 30,380 11,509
Operating lease and other receivables (39,780) (20,179)
Prepaid expenses and other current assets (26,184) 16,513
Accounts payable and accrued liabilities 1,724 96,461
Accrued operating leaseback expense (18,913) (20,575)
Deferred gains and revenues (16,148) 3,577
----------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 130,665 96,368
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of PanAmSat International, net of cash acquired - (1,486,266)
Capital expenditures (215,217) (335,215)
Purchase of marketable securities - (36,827)
Decrease in other assets 15,127 2,415
Early buyout of sale-leaseback (155,530) -
Proceeds from insurance claim 29,121 -
----------- ------------
NET CASH USED IN INVESTING ACTIVITIES (326,499) (1,855,893)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
New borrowings 975,000 1,725,000
Repayments of long-term debt (770,164) (517)
Parent company contributions prior to the Merger - 370,424
Stock issuance 1,914 -
----------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 206,750 2,094,907
----------- ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 10,916 335,382
CASH AND EQUIVALENTS, beginning of period 91,739 29
----------- ------------
CASH AND EQUIVALENTS, end of period $ 102,655 $ 335,411
----------- ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash received for interest $ 8,464 $ 5,801
----------- ------------
Cash paid for interest $ 60,067 $ 15,616
----------- ------------
Cash paid for taxes $ 1,919 $ 32,898
----------- ------------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements
<PAGE>
PanAmSat Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) General.
These unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments which
are of a normal recurring nature necessary to present fairly the
financial position, results of operations and cash flows as of and
for the three and six month periods ended June 30, 1998 and 1997
have been made. Operating results for the three months and six
months ended June 30, 1998 and 1997 are not necessarily indicative
of the operating results for the full year. For further
information, refer to the financial statements and footnotes
thereto included in PanAmSat's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997.
(2) Business Combination.
PanAmSat Corporation ("PanAmSat" or the "Company") commenced
operations on May 16, 1997 upon the merger of PanAmSat
International Systems, Inc. (then operating under its previous
name, PanAmSat Corporation ("PanAmSat International") and the
Galaxy Satellite Services division of Hughes Communications, Inc.
(the "Galaxy Business") (the "Combination"). Pursuant to the
Combination, the aggregate consideration paid to PanAmSat
International shareholders consisted of approximately $1.5 billion
in cash and approximately 42.5 million shares of PanAmSat Common
Stock having an estimated value of $1.3 billion. Concurrent with
the Combination and as an integral part thereof, the Company sold
its direct-to-home ("DTH") television rights in certain foreign
markets to an affiliate for $225 million (the "DTH Options").
The Company has applied the purchase method of accounting to the
transaction with the Galaxy Business as the acquiror. The purchase
price was allocated to the assets acquired and liabilities assumed
based on estimates of their respective fair values. Assets
acquired totaled $2.0 billion, liabilities assumed were $3.2
billion (including a term loan (the "Hughes Term Loan") in the
amount of $1.725 billion from Hughes Electronics Corporation
("Hughes Electronics"), an affiliate of the Company) and shares
valued at $1.3 billion were issued in the transaction. A total of
$2.5 billion, representing the excess of acquisition value over
the fair value of PanAmSat International's net tangible assets,
was allocated to intangible assets and is being amortized over 40
years.
<PAGE>
PanAmSat Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Company's consolidated results of operations incorporate
PanAmSat International's activity commencing upon the effective
date of the Combination. The unaudited pro forma information shown
below for the three and six month periods ended June 30, 1997,
presents combined results of operations as if the Combination had
occurred at the beginning of 1997 (excluding the impact of the
$225 million gain on the sale of the DTH Options as well as
certain professional and advisory fees incurred in connection with
the Combination totaling $31.6 million, both of which are
non-recurring items that are not indicative of the Company's
ordinary course of business). The unaudited pro forma information
shown below for the three and six month periods ended June 30,
1997 is not necessarily indicative of the results of operations of
the combined company had the Combination occurred at the beginning
of 1997, nor is the information shown below necessarily indicative
of future results.
<TABLE>
<CAPTION>
(unaudited; in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1998 1997 1998 1997
(Pro forma) (Pro forma)
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 191,080 $ 184,977 $ 384,105 $ 387,786
Net income 27,757 24,291 63,105 50,603
Net income per share
-basic and diluted 0.19 0.16 0.42 0.34
</TABLE>
(3) New Accounting Pronouncements.
In February of 1998, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 132, "Employers' Disclosures About Pensions and Other
Postretirement Benefits." SFAS No. 132 requires an entity to
disclose certain information about pensions and other
postretirement benefits. SFAS No. 132, which is required for
adoption in the current fiscal year, will have no impact on
PanAmSat's consolidated financial statements.
In June of 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133
requires an entity to recognize all derivatives as either assets
or liabilities in the statement of financial position and measure
those instruments at fair value. Gains or losses resulting from
changes in the values of those derivatives would be recognized
immediately or deferred depending on the use of the derivative and
if the derivative is a qualifying hedge. PanAmSat plans to adopt
SFAS No. 133 by January 1, 2000, as required. PanAmSat is
currently assessing the impact of this statement on PanAmSat's
consolidated financial statements.
<PAGE>
PanAmSat Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(4) Financing Activities.
On January 16, 1998, PanAmSat completed a private placement
pursuant to Rule 144A under the Securities Act of 1933 for $750
million aggregate principal amount of new debt securities (the
"Offering"). The net proceeds from the Offering were used to repay
bank loans incurred to finance the tender offer for certain debt
securities of PanAmSat's subsidiaries, as well as for general
corporate purposes.
In connection with the Offering, the Company executed a Credit
Agreement (the "Credit Agreement") with certain lenders and
Citicorp USA, Inc. as administrative agent. The Credit Agreement
amended and restated the credit agreement among the parties dated
December 24, 1997 (the "Original Credit Agreement"). The Original
Credit Agreement provided the Company with up to $500 million of
revolving credit loans (the "Revolving Credit Loans") for five
years, and up to $300 million in short-term loans maturing on
April 30, 1998 (the "Term Loans"). The Credit Agreement amended
the Original Credit Agreement to terminate the Term Loan facility.
