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 September 30, 2000
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 September 30, 2000, an aggregate of 149,640,751 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," "plan," "project," "anticipate," "expect,"
"intend," "outlook," "believe" and other similar expressions are intended to
identify forward-looking statements and information. PanAmSat Corporation (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 of launch failures, launch delays and in-orbit failures
or reduced performance; (ii) risks of government regulation; (iii) risks of
doing business internationally; (iv) risks of uninsured loss; (v) risks
associated with the Company's Internet initiative; and (vi) litigation. Such
factors are more fully described in "Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations" of this Quarterly
Report on Form 10-Q and under the caption "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (the
"Form 10-K"). Reference is also made to such other risks and uncertainties
detailed from time to time in the Company's 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.
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PANAMSAT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months Ended September 30, 2000 and 1999
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
September 30, September 30,
2000 1999
-------- --------
<S> <C> <C>
REVENUES:
Operating leases, satellite services and other $ 190,796 $ 204,953
Outright sales and sales-type leases 8,531 5,786
-------- --------
Total revenues 199,327 210,739
-------- --------
OPERATING COSTS AND EXPENSES:
Cost of outright sales and sales-type leases - -
Depreciation and amortization 83,534 70,748
Direct operating costs 40,231 25,156
Selling, general and administrative expenses 23,606 16,591
------- --------
Total operating costs and expenses 147,371 112,495
------- --------
INCOME FROM OPERATIONS 51,956 98,244
INTEREST EXPENSE, net 35,132 30,286
------- --------
INCOME BEFORE INCOME TAXES 16,824 67,958
INCOME TAXES 7,571 33,962
------- --------
NET INCOME $ 9,253 $ 33,996
------- --------
NET INCOME PER COMMON SHARE - basic and diluted
$ 0.06 $ 0.23
------- --------
Weighted average common shares outstanding 149,743 149,551
------- --------
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
3
<PAGE>
PANAMSAT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED) For the Nine Months Ended
September 30, 2000 and 1999
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
September 30, September 30,
2000 1999
-------- --------
<S> <C> <C>
REVENUES:
Operating leases, satellite services and other $ 583,514 $ 586,756
Outright sales and sales-type leases 237,166 17,874
-------- --------
Total revenues 820,680 604,630
-------- --------
OPERATING COSTS AND EXPENSES:
Cost of outright sales and sales-type leases 85,776 -
Leaseback expense, net of deferred gains - 15,391
Depreciation and amortization 238,819 206,955
Direct operating costs 109,037 76,079
Selling, general and administrative expenses 68,017 47,254
-------- --------
Total operating costs and expenses 501,649 345,679
-------- --------
INCOME FROM OPERATIONS 319,031 258,951
INTEREST EXPENSE, net 91,689 82,970
-------- --------
INCOME BEFORE INCOME TAXES 227,342 175,981
INCOME TAXES 102,304 80,952
-------- --------
NET INCOME $ 125,038 $ 95,029
-------- --------
NET INCOME PER COMMON SHARE - basic and diluted
$ 0.83 $ 0.64
-------- --------
Weighted average common shares outstanding 150,153 149,491
-------- --------
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
4
<PAGE>
PANAMSAT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 108,619 $ 117,259
Accounts receivable-net 64,664 41,941
Net investment in sales-type leases 23,947 21,814
Prepaid expenses and other (principally prepaid insurance) 52,475 26,808
Deferred income taxes 17,177 17,353
Insurance claim receivable - 33,359
----------- -----------
Total current assets 266,882 258,534
SATELLITES AND OTHER PROPERTY AND
EQUIPMENT-Net 3,261,591 3,140,014
NET INVESTMENT IN SALES-TYPE LEASES 227,559 146,147
GOODWILL-Net of amortization 2,319,859 2,368,579
DEFERRED CHARGES 104,449 71,435
----------- -----------
TOTAL ASSETS $ 6,180,340 $ 5,984,709
----------- ------------
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
5
<PAGE>
PANAMSAT CORPORATION
CONSOLIDATED BALANCE SHEETS - (continued)
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
----------- ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 81,012 $ 122,094
Deferred revenues 9,211 21,049
----------- -----------
Total Current Liabilities 90,223 143,143
DUE TO AFFILIATES (principally merger-related 1,828,447 1,797,163
indebtedness)
LONG-TERM DEBT 796,542 817,814
DEFERRED INCOME TAXES 408,001 306,922
DEFERRED CREDITS AND OTHER (principally
