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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT ON FORM 10-K
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 COMMISSION FILE NO. 0-22531
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PANAMSAT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 95-4607698
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
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ONE PICKWICK PLAZA, GREENWICH, CONNECTICUT 06830
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (203) 622-6664
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
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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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [_]
As of March 20, 2000, the registrant had outstanding 149,446,936 shares of
Common Stock. As of such date, the aggregate market value of voting stock held
by non-affiliates of the registrant was approximately $857,319,950.
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DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in the Proxy Statement for the Annual Meeting
of Stockholders of PanAmSat Corporation, a Delaware corporation ("PanAmSat" or
the "Company") scheduled to be held on June 1, 2000 (to be filed not later
than 120 days after the end of the Company's fiscal year) is incorporated by
reference into Part III hereof.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Annual Report on Form 10-K contains certain forward-looking information
under the captions "Item 1. Business" and "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations." The Private
Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain
forward-looking statements so long as such information is identified as
forward-looking and is accompanied by meaningful cautionary statements
identifying important factors that could cause actual results to differ
materially from those projected in the information. When used in this Annual
Report on Form 10-K, the words "estimate," "project," "plan," "anticipate,"
"expect," "intend," "outlook," "believe," and other similar expressions are
intended to identify forward-looking statements and information. Actual
results may differ materially from anticipated results due to certain risks
and uncertainties, including without limitation: (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)
risk of uninsured loss, (v) risks associated with the Internet Initiative and
(vi) litigation. Such factors are more fully described under the caption "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations." PanAmSat cautions that the foregoing list of important factors is
not exclusive. Further, PanAmSat 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.
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ITEM 1. BUSINESS
OVERVIEW
PanAmSat is the world's largest commercial provider of global satellite-
based communications services. The Company commenced operations on May 16,
1997 upon the merger of PAS Merger Corp. and PanAmSat International, then
operating under its previous name PanAmSat Corporation, and the contribution
of the Galaxy Satellite Services division of Hughes Communications, Inc. (the
"Merger"). For a more detailed description of the Merger, see Note 1 to the
Consolidated Financial Statements.
PanAmSat is a leading provider of satellite capacity for television program
distribution to network, cable and other redistribution sources in the United
States, Latin America, Africa, South Asia, the Asia-Pacific region, the Middle
East, the Caribbean and Europe. PanAmSat's global network of 20 satellites
provides state-of-the-art video distribution and telecommunications services
for customers worldwide. Currently, an aggregate of more than 125 million
cable television households worldwide are capable of receiving television
programming carried by PanAmSat satellites. PanAmSat satellites also serve as
the transmission platforms for six direct-to-home ("DTH") services worldwide.
The Company also provides satellite services and related technical support for
live transmissions for news and special events coverage.
In addition, PanAmSat offers satellite services to telecommunications
carriers, corporations and Internet service providers ("ISPs") for the
provision of satellite-based communications networks, including private
corporate networks employing very small aperture terminals ("VSATs") and
international access to the U.S. Internet backbone. Approximately 50 ISPs in
countries outside of the United States access the U.S. Internet backbone via
PanAmSat satellites.
The Company operates its business as a single operating segment and
maintains comprehensive and discrete financial information only for this
single operating segment. However, the Company does compile summary revenue
information by geographical region and for the three communications services
areas that it currently serves, namely: video services, telecommunications
services and other services, and has included such information in this annual
report for additional analysis.
GENERAL
PanAmSat operates the world's largest commercial network of geostationary
earth orbit ("GSO") communications satellites. GSO satellites are located in
orbit approximately 22,300 miles above the Earth and can blanket large
geographic areas with signal coverage. The Company's satellite network
currently consists of 20 GSO satellites and is expected to consist of 24
satellites by mid-2001, with the launch of five additional satellites planned
for 2000 and 2001 and the retirement of one existing satellite. Global
coverage and an availability of end-to-end services including satellite
capacity, teleport services, network services and Internet services enable the
Company to offer one-stop shopping for global communications customers.
Communications satellites typically are evaluated on (i) their footprint,
(ii) signal quality and (iii) transponder availability. Footprint is a
measurement of the breadth of a satellite's coverage. A key measurement of
signal quality is the intensity of transmission power in the coverage areas. A
higher power signal enables a customer to use smaller, lower-cost antennas on
the ground. Transponder availability is determined by considering a
satellite's operational "lifetime" as well as the number of transponders
capable of providing service.
Each of the Company's satellites is custom-designed to provide high
transmission power and comprehensive coverage over specific geographic areas.