The Company currently has $500 million of Revolving Credit Loans
available to it under the Credit Agreement, less any amounts
outstanding under the Commercial Paper Program as described below.
Also in connection with the Offering, the Company entered into
certain U.S. Treasury rate lock contracts to reduce its exposure
to fluctuations in interest rates. The aggregate nominal value of
these contracts was $375 million and these contracts were
accounted for as hedges because they were applied to a specific
refinancing plan that was consummated shortly after December 31,
1997. The cost to unwind these instruments during the first
quarter of 1998 was approximately $9 million and will be amortized
to expense over the term of the newly-placed debt securities to
which such hedges were applied.
On July 27, 1998, the Company launched a $500 million commercial
paper program (the "Commercial Paper Program"). Borrowings under
the Credit Agreement and the Commercial Paper Program are limited
to $500 million in the aggregate and are expected to be used to
fund the Company's satellite construction program. The Company has
established the necessary credit facilities, through the Credit
Agreement, to refinance future commercial paper borrowings on a
long-term basis and, accordingly, will classify such borrowings as
long-term liabilities. As of August 13, 1998, the Company had
approximately $145 million of notes outstanding under the
Commercial Paper Program, with $100 million of the proceeds being
used to repay amounts borrowed under the Credit Agreement.
The Hughes Term Loan is subordinate to the notes issued in
connection with the Offering, the Revolving Credit Loans and the
notes issued under the Commercial Paper Program.
<PAGE>
PanAmSat Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(5) Hughes Electronics Purchase of PanAmSat Common Stock.
On May 1, 1998, Hughes Electronics increased its beneficial
ownership of the Company from approximately 71.5% to approximately
81% through the purchase for $60 per share in cash of
approximately 11.2 million shares (or 7.5% of the outstanding
shares of PanAmSat Common Stock) from Televisa and 2.9 million
shares (or 2% of the outstanding shares of PanAmSat Common Stock)
from a group of founding stockholders of PanAmSat, which includes
several members of the family of PanAmSat's late founder Rene
Anselmo and related trusts as well as Frederick A. Landman,
PanAmSat's President and Chief Executive Officer, and Lourdes
Saralegui, an Executive Vice President of PanAmSat.
(6) Satellite Developments.
On May 19, 1998, all customer services on Galaxy IV were
permanently lost when an anomaly occurred in the on-board
spacecraft control processor which caused the satellite to rotate
and lose its fixed orientation. Galaxy IV's spare control
processor was unavailable due to earlier unrelated damage that had
not previously been detected. The Company restored service to most
of its Galaxy IV customers through the use of alternative capacity
on the Company's other satellites, principally Galaxy III-R and
Galaxy VI. Galaxy VI was the designated back-up satellite for
certain customers on the Company's domestic U.S. satellites.
As a result of the loss of Galaxy IV, the Company expects that its
originally anticipated 1998 revenues may be reduced by
approximately $10 million, due principally to the loss of
available capacity on the satellites used to backup Galaxy IV
capacity. During the second quarter of 1998, the Company recorded
a $6.3 million provision for loss in connection with the loss of
Galaxy IV which represents the difference between the satellite
insurance claim of approximately $162 million and the underlying
net assets that were written off, which consisted of the net book
value of the Galaxy IV satellite, the net investment in sales-type
leases on the satellite and the payment of warranty costs related
to Galaxy IV transponders that were sold outright in prior years.
The Company intends to procure a replacement satellite on an
accelerated basis.
On June 13, 1998, there was a brief shut-down of a portion of the
C-band capacity on the Company's Galaxy VII satellite that was
accompanied by the failure of the primary on-board spacecraft
control processor. Control of the satellite was automatically
switched to the spare control processor and the spacecraft is
<PAGE>
PanAmSat Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
currently operating normally. The satellite manufacturer has
concluded an investigation into the SCP anomalies on Galaxy IV,
Galaxy VII and other HS 601 satellites not owned by the Company.
The investigation identified electrical shorts involving
tin-plated relay switches on HS 601 satellites manufactured in the
early 1990's, as the most probable cause of the SCP anomalies. The
shorts can only occur when several factors are concurrently
present. Of PanAmSat's 16 satellites, 14 were constructed by the
same manufacturer, and five are HS 601 spacecraft with tin-plated
relay switches that were built in the early 1990's. Specifically
Galaxy-IIIR, PAS-2, PAS-3, PAS-4 and Galaxy VII fit these
criteria. Based on the investigation's findings, PanAmSat believes
the probability of future SCP anomalies of this type resulting in
the total failure or risk of loss of any of these five HS 601
satellites is low. Electrical shorts are believed to be the cause
of the backup SCP anomaly on the Galaxy IV satellite in June 1997
and the primary SCP anomaly on Galaxy VII in June 1998. The
Company has been advised by the manufacturer that the primary SCP
anomaly on Galaxy IV in May 1998, which resulted in the failure of
the satellite, was a different, isolated incident that is being
investigated further. The Company is working with all of its
Galaxy VII customers to provide for back-up capacity and to
develop solutions to provide for their needs in the event a loss
of Galaxy VII were to occur.
An anomaly has been detected in the batteries on the Company's
PAS-5 satellite. During periods of peak solar eclipse, which occur
twice each year, the Company will be required to shut off a
portion of the satellite's payload for an insignificant time. At
the present time, this condition is not expected to have any
adverse impact on the Company's existing full-time transponder
customers or its ability to utilize the affected capacity on the
satellite. PanAmSat is investigating this condition with the
satellite manufacturer. Any additional battery failures would
require the Company to shut off additional transponders for some
period of time during the periods of peak solar eclipse, which
could affect full-time transponder customers on the satellite. No
assurance can be given that additional failures on PAS-5 will not
occur.
<PAGE>
PanAmSat Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations. The Company's results of operations
incorporate PanAmSat International's activity commencing on May
16, 1997, the effective date of the Combination. Since the results
of operations for the three and six month periods ended June 30,
1997 include only 45 days of activity for PanAmSat International,
management has determined that for comparative purposes, it would
be more meaningful to present the information shown below on a
"pro forma" basis reflecting the Combination as though it had
occurred at the beginning of 1997 (excluding the impact of the
$225 million gain on the sale of the DTH Options as well as
certain professional and advisory fees incurred in connection with
the Combination totaling $31.6 million, both of which are
non-recurring items that are not indicative of the Company's
ordinary course of business.) The unaudited pro forma information
shown below for the three and six month periods ended June 30,
1997 is not necessarily indicative of the results of operations of
the combined company had the Combination occurred at the beginning
of fiscal 1997, nor is the information shown below necessarily
indicative of future results.