customer deposits and deferred revenue) 105,861 103,678
----------- -----------
TOTAL LIABILITIES 3,229,074 3,168,720
----------- -----------
COMMITMENTS AND CONTINGENCIES
6
<PAGE>
STOCKHOLDERS' EQUITY:
Common Stock, $0.01 par value -- 400,000,000
shares authorized; 149,640,751 and 149,351,786
outstanding at September 30, 2000 and December 31,
1999, respectively 1,496 1,493
Additional paid-in-capital 2,519,888 2,509,652
Retained earnings 429,882 304,844
----------- -----------
Total stockholders' equity 2,951,266 2,815,989
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY
$ 6,180,340 $ 5,984,709
----------- -----------
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
7
<PAGE>
PANAMSAT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Months Ended September 30, 2000 and 1999
(In Thousands)
<TABLE>
<CAPTION>
September 30, September 30,
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING
ACTIVITIES:
Net income $125,038 $ 95,029
Adjustments to reconcile net income to
net cash provided by operating activities:
Gross profit on sales and sales-type leases (134,178) -
Depreciation and amortization 238,819 206,955
Deferred income taxes 101,255 97,097
Amortization of gains on sale-leasebacks - (10,762)
Amortization of debt issuance costs 4,581 4,583
Provision for uncollectable receivables (1,894) (1,680)
Changes in assets and liabilities:
Collections on investments in sales-type leases 18,612 16,814
Operating leases and other receivables 18,420 23,045
Prepaid expenses and other assets (63,262) (48,181)
Accounts payable and accrued liabilities (8,265) (36,457)
Accrued operating leaseback expense - (18,624)
Deferred gains and revenues (12,989) 6,352
----------- -----------
Net cash provided by operating activities 286,137 334,171
----------- -----------
8
<PAGE>
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (including capitalized interest) (317,585) (453,296)
Early buy-out of sale-leasebacks - (245,335)
Net book value of satellites recovered through insurance 36,200 10,779
----------- -----------
Net cash used in investing activities (281,385) (687,852)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
New borrowings (principally incentive obligations in 2000) 37,695 1,440,000
Repayments of long-term debt (56,421) (1,255,000)
Repayments of incentive obligations (4,905) (4,184)
Stock issued in connection with employee benefit plans 10,239 2,157
----------- -----------
Net cash (used in)/provided by financing activities (13,392) 182,973
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (8,640) (170,708
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 117,259 177,542
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD
$ 108,619 $ 6,834
----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash received for interest $ 4,867 $ 2,810
----------- -----------
Cash paid for interest $ 149,091 $ 134,234
----------- -----------
Cash paid for taxes $ 28,981 $ 9,316
----------- -----------
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
9
<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 nine month
periods ended September 30, 2000 and 1999 have been made. Certain prior
period amounts have been reclassified to conform with the current year's
presentation. Operating results for the three and nine months ended September
30, 2000 and 1999 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 the Form 10-K.
(2) New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 requires all
derivatives to be recorded as either assets or liabilities and the
instruments to be measured at fair value. Gains or losses resulting from
changes in the values of those derivatives are to be recognized immediately
or deferred depending on the use of the derivative and whether or not it
qualifies as a hedge. In June 2000, the FASB issued SFAS No. 138, which
amends certain provisions of SFAS 133 to clarify four areas causing
difficulties in implementation. We have appointed a team to implement SFAS
133 on a global basis for the Company. This team has been implementing an
SFAS 133 compliant risk management information system, globally educating
both financial and non-financial personnel, inventorying embedded derivatives
and addressing various other SFAS 133 related issues. PanAmSat will adopt
SFAS 133 and the corresponding amendments under SFAS 138 by January 1, 2001,
as required. Our SFAS 133 team is currently determining the impact of SFAS
133 on our consolidated results of operations and financial position.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 summarizes certain of the SEC's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. The Company is required to adopt SAB 101 in the fourth quarter of
fiscal 2000. The Company does not anticipate that the adoption of SAB 101
will have a material effect on the Company's financial statements.