Several of the Company's satellites are designed to provide greater power and
carry larger payloads, including in most cases the ability to offer "hybrid"
services in both the C-band and Ku-band. C-band is a range of relatively low
frequencies used for commercial satellite services. In the United States, C-
band is used primarily for analog cable and broadcast distributions and also
is used for broadband networks and telecommunications in other regions of the
world. C-band requires the use of relatively
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large antennas to receive signals on the ground. Ku-band is a range of
relatively high frequencies used for commercial satellite communications. Ku-
band is widely used for distribution of digital broadcast television and DTH
services, as well as business communications, and allows the use of relatively
small antennas to receive the signals.
Each of the Company's new satellites has been constructed with a design life
of 15 years, although there can be no assurance that the contractual design
life of any individual satellite will be 15 years. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations--Risk
Factors--Risk of In-Orbit Failure or Reduced Performance." The Company's
launch and construction strategy is to replace existing satellites as they
approach the end of their useful lives or encounter other reductions to their
useful lives with technologically advanced satellites that meet customer
needs. In addition, the Company seeks to expand its global coverage, capacity
and service offerings by deploying satellites into new orbital locations. In
most instances, a "retired" satellite should be capable of continuing to offer
services beyond the time that its replacement is deployed. In these cases, the
Company typically co-locates the older satellite with the new satellite or
moves the older satellite to an interim location, in each case subject to
applicable U.S. and non-U.S. regulatory approvals. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations--Risk
Factors--Risks of Government Regulation."
THE SATELLITES
The Company's satellites are distributed in a global network that provides
coverage in the four regions of the world: (i) the U. S. Domestic Region, (ii)
the Atlantic Ocean Region ("AOR"), (iii) the Pacific Ocean Region ("POR") and
(iv) the Indian Ocean Region ("IOR").
U.S. Domestic Region
Ten satellites currently serve this region: Galaxy IR, Galaxy V, Galaxy VI,
Galaxy IX, Galaxy VII, Galaxy IIIR, SBS-4, SBS-6, Galaxy XI and Galaxy XR.
These satellites offer services in either solely the C-band or both the C-band
and the Ku-band. SBS-4 and SBS-6 offer services solely in the Ku-band. Galaxy
IR, Galaxy V, Galaxy VI and Galaxy IX provide services solely in the C-band.
Galaxy XI, Galaxy XR, Galaxy IIIR and Galaxy VII can provide services in the
C-band or the Ku-band.
Some of the Company's satellites, including Galaxy IR, Galaxy V, Galaxy VII,
Galaxy IX and Galaxy XI, are members of a "cable neighborhood." PanAmSat
pioneered the concept of "cable neighborhood" in the satellite services
industry when it secured key cable programming for Galaxy I, its first
satellite. This prompted cable operators to invest in ground equipment focused
on Galaxy I's orbital position. Once a core group of cable operators aligned
their dishes with the satellite, incremental capacity could be sold at higher
rates to new programmers that wanted to enter the market. This "cable
neighborhood" concept continues to be an important business strategy for the
Company.
Atlantic Ocean Region
Six satellites currently serve this region: PAS-l, PAS-3, PAS-5, PAS-6, PAS-
6B and Galaxy VIII-I. PAS-6 currently serves as back-up for PAS-6B. Each of
these satellites provides services in the C-band and the Ku-band, with the
exception of PAS-6B and Galaxy VIII-I, which are Ku-band satellites. The
Company has created cable neighborhoods on PAS-l, PAS-3 and PAS-5.
Pacific Ocean Region
PanAmSat currently has two satellites in this region: PAS-2 and PAS-8. Each
of these satellites contains C-band and Ku-band transponders. The Company has
created a cable neighborhood on PAS-2.
Indian Ocean Region
PanAmSat currently has two satellites in this region: PAS-4 and PAS-7. Each
of these satellites contains C-band and Ku-band transponders. The Company has
created a cable neighborhood on PAS-4.
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For a description of the services generally provided by these satellites see
"Services" and for a discussion of the Company's planned satellites, see "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations--Satellite Deployment Plan and Planned Satellites" and "--Risk
Factors--Risk of In-Orbit Failure or Reduced Performance."
SATELLITE PROCUREMENT AND LAUNCH ARRANGEMENTS
Satellite Procurement. The Company has five satellites under construction
and development with Hughes Space and Communications Company ("HSC"),
currently an affiliate of the Company. In addition, the Company has an option
to order up to two additional satellites from HSC. On January 13, 2000, Hughes
Electronics Corporation ("Hughes") announced that it had reached an agreement
to sell its satellite manufacturing businesses to The Boeing Company in a
transaction that is expected to close in the second or third quarter of 2000.
PanAmSat does not believe that this transaction will have any material effect
on its existing contracts for satellites currently under construction or its
ability to obtain future satellite contracts on terms that are commercially
reasonable.