<TABLE>
<CAPTION>
(unaudited; in thousands,
except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ----------------
1998 1997 1998 1997
(Pro forma) (Pro forma)
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Operating leases, satellite services and other $ 185,277 $ 173,819 $ 367,065 $ 335,602
Outright sales and sale-type leases 5,803 11,158 17,040 52,184
---------- ---------- ---------- ----------
Total revenues 191,080 184,977 384,105 387,786
---------- ---------- ---------- ----------
Costs and expenses
Cost of outright sales and sales-
type leases - 4,054 - 20,476
Leaseback expense, net of deferred
gain 11,822 15,466 25,584 30,883
Direct operating and SG&A costs 38,460 29,309 74,845 61,890
Depreciation and amortization 60,915 46,848 118,917 93,103
Provision for loss on Galaxy IV 6,314 - 6,314 -
---------- ---------- ---------- ----------
Total 117,511 95,677 225,660 206,352
---------- ---------- ---------- ----------
Income from operations 73,569 89,300 158,445 181,434
Interest expense, net 24,432 28,902 46,640 59,896
Other (income) expense - 847 - (385)
---------- ---------- ---------- ----------
Income before income taxes and
minority interest 49,137 59,551 111,805 121,923
Income tax expense 21,380 26,965 48,700 55,134
Minority interest - 8,295 - 16,186
---------- ---------- ---------- ----------
Net income $ 27,757 $ 24,291 $ 63,105 $ 50,603
---------- ---------- ---------- ----------
Net income per share - basic and diluted $ 0.19 $ 0.16 $ 0.42 $ 0.34
</TABLE>
<PAGE>
PanAmSat Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Revenues. Revenues increased $6.1 million, or 3%, to $191.1 million
for the three months ended June 30, 1998 from $185.0 million for the same pro
forma period in 1997. Revenues for the six months ended June 30, 1998 were
$384.1 million, a decrease of $3.7 million or 1% from $387.8 million for the
same pro forma period in 1997. Video services revenues were $138.8 million for
the three months ended June 30, 1998, a decrease of 2% from the same pro forma
period in 1997. Video services revenues were $281.9 million for the six months
ended June 30, 1998, a decrease of 10% from the same pro forma period in 1997.
The decrease in video services revenues was primarily due to less sales and
sales-type lease activity as compared to the first and second quarters of 1997.
Telecommunications services revenues were $39.8 million for the three months
ended June 30, 1998, an increase of 19% from the same pro forma period in 1997.
Telecommunications services revenues were $77.3 million for the six months ended
June 30, 1998, an increase of 18% from the same pro forma period in 1997. The
increase in telecommunications services revenues was due primarily to the
commencement of several new carrier and Internet-related service agreements
during 1998.
The revenue results can also be analyzed based on the type of
agreement. Revenues from sales and sales-type leases decreased to $5.8 million
for the three months ended June 30, 1998 from $11.2 million for the same pro
forma period in 1997. Revenues from sales and sales-type leases decreased to
$17.0 million for the six months ended June 30, 1998 from $52.2 million for the
same pro forma period in 1997. The decrease is attributable to a lower volume in
1998 relative to 1997 of outright sales and sales-type leases as well as to the
loss of the Galaxy IV satellite. Revenues from operating leases of transponders,
satellite services and other increased $11.5 million, or 7%, to $185.3 million
for the three months ended June 30, 1998 from $173.8 million for the same pro
forma period in 1997. Revenues from operating leases of transponders, satellite
services and other increased $31.5 million, or 9% to $367.1 million for the six
months ended June 30, 1998 from $335.6 million for the same pro forma period in
1997. The increase in revenues from operating leases of transponders, satellite
services and other for the three and six month periods is due primarily to
increased service agreements associated with available transponder capacity and
the provision of short-term, special events services, most notably World Cup
1998.
Cost of Outright Sales and Sales-Type Leases of Transponders. The
Company recorded no cost of outright sales and sales-type leases of transponders
for the three and six month periods ended June 30, 1998, as compared to $4.1
million and $20.5 million for the same pro forma periods in 1997, respectively.
The pro forma cost of outright sales and sales-type leases of transponders for
the three and six month periods ended June 30, 1997 are related to several
outright sales and sales-type lease transactions entered into during those
periods.
<PAGE>
PanAmSat Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Leaseback Expense, Net of Deferred Gain. Leaseback expense, net of
deferred gain, decreased $3.7 million, or 24%, to $11.8 million for the three
months ended June 30, 1998 from $15.5 million for the same pro forma period in
1997. Leaseback expense, net of deferred gain, decreased $5.3 million, or 17%,
to $25.6 million for the six months ended June 30, 1998 from $30.9 million for
the same pro forma period in 1997. The decrease is primarily attributable to the
exercises by the Company of sale-leaseback early buy-out options during the
first and second quarters of 1998.
Direct Operating and Selling, General and Administrative Costs. Direct
operating and selling, general and administrative costs increased $9.2 million,
or 31%, to $38.5 million for the three months ended June 30, 1998 from $29.3
million for the same pro forma period in 1997. Direct operating and selling,
general and administrative costs increased $12.9 million, or 21%, to $74.8
million for the six months ended June 30, 1998 from $61.9 million for the same
pro forma period in 1997. The increase is due primarily to costs incurred in
connection with the Company's expansion and additional costs associated with
satellites launched since the first and second quarter of 1997.
Depreciation and Amortization. Depreciation and amortization increased
$14.1 million, or 30%, to $60.9 million for the three months ended June 30, 1998
from $46.8 million for the same pro forma period in 1997. Depreciation and
amortization for the six months ended June 30, 1998 increased $25.8 million or
28% to $118.9 million from $93.1 million for the same pro forma period in 1997.
The increase in depreciation and amortization for the three and six month
periods is due primarily to depreciation expense associated with additional
satellites placed in service.