(3) Satellite Developments
10
<PAGE>
Reference is made to "Item 1. - Business - Overview -- The Satellites; -
Satellite Procurement and Launch Arrangements" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Satellite Deployment Plan and Planned Satellites" in the Form 10-K for a
detailed description of the Company's satellite network and satellite
deployment plan.
During the third quarter of 2000, PanAmSat successfully launched and
commenced service on the PAS-9 satellite, which brought the Company's total
fleet of satellites to 21. PanAmSat currently expects to launch PAS-1R in
November 2000, PAS-10 in the first quarter of 2001 and Galaxy IIIC in the
second quarter of 2001.
In the third quarter of 2000, the Galaxy VIII(i) satellite experienced
difficulties with its xenon ion propulsion system (XIPS), an electronic
propulsion system that is used to maintain the spacecraft's proper orbit and
attitude. The satellite is operating normally on its backup chemical
propulsion system. Without the use of XIPS, the spacecraft is expected to
reach its end-of-life in late 2002. PanAmSat intends to accelerate
depreciation of the spacecraft to reflect its revised operational life,
resulting in an increase in its projected depreciation expense beginning in
the fourth quarter of 2000 of approximately $15.0 million per quarter. The
Company's ongoing satellite deployment plan is expected to assure continuous
service for the Galaxy VIII(i) customer with the scheduled launch of the
Galaxy IIIC satellite into the same orbital location as Galaxy VIII(i) during
the second quarter of 2001. PanAmSat has reached an agreement in principle
with Galaxy Latin America, the Galaxy VIII(i) customer, to build the Galaxy
VIII(i)R replacement satellite to assure against a Galaxy IIIC launch failure
and provide for a more robust in-orbit back-up configuration.
11
<PAGE>
PANAMSAT CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company's selected operating data shown below are not necessarily indicative
of future results.
<TABLE>
<CAPTION>
SELECTED OPERATING DATA
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
(unaudited; in thousands) (unaudited; in thousands)
<S> <C> <C> <C> <C>
Operating leases, satellite services and other $190,796 $204,953 $583,514 $586,756
Outright sales and sales-type leases 8,531 5,786 237,166 17,874
Total revenues 199,327 210,739 820,680 604,630
Cost of outright sales and sales-type leases - - 85,776 -
Leaseback expense, net of deferred gains - - - 15,391
Depreciation and amortization 83,534 70,748 238,819 206,955
Direct operating and SG&A costs 63,837 41,747 177,054 123,333
Income from operations 51,956 98,244 319,031 258,951
Interest expense, net 35,132 30,286 91,689 82,970
Income taxes 7,571 33,962 102,304 80,952
</TABLE>
12
<PAGE>
PANAMSAT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Revenues. Revenues for the three months ended September 30, 2000 were
$199.3 million compared to revenues of $210.7 million for the same period in
1999. Revenues for the nine months ended September 30, 2000 were $820.7 million
compared to revenues of $604.6 million for the same period in 1999. The revenues
for the three and nine months ended September 30, 1999 include the effects of a
one-time payment to the Company of approximately $15.0 million during the third
quarter of 1999 that was associated with the termination by a customer of a
direct-to-home (DTH) video services agreement in India. Excluding the one-time
payment, revenues increased $3.3 million, or 2%, to $199.3 million for the three
months ended September 30, 2000 from $196.0 million for the same period in 1999.
Excluding the one-time payment, revenues for the nine months ended September 30,
2000 were $820.7 million, an increase of $230.8 million, or 39%, from $589.9
million for the same period in 1999. Revenues for the nine months ended
September 30, 2000 included $219.2 million of new sales and sales-type lease
transactions for which there were no comparable transactions in 1999. Revenues,
excluding new sales and sales-type leases in 2000 and the one-time payment in
1999, increased $11.6 million, or 2%, to $601.5 million for the nine months
ended September 30, 2000 from $589.9 million for the same period in 1999. These
changes are principally a result of changes in the types of service agreements
that the Company provides.