The normal delivery time for a satellite is approximately 12 to 24 months.
Purchase agreements generally require the Company to pay the majority of the
total contract price for each satellite during the period of the satellite's
construction, with the remainder of the contract price payable in the form of
incentive payments based on orbital performance over the design life of the
satellite following launch. The contracts also provide for price reductions or
payments by the manufacturer in the event of late delivery due to the fault of
the manufacturer. Each contract provides for a limited warranty. The contracts
contain provisions that would enable the Company to terminate them with or
without cause. If terminated without cause, the Company would be subject to
substantial termination liabilities that escalate with the passage of time. If
terminated for cause, the Company would be entitled to recover any payments it
made under the contracts and certain additional damages as specified in the
contracts. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Risk Factors" and "--Liquidity and
Capital Resources."
Launch Arrangements. The Company has entered into launch contracts for the
launch of both specified and unspecified future satellites. Each of the
Company's launch contracts provides that the Company may terminate the
contract at its option, subject to payment by the Company of a specified
termination fee that increases in magnitude as the applicable launch date
approaches. In addition, in the event of the failure of any launch, the
Company may exercise the right to obtain a replacement launch within a
specified period following the Company's request for re-launch. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Risk Factors--Risk of Launch Failure," and "--Risk of Launch
Delays."
CONTROL OF SATELLITES AFTER LAUNCH
Once a satellite is placed at its orbital location, ground stations control
it until the end of its in-orbit lifetime. PanAmSat generally provides
telemetry, tracking and control services ("TT&C") for its own satellites, as
well as for certain satellites owned or operated by other entities.
INSURANCE
Launch Insurance. PanAmSat maintains launch insurance with respect to its
satellites in an amount approximately equal to the unamortized construction,
launch and launch insurance costs for each of its satellites at the initial
date of coverage.
PanAmSat's existing launch insurance policies cover claims arising after a
launch for a period of three to five years, with newer policies having longer
coverage periods than older policies. Such coverage includes not only
catastrophic loss of a satellite during launch, but also the failure of a
satellite to obtain proper orbit, or to perform in accordance with design
specifications once in orbit. The terms of the policies generally provide for
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payment of the full insured amount if 50% or more of a satellite's
communications capacity is lost within the policy period, and, subject to
certain deductibles, partial payment for losses of less than 50% of the
satellite's communications capacity within the coverage period.
The insurance policies have standard commercial launch insurance provisions
and customary exclusions for (i) military or similar actions, (ii) laser,
directed-energy or nuclear anti-satellite devices, (iii) insurrection and
similar acts or governmental action to prevent such acts, (iv) governmental
confiscation, (v) nuclear reaction or radiation contamination, (vi) willful or
intentional acts of PanAmSat or its contractors, (vii) loss of market, loss of
revenue, extra expenses, incidental and consequential damages, and (viii)
third-party claims against PanAmSat. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "--Risk Factors--Risk of Uninsured Loss."
The Company has obtained launch insurance for each of the satellites
included in the Satellite Deployment Plan (as defined below), plus two
additional undesignated satellites. There can be no assurance that the Company
will be able to obtain insurance for new satellites on terms comparable to the
terms of policies covering satellites in the Satellite Deployment Plan.
In-orbit Insurance. PanAmSat typically obtains in-orbit insurance in advance
of the expiration of the relevant launch insurance policy. Coverage under
these in-orbit policies commences on the expiration of the launch insurance
policy. Typical in-orbit insurance periods run for a period of one year and
are renewed annually. PanAmSat generally obtains in-orbit insurance with
respect to its satellites in an initial amount approximately equal to the
unamortized construction, launch and insurance costs for each of its
satellites. The amount of in-orbit insurance in force with respect to each of
PanAmSat's satellites generally decreases over time, typically based on the
declining book value of the satellite.
PanAmSat generally does not insure against lost revenues in the event of a
total or partial loss of the communications capacity of a satellite. See "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations--Risk Factors--Risk of Uninsured Loss." The Company does, however,
purchase insurance to cover sales-type lease receivables when revenues have
been recognized in connection with sales-type lease arrangements and to cover
its obligations related to performance warranty provisions related to
transponders sold outright.
Coverage under PanAmSat's in-orbit insurance policies includes claims
arising from occurrences after the expiration of the relevant launch insurance
policy. The insurance coverage includes the failure of a satellite to continue
to perform in accordance with design specifications. Payments in respect of
lost communications capacity are calculated in the same manner as under the
launch insurance policies. Partial failures or anomalies which occur during a
policy period that do not give rise to a claim may be excluded in renewal
policies. PanAmSat's in-orbit policies typically include customary commercial
satellite insurance exclusions similar to those contained in its launch
policies. Insurance may not be available for conditions detected in a prior
policy period that do not result in losses during the policy period.