Provision for Loss on Galaxy IV. As discussed in "Satellite
Developments" below, the Company recorded a $6.3 million provision for loss in
connection with the loss of Galaxy IV during the second quarter of 1998.
Income from Operations. Income from operations decreased $15.7
million, or 18%, to $73.6 million for the three months ended June 30, 1998 from
$89.3 million for the same pro forma period in 1997. Income from operations
decreased $23.0 million or 13% to $158.4 million for the six months ended June
30, 1998 from $181.4 million for the same pro forma period in 1997. The decrease
in income from operations for the three and six month periods is due primarily
to increased depreciation and direct operating costs associated with the
Company's expanded satellite fleet, as well as to the $6.3 million provision for
loss on Galaxy IV.
Interest Expense, Net. Interest expense, net decreased $4.5 million,
or 15%, to $24.4 million for the three months ended June 30, 1998 from $28.9
million for the same pro forma period in 1997. Interest expense, net decreased
$13.3 million, or 22%, to $46.6 million for the six months ended June 30, 1998
from $59.9 million for the same pro forma period in 1997. The decrease was due
primarily to the reduction in the Company's overall blended interest rate as a
result of the debt tender offer and restructuring program for certain debt
securities of PanAmSat's subsidiaries which was completed in January 1998.
<PAGE>
PanAmSat Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Income Tax Expense. Income tax expense decreased $5.6 million, or 21%,
to $21.4 million for the three months ended June 30, 1998 from $27.0 million for
the same pro forma period in 1997. Income tax expense decreased $6.4 million, or
12%, to $48.7 million for the six months ended June 30, 1998 from $55.1 million
for the same pro forma period in 1997. The decrease was due to the decrease in
income before income taxes as well as to a lower effective tax rate in 1998
principally as a result of utilization of foreign sales corporation tax
benefits.
Minority Interest. Minority interest, representing preferred stock
dividends of PanAmSat International, were $0 for the three and six month periods
ended June 30, 1998 as compared to $8.3 million and $16.2 million for the same
pro forma periods in 1997, respectively. The decrease was due to the conversion
of PanAmSat International's 12 3/4% Mandatorily Exchangeable Senior Redeemable
Preferred Stock due 2005 into 12 3/4% Senior Subordinated Notes due 2005 (the
"Exchange Notes") in the third quarter of 1997 and the related termination of
dividend payment obligations. Approximately 99% of the Exchange Notes were
subsequently retired in connection with the debt tender offer and restructuring
program described above.
Satellite Developments. On May 19, 1998, all customer services on
Galaxy IV were permanently lost when an anomaly occurred in the on-board
spacecraft control processor which caused the satellite to rotate and lose its
fixed orientation. Galaxy IV's spare control processor was unavailable due to
earlier unrelated damage that had not previously been detected. The Company
restored service to most of its Galaxy IV customers through the use of
alternative capacity on the Company's other satellites, principally Galaxy III-R
and Galaxy VI. Galaxy VI was the designated back-up satellite for certain
customers on the Company's domestic U.S. satellites.
As a result of the loss of Galaxy IV, the Company expects that its
originally anticipated 1998 revenues may be reduced by approximately $10
million, due principally to the loss of available capacity on the satellites
used to backup Galaxy IV capacity. During the second quarter of 1998, the
Company recorded a $6.3 million provision for loss in connection with the loss
of Galaxy IV which represents the difference between the satellite insurance
claim of approximately $162 million and the underlying net assets that were
written off, which consisted of the net book value of the Galaxy IV satellite,
the net investment in sales-type leases on the satellite and the payment of
warranty costs related to Galaxy IV transponders that were sold outright in
prior years. The Company intends to procure a replacement satellite on an
accelerated basis.
<PAGE>
PanAmSat Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On June 13, 1998, there was a brief shut-down of a portion of the
C-band capacity on the Company's Galaxy VII satellite that was accompanied by
the failure of the primary on-board spacecraft control processor. Control of the
satellite was automatically switched to the spare control processor and the
spacecraft is currently operating normally. The satellite manufacturer has
concluded an investigation into the SCP anomalies on Galaxy IV, Galaxy VII and
other HS 601 satellites not owned by the Company. The investigation identified
electrical shorts involving tin-plated relay switches on HS 601 satellites
manufactured in the early 1990's, as the most probable cause of the SCP
anomalies. The shorts can only occur when several factors are concurrently
present. Of PanAmSat's 16 satellites, 14 were constructed by the same
manufacturer, and five are HS 601 spacecraft with tin-plated relay switches that
were built in the early 1990's. Specifically Galaxy-IIIR, PAS-2, PAS-3, PAS-4
and Galaxy VII fit these criteria. Based on the investigation's findings,
PanAmSat believes the probability of future SCP anomalies of this type resulting
in the total failure or risk of loss of any of these five HS 601 satellites is
low. Electrical shorts are believed to be the cause of the backup SCP anomaly on
the Galaxy IV satellite in June 1997 and the primary SCP anomaly on Galaxy VII
in June 1998. The Company has been advised by the manufacturer that the primary
SCP anomaly on Galaxy IV in May 1998, which resulted in the failure of the
satellite, was a different, isolated incident that is being investigated
further. The Company is working with all of its Galaxy VII customers to provide
for back-up capacity and to develop solutions to provide for their needs in the
event a loss of Galaxy VII were to occur.
An anomaly has been detected in the batteries on the Company's PAS-5
satellite. During periods of peak solar eclipse, which occur twice each year,
the Company will be required to shut off a portion of the satellite's payload
for an insignificant time. At the present time, this condition is not expected
to have any adverse impact on the Company's existing full-time transponder
customers or its ability to utilize the affected capacity on the satellite.
PanAmSat is investigating this condition with the satellite manufacturer. Any
additional battery failures would require the Company to shut off additional
transponders for some period of time during the periods of peak solar eclipse,
which could affect full-time transponder customers on the satellite. No
assurance can be given that additional failures on PAS-5 will not occur.
Subsequent Event. On July 13, 1998, PanAmSat announced a comprehensive
satellite plan to construct up to four additional satellites and to modify the
design of two satellites currently under construction (the "Plan"). The Plan is
subject to the approval of the Company's board of directors and other regulatory
approvals. The Plan is intended to enable the Company to provide expanded
satellite services and backup capacity on an expedited basis in the United
States and worldwide.