Revenues can be analyzed based on the type of service offered. The Company
provides video services which are primarily full-time, part-time and occasional
satellite services for the transmission of news, sports, entertainment and
educational programming worldwide. The Company also provides telecommunications
services which support satellite-based networks that relay voice, video and data
communications within individual countries, throughout regions and on a global
basis. Video services revenues, excluding the revenue from new sales-type lease
activity, were $136.0 million for the three months ended September 30, 2000, a
decrease of 11% from the same period in 1999. Excluding the one-time payment in
1999, video services revenues decreased 2% for the three months ended September
30, 2000. Video services revenues, excluding the revenue from new sales-type
lease activity, were $409.6 million for the nine months ended September 30,
2000, a decrease of 6% from the same period in 1999. Excluding the one-time
payment in 1999, video services revenues decreased 2% for the nine months ended
September 30, 2000. The decrease in video services revenues for the three and
nine month periods ended September 30, 2000, was due primarily to the one-time
termination payment recorded in 1999, the conversion of several operating lease
agreements into new sales-type lease agreements during 2000 and the previously
reported termination of a contract for a direct-to-home platform in India.
Telecommunications services revenues were $47.7 million for the three months
ended September 30, 2000, an increase of 3% from the same period in 1999.
Telecommunications services revenues, excluding the revenue from outright sales
activity, were $151.6 million for the nine months ended September 30, 2000, an
increase of 10% from the same period in 1999. The increase in telecommunications
services revenues for the three and nine month periods ended September 30, 2000,
was due primarily to the growth in data and Internet-related service agreements.
13
<PAGE>
Revenues can also be analyzed based on the type of agreement. Revenues from
outright sales and sales-type leases increased to $8.5 million for the three
months ended September 30, 2000, from $5.8 million for the same period in 1999.
Revenues from outright sales and sales-type leases increased to $237.2 million
for the nine months ended September 30, 2000, from $17.9 million for the same
period in 1999. The increase in revenues from outright sales and sales-type
leases for the three and nine month periods is due primarily to the revenues
from new sales and sales-type lease transactions executed during 2000. Revenues
from outright sales and sales-type leases represent substantial long-term
commitments for services, and revenues from this category of transactions are
subject to greater variation from period to period than are operating lease
revenues. Revenues from operating leases of transponders, satellite services and
other were $190.8 million for the three months ended September 30, 2000,
compared to $205.0 million for the same period in 1999. Revenues from operating
leases of transponders, satellite services and other, excluding the effects of
the one-time payment in 1999, were $190.2 million. Revenues from operating
leases of transponders, satellite services and other were $583.5 million for the
nine months ended September 30, 2000, compared to $586.8 million for the same
period in 1999. Revenues from operating leases of transponders, satellite
services and other, excluding the one-time payment in 1999, increased $11.5
million, or 2%, to $583.5 million for the nine months ended September 30, 2000,
from $572.0 million for the same period in 1999. Excluding the one-time payment
in 1999, the increase in revenues from operating leases of transponders,
satellite services and other for the three and nine month periods ended
September 30, 2000, is due primarily to increased available transponder capacity
on new satellites placed in service since the first quarter of 1999, offset by
the conversion of several operating lease agreements into new sales-type lease
agreements in 2000.
Cost of Outright Sales and Sales-Type Leases. Cost of outright sales and
sales-type leases were $85.8 million for the nine months ended September 30,
2000, due to the execution of new sales and sales-type lease agreements. There
were no comparable costs for the same period in 1999.
Leaseback Expense, Net of Deferred Gain. For the three and nine months
ended September 30, 2000, the Company recorded no leaseback expense, net of
deferred gain as compared to $0.0 million and $15.4 million for the same periods
in 1999, respectively. The decrease is attributable to the exercise by the
Company of certain sale-leaseback early buy-out options during 1999.
Depreciation and Amortization. Depreciation and amortization increased
$12.8 million, or 18%, to $83.5 million for the three months ended September 30,
2000 from $70.7 million for the same period in 1999. Depreciation and
amortization for the nine months ended September 30, 2000 increased $31.8
million, or 15%, to $238.8 million from $207.0 million for the same period in
1999. The increase in depreciation and amortization for the three and nine month
periods ended September 30, 2000 is due primarily to depreciation expense
associated with the addition of five new satellites placed in service and
depreciation expense on transponders acquired through the exercise of
sale-leaseback early buy-outs.