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SERVICES
PanAmSat operates its business as a single operating segment and only
maintains comprehensive and discrete financial information for this single
operating segment. However, the Company compiles summary revenue information
by geographical region and for the three communications service areas it
serves: video services, telecommunications services and other services, and
has included such information in this annual report for additional analysis.
In the years ended December 31, 1999 and December 31, 1998, PanAmSat's
revenues of $810.6 million and revenues of $767.3 million, respectively, were
derived from these service areas as follows:
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PERCENTAGE PERCENTAGE
OF 1999 OF 1998
SERVICES REVENUES REVENUES
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Video Services............................................ 72% 73%
Telecommunications Services............................... 23% 21%
Other Services............................................ 5% 6%
Total..................................................... 100% 100%
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Revenues derived from Hughes Electronics, currently an affiliate of the
Company, and its affiliates comprised approximately 17% of PanAmSat's revenues
in 1999, making Hughes Electronics and its affiliates the Company's largest
customer. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations."
VIDEO SERVICES
PanAmSat's Video Services provide long-term, full-time, part-time and
occasional satellite services for the transmission of news, sports,
entertainment and educational programming worldwide. PanAmSat's Video Services
are comprised of four categories: (i) video distribution services, (ii) DTH
services, (iii) special events services and (iv) contribution services.
Video Distribution Services. PanAmSat's primary video distribution service
is the full-time transmission of television programming to cable systems,
network affiliates and other redistribution systems. Certain PanAmSat
satellites contain broad C-band beams that deliver dozens of television
channels to these redistribution systems. PanAmSat generally provides video
distribution services under long-term contracts for full or partial
transponder usage and digital channels. The Company also offers bundled,
value-added services that include satellite capacity, digital encoding of
video channels and, if required, uplinking and downlinking services to
PanAmSat satellites from the Company's teleport facilities.
PanAmSat currently operates satellites for the distribution of television
programming to cable and other redistribution systems in the United States,
Latin America, Africa, South Asia and the Asia-Pacific region. The Company
creates "video neighborhoods" (an extension of the cable neighborhood concept)
on these satellites with dozens of popular television channels. Cable and
other redistribution systems then install antennas to access the popular
channels for their subscribers. Several of the Company's Galaxy satellites
deliver television programming to substantially all of the United States'
cable systems. The Ku-band beams on several of the Company's satellites are
also used for video distribution to cable systems and network affiliates.
PanAmSat's customers for full-time video distribution services include the
BBC, Disney, Doordarshan (India), China Central Television, Cisneros Group
(Venezuela), ESPN, NBC, Fox, Sony, Tele-Communications, Inc. (AT&T),
TimeWarner and Viacom.
U.S. law has mandated that television broadcasters begin to broadcast their
signals both conventionally and in High Definition Television ("HDTV") format.
HDTV provides a higher quality video and audio signal than conventional analog
broadcasts and requires special television and decoder equipment to be viewed.
The Company anticipates that as HDTV becomes more prevalent, its satellites
will be used for the full-time distribution of HDTV signals to cable systems,
network affiliates, DTH customers and other redistribution systems.
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DTH Services. PanAmSat creates high-power Ku-band transmission beams on
several satellites that serve as platforms for the delivery of multiple
television channels for household reception using 60-90 centimeter antennas.
PanAmSat believes there is significant demand for digital DTH services because
of limited available terrestrial television channels or cable television
service in many international markets, and in the United States, limited
ethnic or niche programming. PanAmSat's customers for DTH services include
DIRECTV, Galaxy Latin America, MultiChoice, Sky Latin America and South
African Broadcasting Corp./Sentech and Pacific D.M.
PanAmSat has arrangements with customers to operate platforms on five
satellites for six current or planned DTH services in Latin America, South
Africa and the United States. PanAmSat expands DTH service through the launch
of multiple satellites in the same orbital location.
Special Events Services. PanAmSat provides broadcasters with satellite
transmission services for the timely broadcast of news, sports and events
coverage on a short-term basis. This service is designed to enable
broadcasters to conduct on-the-scene transmissions using small, portable
antennas and to receive the transmissions at their broadcast centers or
affiliate stations. PanAmSat conducted approximately 84,000 hours of total
special events transmissions in 1999.