As part of the first phase of the Plan, Galaxy XI will be modified to
allow it to operate in several of the Company's orbital slots covering the
United States. Upon its revised launch date in early 1999, the modified Galaxy
XI will initially be located at 99 W.L., enabling the Company to restore Galaxy
VI to its status as an in-orbit spare satellite.
<PAGE>
PanAmSat Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Also in the first phase, PanAmSat will modify PAS-9 to provide
coverage of the United States and Latin America. Upon its launch in mid-1999,
the modified PAS-9 will be located at 95 W.L., enabling the Company to offer
its customers expanded service from this location and also to move the Galaxy
III-R satellite to another orbital location over the United States. PAS-9
originally was one of three new satellites under construction to provide service
in Asia. The other two Asia satellites, PAS-7 and PAS-8, are scheduled to be
launched later this year.
In the second phase of the Plan, PanAmSat will proceed with the
procurement of two new satellites for launch during the fourth quarter of 1999,
as well as two ground spare satellites. The two new satellites will be the
Galaxy IV replacement and an international satellite designed to reflect
specific market requirements. The Company anticipates that the two ground spares
would provide the Company with the ability to launch satellites on an expedited
basis to meet market demand for backup or expanded services. The Company is
currently reviewing proposals from satellite suppliers and completing the
financial analysis of the Plan, after which management will present the Plan to
PanAmSat's board of directors and the U.S. Federal Communications Commission for
approval.
If the Plan is implemented, the Company expects to launch nine
additional satellites over the next 18 months, consisting of two new satellites
for Latin America, two for Asia, four for the United States and one additional
international satellite. There can be no assurance that the Plan will be
successfully implemented.
Financial Condition.
Pursuant to the Combination, aggregate consideration paid to PanAmSat
International shareholders consisted of approximately $1.5 billion in cash and
approximately 42.5 million shares of PanAmSat Common Stock. In connection with
the Combination, the Company obtained a term loan (the "Hughes Term Loan") in
the amount of $1.725 billion from Hughes Electronics, an affiliate of the
Company. In addition to the Hughes Term Loan, at June 30, 1998 the Company also
had long-term indebtedness of $934.4 million (comprised primarily of $750
million of bonds under the Offering (as defined below), $100 million of
Revolving Credit Loans (as defined below) and $75.2 million due to affiliates).
The significant cash outlays for the Company will continue to be
primarily capital expenditures related to the construction and launch of
satellites and debt service costs. The Company now has seven satellites under
various stages of development for which the Company has budgeted capital
expenditures. The Company will require approximately $800 million to complete
the construction, insurance and launch of PAS-6B, PAS-7, PAS-8, Galaxy X, Galaxy
XI, PAS-9, and PAS-1R, together with related equipment. This amount is expected
to be funded from cash flow from operations, satellite insurance proceeds,
vendor financing and borrowings under the Commercial Paper Program and/or Credit
Agreement (each as defined below). In addition to funding the construction and
launch of new satellites, the Company may choose to exercise certain remaining
<PAGE>
PanAmSat Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
early buy-out options under certain satellite sale-leaseback transactions
entered into in prior years. During 1998, the Company funded outlays of $155.5
million in connection with the exercise of early buy-out options relating to
transponders on SBS-6. In addition, if the Company were to elect to exercise its
remaining early buy-out options under certain sale-leaseback transactions, it
would be required to fund outlays of approximately $366 million in 1999. Such
additional outlays are expected to be funded from cash flow from operations and
borrowings under the Commercial Paper Program and/or Credit Agreement.
On January 16, 1998, PanAmSat completed a private placement pursuant
to Rule 144A under the Securities Act of 1933 for $750 million aggregate
principal amount of new debt securities (the "Offering"). The net proceeds from
the Offering were used to repay bank loans incurred to finance the tender offer
for certain debt securities of PanAmSat's subsidiaries, as well as for general
corporate purposes.
In connection with the Offering, the Company executed a Credit
Agreement (the "Credit Agreement") with certain lenders and Citicorp USA, Inc.
as administrative agent. The Credit Agreement amends and restates the credit
agreement among the parties dated December 24, 1997 (the "Original Credit
Agreement"). The Original Credit Agreement provided the Company with up to $500
million of revolving credit loans (the "Revolving Credit Loans") for five years,
and up to $300 million in short-term loans maturing on April 30, 1998 (the "Term
Loans"). The Credit Agreement amends the Original Credit Agreement to terminate
the Term Loan facility. The Company currently has $500 million of Revolving
Credit Loans available to it under the Credit Agreement, less any amounts
outstanding under the Commercial Paper Program as described below.
Also in connection with the Offering, the Company entered into certain
U.S. Treasury rate lock contracts to reduce its exposure to fluctuations in
interest rates. The aggregate nominal value of these contracts was $375 million
and these contracts were accounted for as hedges because they were applied to a
specific refinancing plan that was consummated shortly after December 31, 1997.
The cost to unwind these instruments during the first quarter of 1998 was
approximately $9 million and will be amortized to expense over the term of the
newly-placed debt securities to which such hedges were applied.
On July 27, 1998 the Company launched a $500 million commercial paper
program (the "Commercial Paper Program"). Borrowings under the Credit Agreement
and the Commercial Paper Program are limited to $500 million in the aggregate
and are expected to be used to fund the Company's satellite construction
program. The Company has established the necessary credit facilities, through
the Credit Agreement, to refinance future commercial paper borrowings on a
long-term basis and, accordingly, will classify such borrowings as long-term
liabilities. As of August 13, 1998, the Company had approximately $145 million
of notes outstanding under the Commercial Paper Program, with $100 million of
the proceeds being used to repay amounts borrowed under the Credit Agreement.
The Hughes Term Loan is subordinate to the notes issued in connection
with the Offering, the Revolving Credit Loans and the notes issued under the
Commercial Paper Program.