Direct Operating and Selling, General and Administrative Costs. Direct
operating and selling, general and administrative costs increased $22.1 million,
or 53%, to $63.8 million for the
14
<PAGE>
three months ended September 30, 2000 from $41.7 million for the same period in
1999. Direct operating and selling, general and administrative costs increased
$53.8 million, or 44%, to $177.1 million for the nine months ended September 30,
2000 from $123.3 million for the same period in 1999. The increases are due
primarily to a $5.0 million one-time charge associated with a sale of real
estate, and other increases such as costs associated with the Company's
continued fleet expansion, costs associated with its NET-36 initiative, and
additional staffing to support expected growth.
Income from Operations. Income from operations was $52.0 million for the
three months ended September 30, 2000, a decrease of $46.2 million or 47%, from
$98.2 million for the same period in 1999. Income from operations was $319.0
million for the nine months ended September 30, 2000, an increase of $60.0
million or 23%, from $259.0 million for the same period in 1999. The decrease in
income from operations for the three months ended September 30, 2000, is due
primarily to depreciation expense associated with the new satellites placed in
service as well as the increase in direct operating and selling, general and
administrative costs described above. The increase in income from operations for
the nine months ended September 30, 2000, is due primarily to the gross profit
associated with the new outright sales and sales-type lease activity during
2000.
Interest Expense, Net. Interest expense, net increased $4.8 million, or
16%, to $35.1 million for the three months ended September 30, 2000, from $30.3
million for the same period in 1999. Interest expense, net increased $8.7
million, or 11%, to $91.7 million for the nine months ended September 30, 2000,
from $83.0 million for the same period in 1999. These increases are due
primarily to an increase in interest rates during 2000 partially offset by lower
borrowing levels in 2000.
Income Taxes. Income taxes decreased $26.4 million, or 78%, to $7.6 million
for the three months ended September 30, 2000, from $34.0 million for the same
period in 1999. Income taxes increased $21.3 million, or 26%, to $102.3 million
for the nine months ended September 30, 2000, from $81.0 million for the same
period in 1999. The decrease in income taxes for the three months ended
September 30, 2000, is due primarily to the decrease in income from operations
described above. The increase in income taxes for the nine months ended
September 30, 2000, is due primarily to the gross profit from new outright sales
and sales-type lease activity.
Satellite Developments. Reference is made to "Item 1. - Business - Overview
-The Satellites; - Satellite Procurement and Launch Arrangements" and "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Satellite Deployment Plan and Planned Satellites" in the Form 10-K
for a detailed description of the Company's satellite network and satellite
deployment plan.
During the third quarter of 2000, PanAmSat successfully launched and
commenced service on the PAS-9 satellite, which brought the Company's total
fleet of satellites to 21. PanAmSat currently expects to launch PAS-1R in
November 2000, PAS-10 in the first quarter of 2001 and Galaxy IIIC in the second
quarter of 2001.
15
<PAGE>
In the third quarter of 2000, the Galaxy VIII(i) satellite experienced
difficulties with its xenon ion propulsion system (XIPS), an electronic
propulsion system that is used to maintain the spacecraft's proper orbit and
attitude. The satellite is operating normally on its backup chemical propulsion
system. Without the use of XIPS, the spacecraft is expected to reach its
end-of-life in late 2002. PanAmSat intends to accelerate depreciation of the
spacecraft to reflect its revised operational life, resulting in an increase in
its projected depreciation expense beginning in the fourth quarter of 2000 of
approximately $15.0 million per quarter. The Company's ongoing satellite
deployment plan is expected to assure continuous service for the Galaxy VIII(i)
customer with the scheduled launch of the Galaxy IIIC satellite into the same
orbital location as Galaxy VIII(i) during the second quarter of 2001. PanAmSat
has reached an agreement in principle with Galaxy Latin America, the Galaxy
VIII(i) customer, to build the Galaxy VIII(i)R replacement satellite to assure
against a Galaxy IIIC launch failure and provide for a more robust in-orbit
back-up configuration.
Financial Condition. In addition to a term loan in the amount of $1.725
billion from Hughes Electronics Corporation, an affiliate of the Company, at
September 30, 2000, the Company also had long-term indebtedness of $796.5
million (comprised of $750.0 million of public notes and $46.5 million of notes
assumed in connection with the exercise of an early buy-out opportunity under a
sale-leaseback transaction).