In December 1999, the Company transmitted 1,300 hours of events coverage and
approximately 300 satellite transmission feeds of Millennium celebrations
around the world. PanAmSat customers during the Millennium celebrations
included ABC, the BBC, CNN, Fox, NBC, Mediasat (Australia), Germany's Deutsche
Telekom and RTC; Japan's Fuji TV, Japan Telekom; South Korea's Dacom; and the
Organizacion de la Television Iberoamericana, the Latin American broadcast
union representing more than 20 countries. In addition to short-term services
for special events coverage, PanAmSat has long-term transponder service
agreements with certain satellite brokers in the United States. These
customers package domestic U.S. transponder capacity for their broadcast,
business, educational and government users.
Contribution Services. PanAmSat provides broadcasters with satellite
transmission services for the full-time transmission of news, sports and
entertainment segments to their network affiliates or broadcast centers within
the United States or around the world. PanAmSat's full-time contribution
service customers include Australian Broadcasting Corporation, CBS, CNN, NBC
and NHK (Japan).
TELECOMMUNICATIONS SERVICES
PanAmSat's Telecommunications Services support satellite-based networks that
relay voice, video and data communications within individual countries,
throughout regions and around the world. PanAmSat has designed virtually all
of its satellites for high-power, bandwidth-intensive applications that relay
large amounts of digital information among multiple sites using small, cost-
effective antennas. PanAmSat's Telecommunications Services are comprised of
four categories: (i) carrier services, (ii) private business networks (VSATs),
(iii) Internet access (ISPs) and (iv) telephony.
Carrier Services. PanAmSat provides satellite services to telecommunications
carriers licensed by one or more countries to provide voice, video and data
communications networks for businesses, governments and other users. The
Company's high-power satellites, which facilitate high information throughput
and the ability to use VSATs on the ground, have enabled emerging carriers to
introduce competitive new telecommunications services in Latin America, Africa
and Asia. In addition, PanAmSat offers value-added satellite services for
telecommunications customers that include satellite capacity and teleport
services that connect customers to U.S. terrestrial networks. PanAmSat's
carrier service customers include ImpSat, MCI-Worldcom, Microspace, Pagenet,
Sprint and Telstra (Australia).
Private Business Networks. PanAmSat provides satellite services directly to
network suppliers and businesses for the development and operation of private
business networks in the United States, Latin America, Europe, Africa and
Asia. These rooftop-to-rooftop VSAT networks provide dedicated, proprietary
one-way and two-way communications links among multiple business sites. VSAT
network customers include retail chains
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for rapid credit card authorization and inventory control, banks for the
connection of automated teller machines with processing computers and news
agencies for the timely dissemination of news and financial information. The
Company's largest single telecommunications customer is Hughes Network
Systems, Inc. ("HNS"), an affiliate of the Company, which uses the equivalent
of more than 22 U.S. domestic satellite transponders to create and operate
VSAT networks for its business customers. Other PanAmSat private business
network customers include the Associated Press, GMAC, IBM, Reuters and the
University of Southern California.
In addition, PanAmSat provides satellite services directly to businesses.
These include value-added satellite communications services, such as the
purchase and installation of on-site antennas and the design, integration,
management, operation and maintenance of business networks. These services are
provided via PanAmSat's teleports in the United States or through
subcontractors.
Internet Access. PanAmSat provides satellite services for the full-time
delivery of Internet information from the United States and other countries to
various locations around the world. PanAmSat's customers consist of
educational organizations, ISPs and companies providing direct-to-consumer
Internet applications. PanAmSat believes that its high-power domestic
satellites are well-suited for Internet service because of their ability to
deliver reliable, high-speed access to the U.S. Internet backbone, where
approximately 80 percent of all Internet data currently resides. In many
cases, PanAmSat's satellites are capable of delivering Internet data
internationally at nearly 20 times the speed of traditional telephone links.
PanAmSat currently provides Internet services to nearly 50 non-U.S. ISPs.
PanAmSat's Internet services customers include HNS, Microcom Systems (Nigeria)
and Planet Internet (New Zealand).
PanAmSat also provides SPOTbytesSM, a value-added, bundled Internet service,
that offers an integrated package of services including international
satellite capacity, uplinking services from a PanAmSat teleport and dedicated
links from the teleport to the U.S. Internet backbone. PanAmSat's SPOTbytesSM
service is marketed primarily to non-U.S. ISPs and corporations that require
high-speed access to the U.S. Internet backbone. The service is configured in
a variety of ways to provide easily scaleable, cost-effective Internet access.
Telephony. The Company provides domestic and international satellite
services for public switched telephone network ("PSTN") transmissions.
PanAmSat currently offers international satellite based telephony services to
and from Latin America. These services include (i) delivering calls from Latin
America via a PanAmSat satellite to a U.S. telephone carrier that routes the
call to its final destination within or outside of the United States, and (ii)
delivering calls delivered to PanAmSat from U.S. telephone carriers to their
final destinations within Latin America via a PanAmSat satellite. PanAmSat's
ability to provide domestic and international PSTN services is restricted by
various telecommunications regulations in most countries. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Risk Factors--Risks of Government Regulation."