PanAmSat believes that the Commercial Paper Program, Credit Agreement,
satellite insurance proceeds, vendor financing, future cash flow from operations
(assuming satellites in development are successfully launched and commence
service on the schedule currently contemplated) and cash on hand will be
sufficient to fund PanAmSat's operations, anticipated exercise of certain early
buy-out options on certain satellite sale-leaseback transactions and its
remaining costs for the construction and launch of satellites currently under
development for the next twelve months. If the Company consummates corporate
acquisitions, it may be required to seek additional financing. There can be no
<PAGE>
PanAmSat Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
assurance, however, that PanAmSat's assumptions with respect to future
construction and launch costs will be correct, or that additional vendor
financing, satellite insurance proceeds, PanAmSat's future cash flow from
operations and borrowings under the Commercial Paper Program and/or Credit
Agreement will be sufficient to cover any shortfall in funding for future
launches caused by launch failures, cost overruns, delays or other unanticipated
expenses. If circumstances were to require PanAmSat to incur additional
indebtedness, the ability of PanAmSat to incur any such additional indebtedness
would be subject to the terms of PanAmSat's outstanding indebtedness. The
failure to obtain such financing could have a material adverse effect on
PanAmSat's operations and its ability to accomplish its business plan.
In addition, the Company is implementing the Plan, which could include
the procurement of up to four additional satellites and related launch services
and insurance, as well as the modification of PAS-9 and Galaxy XI. PanAmSat may
be required to seek additional financing as a result of the Plan.
Net cash provided by operating activities increased to $130.7 million
for the six months ended June 30, 1998 from $96.4 million for the six months
ended June 30, 1997. The increase in 1998 was primarily attributable to larger
adjustments related to amounts of depreciation and amortization and deferred
income taxes as a result of the Combination.
Net cash used in investing activities decreased to $326.5 million for
the six months ended June 30, 1998, from $1,855.9 million for the six months
ended June 30, 1997. The decrease in 1998 was primarily attributable to the
acquisition of PanAmSat International during the same period in 1997, coupled
with fewer capital expenditures for satellite systems under development as
compared to the same period in 1997 and proceeds from the PAS-6 insurance claim
received during 1998.
Net cash provided by financing activities decreased to $206.8 million
for the six months ended June 30, 1998 from $2,094.9 million for the six months
ended June 30, 1997. The decrease in 1998 was primarily due to obtaining the
Hughes Term Loan during the same period in 1997.
<PAGE>
PanAmSat Corporation
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Annual Meeting of Stockholders was held on May 4, 1998.
(c) (i) Registrant's Certificate of Incorporation provides that
nominees to the Registrant's Board of Directors shall be elected to serve as
directors until the next annual meeting of stockholders or until their
successors are elected and have qualified. The nine nominees for director, Mr.
Michael T. Smith, Ms. Roxanne S. Austin, Mr. Patrick J. Costello, Mr. Steven D.
Dorfman, Mr. Dennis F. Hightower, Mr. James M. Hoak, Mr. Frederick A. Landman,
Mr. Charles H. Noski and Mr. Joseph R. Wright, Jr., were elected by a plurality
of the votes cast by the holders of Registrant's Common Stock voting theron:
(A) Mr. Smith: 116,589,950 votes for and 101,971 votes withheld;
(B) Ms. Austin: 116,588,600 votes for and 103,321 votes withheld;
(C) Mr. Costello: 116,600,100 votes for and 91,821 votes withheld;
(D) Mr. Dorfman: 116,600,050 votes for and 91,871 votes withheld;
(E) Mr. Hightower: 116,599,600 votes for and 92,321 votes withheld;
(F) Mr. Hoak: 116,600,100 votes for and 91,821 votes withheld;
(G) Mr. Landman: 116,590,100 votes for and 101,821 votes withheld;
(H) Mr. Noski: 116,600,000 votes for and 91,921 votes withheld;
(I) Mr. Wright: 116,600,100 votes for and 91,821 votes withheld.
(c) (ii) A proposal (designated Proposal 2 and set forth in
Registrant's Proxy Statement), approved by the Board of Directors, to elect
Deloitte & Touche LLP independent accountants for the Registrant for the year
1998, was approved by a majority of the votes cast by the holders of
Registrant's Common Stock voting thereon: 116,686,123 affirmative votes; 1,123
negative votes; and 4,475 votes abstained.
(c) (iii) A proposal (designated Proposal 3 and set forth in
Registrant's Proxy Statement), approved by the Board of Directors, to approve
the PanAmSat Corporation Long-Term Incentive Plan, was approved by a majority of
the votes cast by the holders of Registrant's Common Stock voting thereon:
116,199,284 affirmative votes; 479,088 negative votes; 13,549 votes abstained.
(c) (iv) A proposal (designated Proposal 4 and set forth in
Registrant's Proxy Statement), approved by the Board of Directors, to approve
the PanAmSat Corporation Annual Incentive Plan, was approved by a majority of
the votes cast by the holders of Registrant's Common Stock voting thereon:
116,650,607 affirmative votes; 24,065 negative votes; 17,249 votes abstained.
<PAGE>
PanAmSat Corporation
(c) (v) A proposal (designated Proposal 5 and set forth in
Registrant's Proxy Statement), approved by the Board of Directors, to approve
the PanAmSat Corporation Restoration and Deferred Compensation Plan, was
approved by a majority of the votes cast by the holders of Registrant's Common
Stock voting thereon: 116,529,947 affirmative votes; 144,028 negative votes;
17,946 votes abstained.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit No.
4.1 Agreement, dated as of May 1, 1998, by and among PanAmSat and the former
holders of Class A Common Stock of PanAmSat International Systems, Inc.
("PanAmSat International") is incorporated herein by reference to Exhibit
4.2.2 to PanAmSat's Registration Statement on Form S-4 (Registration No.
333-56227) (the "Registration Statement").
4.2 Registration Rights Agreement, dated as of January 16, 1998, among
PanAmSat, Morgan Stanley & Co. Incorporated, Donaldson, Lufkin & Jenrette
Securities Corporation, Salomon Brothers Inc, Citicorp Securities, Inc.,
BancAmerica Robertson Stephens and J.P. Morgan Securities Inc. is
incorporated herein by reference to Exhibit 4.5 to PanAmSat's Current
Report on Form 8-K dated July 21, 1998.
4.3 Letter Agreement, dated July 22, 1998, between Hughes Electronics
Corporation and PanAmSat.