The significant cash outlays for the Company will continue to be primarily
capital expenditures related to the construction and launch of satellites, debt
service costs and potential acquisitions. The Company now has three satellites
under various stages of development and has begun to implement its Internet
initiative, NET-36, for which the Company has budgeted capital expenditures. As
of September 30, 2000, the Company will require approximately $150.0 million in
additional capital expenditures to construct, insure and launch the satellites
and plans to incur up to $250.0 million in capital and operating expenses over
the next two years to deploy NET-36. The Company expects that the largest
portion of its investment in NET-36 will be used to deploy PanAmSat-owned
antennas and servers at high-speed Internet service providers, including cable
headends and digital subscriber line provider sites.
Assuming satellites in development are successfully launched, services on
the satellites commence on the schedule currently contemplated and NET-36 is
deployed as and when expected, the Company believes that amounts available under
its $500.0 million revolving credit facility with certain lenders and Citicorp
USA, Inc., as administrative agent (the "Revolving Credit Facility"), vendor
financing, future cash flow from operations and cash on hand will be sufficient
to fund its operations and its remaining costs for the construction and launch
of satellites currently under development for the next twelve months and for the
deployment of NET-36 for the next twenty-four months. There can be no assurance,
however, that the Company's assumptions with respect to costs for future
construction and launch of its satellites and costs to deploy NET-36 will be
correct, or that amounts available under the Revolving Credit Facility, vendor
financing, future cash flow from operations and cash on hand will be sufficient
to cover any shortfalls in funding for (i) launches caused by launch failures,
(ii) cost overruns, (iii) delays, (iv) capacity shortages, (v) NET-36 technical
integration problems, (vi) additional costs associated with NET-36 strategic
relationships or (vii) other unanticipated expenses. In addition, if the Company
were to consummate any strategic transactions or undertake any other
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projects requiring significant capital expenditures, it may be required to seek
additional financing. If circumstances were to require the Company to incur
additional indebtedness, the ability of the Company to incur any such additional
indebtedness would be subject to the terms of the Company's outstanding
indebtedness. The failure to obtain such financing could have a material adverse
effect on the Company's operations and its ability to accomplish its business
plan.
Net cash provided by operating activities decreased to $286.1 million for
the nine months ended September 30, 2000, from $334.2 million for the nine
months ended September 30, 1999. The decrease in 2000 was primarily attributable
to lower margins associated with operating leases offset by the gross profit on
sales and sales-type leases.
Net cash used in investing activities decreased to $281.4 million for the
nine months ended September 30, 2000, from $687.9 million for the nine months
ended September 30, 1999. The decrease in 2000 was primarily attributable to
lower capital expenditures in 2000 for satellite systems under development and
to no comparable sale-leaseback early buy-out transactions in the first nine
months of 2000.
Net cash used in financing activities was $13.4 million for the nine months
ended September 30, 2000, compared to net cash provided by financing activities
of $183.0 million for the nine months ended September 30, 1999. The decrease in
2000 was primarily due to lower net borrowings as a result of the lower level of
cash required to fund capital expenditures and early buy-out opportunities in
2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk. Other than as described below, there have been no material
changes regarding the Company's market risk position from the information
provided in the Form 10-K. The potential fair value change resulting from a
hypothetical 10% adverse fluctuation in interest rates related to PanAmSat's
sales-type receivable balances would be approximately $8.8 million as of
September 30, 2000.
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PANAMSAT CORPORATION
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No.
10.40.1 Amended and Restated Galaxy VIII(i) Transponder Lease Agreement
between PanAmSat Corporation and California Broadcast Center, LLC,
effective as of June 30, 2000 (1)
10.61.1 Contract No. PAS-SL-00033-01 Amendment Number 1 (effective July
20, 2000) to the Contract for Launch Services, dated as of March
15, 2000, between Sea Launch Limited Partnership and PanAmSat
Corporation. (1)
10.63. Galaxy IIIC Transponder Lease Agreement between PanAmSat
Corporation and California Broadcast Center, LLC, effective as of
June 30, 2000 (1)
27 Financial Data Schedule.
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the
quarter for which this report is filed.
-------------------
(1) Portions of this Exhibit have been omitted pursuant to an application for
confidential treatment filew with the Securities and Exchange Commission under
separate cover.
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SIGNATURE
Pursuant to the requirements of the Securities 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: November 14, 2000 /s/ Michael J. Inglese
----------------------------
Michael J. Inglese
Senior Vice President and
Chief Financial Officer
and a Duly Authorized
Officer of the Company
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