OTHER SERVICES
Telemetry, Tracking and Control. PanAmSat provides TT&C services for 20
satellites owned by either PanAmSat or by other satellite operators. PanAmSat
personnel maintain proper orbital location and attitude, monitor on-board
housekeeping systems, adjust transponder levels and remotely "rewire"
satellites, if necessary, to bring back-up systems on-line in the event of a
subsystem failure. The necessary TT&C satellite commands are initiated from
PanAmSat's operations control center in Long Beach, California and are
transmitted to the satellites from PanAmSat teleport facilities located in New
York, Florida, Georgia, Colorado and California.
Galaxy Backup Capacity. As part of its video distribution service on certain
Galaxy satellites, PanAmSat offered its customers a premium service that
included back-up C-band capacity on the Galaxy VI satellite. Generally,
subject to the terms of individual contracts, these customers are entitled to
replacement capacity on Galaxy VI if a transponder failure occurs and no spare
amplifier or reserved transponder capacity were available on their current
satellite. As a result of the failure of Galaxy IV, certain customers on that
satellite are using
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Galaxy VI as an interim replacement. Galaxy VI will return to its status as an
in-orbit spare satellite when Galaxy XI commences service. For a discussion of
the Company's Satellite Deployment Plan, see "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations--Satellite
Deployment Plan and Planned Satellites" and "--Liquidity and Capital
Resources."
INTERNET INITIATIVE
In March 2000, PanAmSat announced NET/36, a high-speed network that is
expected to be capable of broadcasting IP video, audio and data simultaneously
to ISPs, including cable headends and digital subscriber line ("DSL")
providers worldwide. NET/36 is expected to provide an overlay to the
terrestrial Internet network through the use of PanAmSat's global in-orbit
satellite network. PanAmSat initially is expected to allocate up to 24 Ku-band
transponders for NET/36 worldwide. Following trial transmissions during the
second quarter of 2000, PanAmSat plans to roll-out NET/36 in the United States
and internationally during the third quarter of 2000. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "--Risk Factors" for a
discussion of the capital expenditures and risks associated with the rollout
of NET/36.
STRATEGY
PanAmSat's business strategy is based on more than 16 years of experience
providing satellite-based communications services and the Company's ongoing
analysis of expected worldwide market demand for its services. PanAmSat's
strategy is based on five key elements:
. A global satellite network;
. One-stop shopping;
. Value-added services;
. Satellite broadcasting, the Internet and telecommunications franchises;
and
. Long-term customer relationships.
Global Satellite Network
PanAmSat's core resources are its global satellite network, related
terrestrial facilities and its experienced staff of professionals. The Company
has designed many of its satellites to provide high-power transmissions that
reflect specific market demographics and customer service requirements. The
Company intends to launch five additional satellites by mid-2001. These new
satellites are designed to provide replacement and additional transmission
capacity, higher power, expanded coverage and/or extended operational life.
For a discussion of the Company's Satellite Deployment Plan, see "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Satellite Deployment Plan and Planned Satellites" and "--Liquidity
and Capital Resources."
PanAmSat's geostationary C-band and/or Ku-band satellites each provide
coverage over specific geographic areas, such as in the United States or
across ocean regions. The exact location and intended use of each of
PanAmSat's satellites is subject to various U.S. and non-U.S. governmental
approvals, coordination issues and other regulatory risks. There can be no
assurance that the Company will be successful in obtaining authorizations to
operate at all or a portion of the locations for which applications have been
submitted for new orbital slots and frequencies. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations--Risk
Factors--Risks of Government Regulation." Programmers and broadcasters that
use PanAmSat satellites for their global transmission requirements include the
BBC, China Television, Discovery Communication, NHK, Time Warner and Viacom.
The Company may seek to expand its global service offerings through
corporate acquisitions, joint ventures and other strategic transactions.
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ONE-STOP-SHOPPING
While PanAmSat has designed each satellite to reflect specific market
requirements, its global satellite network serves as a single resource for a
customer's worldwide transmission requirements. PanAmSat customers can send
their information to virtually any area on the planet using solely PanAmSat
satellites. PanAmSat believes it is the only commercial company that has the
ability to offer complete global satellite services on a one-stop-shopping
basis without contracting with another satellite services provider.
Value-Added Services
The Company employs its satellites, teleports and professional staff to
provide value-added services that are market-driven and responsive to customer
needs. In addition to satellite transmission capacity, PanAmSat's service
offerings include:
. Network design and systems engineering;
. Transmission of video channels and management of private business
network traffic from PanAmSat teleports;
. The provision of broadcast studios for video preparation and
transmission to PanAmSat satellites from major sporting and special
events sites; and
. Development of new service applications.