10.1 Amendment to Letter Agreement, dated March 5, 1998, among The News
Corporation Limited, Globo Participacoes, Ltd., Grupo Televisa, S.A., and
PanAmSat International, constituting Exhibit 10.7.2 to PanAmSat
International's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, is incorporated herein by reference to Exhibit 10.18.3
to the Registration Statement. (1)
10.2 Second Amended and Restated Contract for PanAmSat Program, dated April 1,
1998, between PanAmSat International and Space Systems/Loral, Inc. is
incorporated herein by reference to Exhibit 10.19.2 to the Registration
Statement. (1)
10.3 Amendment to Full-Time Transponder Service Agreement From PAS-3 (European
Beam), dated as of March 5, 1998, between PanAmSat International and
Televisa, S.A., constituting Exhibit 10.16 to PanAmSat International's
Quarterly Report on Form 10-Q for the period ended September 30, 1996, is
incorporated herein by reference to Exhibit 10.25.2 to the Registration
Statement. (1)
<PAGE>
PanAmSat Corporation
10.4 Second Amended and Restated Transponder Purchase and Sale Agreement, dated
as of March 5, 1998, between PanAmSat International and NetSat Servicos
Ltda. is incorporated herein by reference to Exhibit 10.28 to the
Registration Statement. (1)
10.5 First Amendment to Amended and Restated Collateral Trust Agreement
constituting Exhibit 10.31 to PanAmSat's Quarterly Report on Form 10-Q for
the period ended June 30, 1997, dated April 30, 1998 by and among PanAmSat,
Hughes Communications, Inc., Satellite Company, LLC, Grupo Televisa, S.A.
and IBJ Schroder Bank & Trust Company is incorporated herein by reference
to Exhibit 3 to Amendment No. 1 to the Schedule 13D filed by Hughes
Communications, Inc. on May 1, 1998.
10.6 Agreement, dated as of July 10, 1998, between PanAmSat and Robert A.
Bednarek is incorporated herein by reference to Exhibit 10.46 to the
Registration Statement.
10.7 Agreement, dated as of July 10, 1998, between PanAmSat and James W.
Cuminale is incorporated herein by reference to Exhibit 10.47 to the
Registration Statement.
10.8 Transponder Service Agreement, dated as of March 5, 1998, between PanAmSat
and Sky Multi-Country Partners, is incorporated herein by reference to
Exhibit 10.51 to the Registration Statement. (1)
10.9 Transponder Service Agreement, dated as of April 30, 1998, between PanAmSat
International and Corporacion de Radio y Television del Norte de Mexico,
S.A. de C.V., is incorporated herein by reference to Exhibit 10.52 to the
Registration Statement. (1)
27 Financial Data Schedule.
(1) Portions of this Exhibit have been omitted pursuant to an order of the
Securities and Exchange Commission granting confidential treatment with
respect thereto.
(b) Reports on Form 8-K.
Registrant filed a Current Report on Form 8-K, dated July 21, 1998, in
respect of the Registration Rights Agreement, dated as of January 16, 1998,
among Registrant, Morgan Stanley & Co. Incorporated, Donaldson, Lufkin &
Jenrette Securities Corporation, Salomon Brothers Inc, Citicorp Securities,
Inc., BancAmerica Robertson Stephens and J.P. Morgan Securities Inc.
relating to certain debt securities of Registrant (Items 5 and 7(c)).
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PanAmSat Corporation
Date: August 14, 1998 /s/ Kenneth N. Heintz
----------------------------
Kenneth N. Heintz
Executive Vice President and
Chief Financial Officer
and a Duly Authorized
Officer of the Company
<PAGE>
EXHIBIT INDEX
Sequentially
Exhibit No. Numbered Page
- ---------- -------------
4.1 Agreement, dated as of May 1, 1998, by and among
PanAmSat and the former holders of Class A Common
Stock of PanAmSat International Systems, Inc.
("PanAmSat International") is incorporated herein
by reference to Exhibit 4.2.2 to PanAmSat's
Registration Statement on Form S-4 (Registration
No. 333-56227) (the "Registration Statement").
4.2 Registration Rights Agreement, dated as of January
16, 1998, among PanAmSat, Morgan Stanley & Co.
Incorporated, Donaldson, Lufkin & Jenrette
Securities Corporation, Salomon Brothers Inc,
Citicorp Securities, Inc., BancAmerica Robertson
Stephens and J.P. Morgan Securities Inc. is
incorporated herein by reference to Exhibit 4.5 to
PanAmSat's Current Report on Form 8-K dated July
21, 1998.
4.3 Letter Agreement dated July 22, 1998, between
Hughes Electronics Corporation and PanAmSat.
10.1 Amendment to Letter Agreement, dated March 5,
1998, among The News Corporation Limited, Globo
Participacoes, Ltd., Grupo Televisa, S.A., and
PanAmSat International, constituting Exhibit
10.7.2 to PanAmSat International's Annual Report
on Form 10-K for the fiscal year ended December
31, 1996, is incorporated herein by reference to
Exhibit 10.18.3 to the Registration Statement. (1)
10.2 Second Amended and Restated Contract for PanAmSat
Program, dated April 1, 1998, between PanAmSat
International and Space Systems/Loral, Inc. is
incorporated herein by reference to Exhibit
10.19.2 to the Registration Statement. (1)
10.3 Amendment to Full-Time Transponder Service
Agreement From PAS-3 (European Beam), dated as of
March 5, 1998, between PanAmSat International and
Televisa, S.A., constituting Exhibit 10.16 to
PanAmSat International's Quarterly Report on Form
10-Q for the period ended September 30, 1996, is
incorporated herein by reference to Exhibit
10.25.2 to the Registration Statement. (1)
10.4 Second Amended and Restated Transponder Purchase
and Sale Agreement, dated as of March 5, 1998,
between PanAmSat International and NetSat Servicos
Ltda. is incorporated herein by reference to
Exhibit 10.28 to the Registration Statement. (1)
10.5 First Amendment to Amended and Restated Collateral
Trust Agreement constituting Exhibit 10.31 to
PanAmSat's Quarterly Report on Form 10-Q for the
period ended June 30, 1997, dated April 30, 1998
by and among PanAmSat, Hughes Communications,
Inc., Satellite Company, LLC, Grupo Televisa, S.A.
and IBJ Schroder Bank & Trust Company is
incorporated herein by reference to Exhibit 3 to
Amendment No. 1 to the Schedule 13D filed by
Hughes Communications, Inc. on May 1, 1998.