PanAmSat's value-added services also include bundled packages of PanAmSat
resources. In an effort to provide cost-effective digital video services
particularly for smaller programmers, for instance, PanAmSat offers a multi-
channel per carrier service in which several television channels are digitally
encoded and transmitted from a PanAmSat teleport to a specific cable
television market. In addition, the Company's SPOTbytesSM bundled Internet
service offers international satellite transmission capacity and uplinking
services from a PanAmSat teleport and dedicated links from the teleport to the
U.S. Internet backbone.
Satellite Broadcasting, the Internet and Telecommunications Franchises
A key element of PanAmSat's strategy is the creation of service franchises
that enable the Company to maintain and build its customer base. The
neighborhoods attract large numbers of ground antennas that depend on the
PanAmSat satellite for the delivery of their television programming or
communications traffic. The resulting infrastructure of ground antennas
creates a premium value for satellite transmission capacity.
PanAmSat neighborhoods include the distribution of premier television
channels to cable systems and network affiliates; DTH television services to
subscriber households; and private business networks to multiple corporate
sites. PanAmSat initially enters into service agreements with several key
programmers that serve as anchor tenants offering popular television channels
on the satellite's cable television neighborhood. A popular anchor tenant will
draw many cable head ends to point their receive dishes at a satellite. This
attracts additional programmers that want to join the programming neighborhood
with knowledge that many cable head ends will be capable of receiving their
signal with the same dish used for the anchor tenant.
Long-Term Customer Relationships
PanAmSat builds long-term relationships with its customers by understanding
their business objectives and providing long-term solutions to their satellite
transmission needs. PanAmSat derives revenues from long-term contracts with
its customers. In many cases, programmers, corporations and ISPs have
incrementally increased usage of PanAmSat satellites based on their service
experience.
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SALES AND MARKETING
PanAmSat's sales and marketing activities are separated into four general
service areas: (i) full-time program distribution; (ii) part-time and ad hoc
broadcast; (iii) business communications and (iv) long-distance telephony.
PanAmSat's headquarters has a sales and marketing department for each service
area. PanAmSat and its subsidiaries also have sales and marketing offices in
Long Beach, California, Coral Gables, Florida; Sydney, Australia; London,
England; Tokyo, Japan; Johannesburg, South Africa; Seoul, South Korea; and Hong
Kong, People's Republic of China. The senior executive officers of PanAmSat
have been directly involved in marketing to key broadcasting and business
communications customers.
COMPETITION
PanAmSat primarily competes with companies and organizations that own or
utilize satellite or terrestrial transmission facilities.
SATELLITE COMPETITORS
PanAmSat's satellite competitors are divided among four categories: (i)
companies with global GSO satellite systems; (ii) companies with proposed
global GSO satellite systems; (iii) regional or domestic GSO satellite
operators; and (iv) companies with non-GSO satellite systems. To a lesser
extent, PanAmSat may face competition from (a) companies who have proposed
regional or transoceanic GSO satellite systems, (b) value-added service
providers and (c) optical fiber cable companies.
Global GSO Satellite Systems
PanAmSat's principal global competitor is Intelsat.
Intelsat is an international treaty organization of over 140 member nations
based in Washington, D.C. that provides global satellite capacity primarily
through its members, called "signatories." Comsat Corporation ("Comsat") is the
U.S. signatory and is the only U.S. company permitted to have an investment
interest in the Intelsat system.
Intelsat competes with PanAmSat primarily on price and access. Intelsat sells
its services to its common carrier signatories, including Comsat, who re-sell
the services based on a tariff that may be below commercially reasonable
prices. In addition, Intelsat and its signatories can effectively block
PanAmSat from entering certain non-U.S. domestic markets.
Intelsat's mandate is to provide international satellite capacity on a non-
discriminatory basis to countries around the world. Since its formation in
1964, Intelsat's primary business has been the provision of satellite capacity
for long-distance telephony circuits. In recent years, Intelsat has launched
higher-powered satellites that are capable of providing video distribution, DTH
and private business network services. Intelsat traditionally has provided
capacity directly to its signatories, which then market such capacity to their
customers. Over 95 countries, however, now permit some form of direct access to
the Intelsat system and as of December 1999, the FCC began to permit limited
direct access in the United States. PanAmSat has filed a notification with the
FCC for limited direct access authority.
In March 1998, Intelsat approved the creation of an affiliate company that
would market satellite services directly to end users. In November 1998,
Intelsat transferred to this affiliate, known as New Skies Satellites N.V.