10.6 Agreement, dated as of July 10, 1998, between
PanAmSat and Robert A. Bednarek is incorporated
herein by reference to Exhibit 10.46 to the
Registration Statement.
10.7 Agreement, dated as of July 10, 1998, between
PanAmSat and James W. Cuminale is incorporated
herein by reference to Exhibit 10.47 to the
Registration Statement.
10.8 Transponder Service Agreement, dated as of March
5, 1998, between PanAmSat and Sky Multi-Country
Partners, is incorporated herein by reference to
Exhibit 10.51 to the Registration Statement. (1)
10.9 Transponder Service Agreement, dated as of April
30, 1998, between PanAmSat International and
Corporacion de Radio y Television del Norte de
Mexico, S.A. de C.V., is incorporated herein by
reference to Exhibit 10.52 to the Registration
Statement. (1)
27 Financial Data Schedule.
(1) Portions of this Exhibit have been omitted
pursuant to an order of the Securities and
Exchange Commission granting confidential
treatment with respect thereto.
EXHIBIT 4.3
[Letterhead of Hughes Electronics Corporation]
July 22, 1998
PanAmSat Corporation
One Pickwick Plaza
Greenwich, Connecticut 06880
Attn: Michael Inglese
Vice President, Finance
Dear Mr. Inglese:
Reference is hereby made to that certain Loan Agreement, dated as of May
15, 1997 between PanAmSat Corporation ("PanAmSat") and Hughes Electronics
Corporation ("Hughes") (as from time to time amended, the "Hughes Loan
Agreement") pursuant to which Hughes has extended a credit facility in the
amount of $1,725,000,000 to PanAmSat evidenced by the promissory note dated May
15, 1997 (as from time to time amended, the "Hughes Note").
Reference is also made to that certain Credit Agreement dated as of
February 20, 1998, with certain financial institutions (collectively, including
without limitation, any entity acquiring the rights of a "Lender" under the
Credit Agreement, the "Lenders"), each of the Co-Documentation Agents party
thereto, and the Administrative Agent (as from time to time amended, the "Senior
Credit Agreement"), providing among other things for the making of advances by
the Lenders to PanAmSat (the "Advances") in an aggregate principal amount at any
one time outstanding up to $500,000,000.
Reference is also made to that certain Subordination and Amendment
Agreement dated as of February 20, 1998 among PanAmSat, Hughes and the
Administrative Agent for the Lenders, providing that Hughes subordinate its
rights under the Hughes Note to the rights of the Lenders in connection with the
Advances.
You have advised us that you intend to issue a maximum of $500,000,000
maximum principal amount short-term unsecured notes (the "Notes", collectively
the "Commercial Paper Program"), to rank pari passu with the Company's other
unsecured and unsubordinated indebtedness. You have also advised us that the
Notes are exempt from registration under the Securities Act of 1933, as amended,
pursuant to Section 4(2) thereof. The Notes will carry maturity dates of less
than 270 days from the date of issuance.
You have requested that Hughes (1) consent to the issuance of the Notes
under the Hughes Loan Agreement, and (2) agree to subordinate its rights under
the Hughes Note to the Notes in a manner that is substantially similar to the
subordination granted in favor of the Advances.
In consideration of the foregoing, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
<PAGE>
1. Hughes hereby consents to the issuance of the Notes by PanAmSat on
substantially the terms and conditions set forth in the Private Placement
Memorandum attached hereto.
2. Hughes hereby agrees to subordinate its rights under the Hughes Note to
the Notes on substantially the same terms as its agreement to subordinate to the
Advances as set forth in the Subordination Agreement, including, but not limited
to, Sections 3, 4, 5 and 7 of thereof.
3. PanAmSat agrees that so long as the Hughes Note remains outstanding (a)
it shall obtain Hughes' prior written consent to any material modifications or
amendments to the Commercial Paper Program; (b) the aggregate principal amount
outstanding under the Notes combined with the aggregate principal amount
outstanding under the Advances shall not exceed $500,000,000; and (c) none of
the Notes shall have a maturity date beyond the last maturity date of any of the
Advances.
4. So long as Notes are outstanding and Moody's Investors Services
("Moody's) is rating the Notes, Hughes agrees to notify Moody's in writing at
least 30 days prior to any amendment, modification or termination of this letter
agreement.
5. This letter agreement shall be deemed an amendment or modification to
the Loan Agreement, and shall be subject to all of the terms and conditions
contained therein.
The Loan Agreement shall remain unchanged in all other respects.
If you are in agreement with the foregoing, kindly sign this letter on the
line provided below and return a copy to our attention.
HUGHES ELECTRONICS CORPORATION
By: Edward B. Clarkson
--------------------------
Name: Edward B. Clarkson
Title: Assistant Treasurer
Agreed and acknowledged as of July 22, 1998
PANAMSAT CORPORATION
By: Michael J. Inglese
--------------------------
Name: Michael J. Inglese
Title: Vice President, Finance
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This financial data schedule contains summary financial information extracted
from the Consolidated Balance Sheet and related Consolidated Statement of
Operations as of and for the six month period ending June 30, 1998 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 102,655
<SECURITIES> 0
<RECEIVABLES> 78,495
<ALLOWANCES> (435)
<INVENTORY> 0
<CURRENT-ASSETS> 504,782
<PP&E> 3,144,135
<DEPRECIATION> (480,631)
<TOTAL-ASSETS> 5,918,075
<CURRENT-LIABILITIES> 222,368
<BONDS> 759,208
0
0
<COMMON> 1,492
<OTHER-SE> 2,624,363
<TOTAL-LIABILITY-AND-EQUITY> 5,918,075
<SALES> 384,105
<TOTAL-REVENUES> 384,105
<CGS> 0
<TOTAL-COSTS> 225,660
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,640
<INCOME-PRETAX> 111,805
<INCOME-TAX> 48,700
<INCOME-CONTINUING> 63,105
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 63,105
<EPS-PRIMARY> $ .42
<EPS-DILUTED> $ .42
</TABLE>