("New Skies"), five operating satellites plus a sixth satellite that was under
construction. Although ostensibly independent of Intelsat, New Skies is owned
by Intelsat and Intelsat's signatories. In light of this common ownership and
other continuing connections between the two organizations, the FCC has limited
the term during
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which New Skies is authorized to access the U.S. market to three years, and
will continue to monitor developments that demonstrate New Skies' independence
from Intelsat. The New Skies satellite network permits it to compete with the
Company globally, except in the United States.
In May 1998, the FCC granted in part and denied in part a request by Comsat
to be regulated as a non-dominant carrier. The FCC reclassified Comsat as non-
dominant in the provision of full-time video and earth station services. The
FCC determined, however, that Comsat retains market power and should continue
to be regulated as dominant in the provision of switched voice and private
line service to 63 countries and in the provision of occasional-use video
services to 142 markets. In February 1999, the FCC changed the manner in which
it regulated Comsat's pricing for these dominant carrier markets, switching
from rate of return regulation to an incentive-based pricing policy.
The U.S. House of Representatives and the U.S. Senate passed alternative
bills in 1999, H.R. 3261 and S. 376, respectively, that addressed the specific
parameters and timetables to ensure the pro-competitive privatization of
Intelsat and the deregulation of Comsat. The bills were reconciled by a
conference committee, and the reconciled version passed the Senate and the
House. The bill was signed into law by President Clinton in March 1999 and is
now in effect. In connection with its privatization, Intelsat filed on January
18, 2000, an application requesting FCC authorization and associated waivers
for its satellite system.
In September 1999, the FCC authorized Lockheed Martin Corp. ("Lockheed
Martin") to acquire up to 49 percent of Comsat's stock. PanAmSat has filed an
appeal challenging the FCC's decision. As a result of the privitization
legislation, Comsat and Lockheed Martin are also seeking to amend the
Communications Satellite Act to enable Lockheed Martin to purchase the
remaining 51 percent of Comsat's stock. The law signed by President Clinton in
March 1999 would allow the transaction to go forward.
Proposed Global GSO Satellite Systems
PanAmSat competes with companies that have announced plans to create global
GSO satellite systems, primarily through acquisitions, partnerships or equity
interests in domestic or regional satellite systems. These companies include
Loral Space and Communications Ltd. ("Loral"), GE American Communications,
Inc. ("GE Americom") and Lockheed Martin through its investment in Comsat. In
addition, Societe Europeenne des Satellites ("SES"), a Luxembourg-based
operator of ASTRA, is a leading satellite system for DTH, radio and multimedia
services in Europe. Each of these proposed systems has entered into
substantial arrangements with regional service providers to attempt to create
a global system. PanAmSat believes that these companies would compete with it
primarily on price and level of service.
Regional GSO Satellite Systems
PanAmSat also competes with numerous companies and/or governments that
operate domestic or regional satellite systems in the United States, Latin
America, Europe, the Middle East, Africa and Asia. Competition from these
satellite operators is limited to service within one country or region,
depending on the operator's satellite coverage and market activities. In the
United States, GE Americom, Loral and Comsat all currently provide fixed
satellite services on a regional or domestic basis, and are the Company's
primary competitors in this market. Other important regional competitors of
the Company include Satellites Mexicanos, S.A. de C.V., an affiliate of Loral,
in Latin America and AsiaSat, a partially-owned subsidiary of SES, in Asia.
These regional operators compete with PanAmSat primarily on price because
many are subsidized by local governments. In addition, some countries limit
PanAmSat's access in order to protect their national satellite systems. For
example, PanAmSat is restricted from selling domestic satellite services in
Mexico unless PanAmSat establishes a Mexican company for that purpose, which
is at least 51% owned by a Mexican national.
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Proposed and Operational Non-GSO Satellite Systems
The Company believes that operational non-geostationary telephony and data
systems, such as Globalstar, are not currently competitors of PanAmSat. These
non-geostationary systems are designed primarily for mobile telephony and data
services and are not expected to serve the fixed point-to-multipoint video and
telecommunications markets. Certain other non-GSO systems under development,
such as Skybridge, Spaceway and Teledesic, are also not expected to be direct
competitors of PanAmSat. However, because these systems are designed to offer
fixed satellite services such as data and Internet access, they may compete
with services offered or planned to be offered by the Company.
OTHER COMPETITORS
Proposed Regional or Transoceanic GSO Satellite Systems
Other companies have announced plans to operate regional or transoceanic
satellite systems. Entry into the international satellite communication
industry can be expensive and difficult. The construction and launch of a
satellite comparable to PanAmSat's new satellites typically takes approximately
two or more years and costs approximately $200 million to $250 million or more.
In addition, there are a limited number of orbital slots. The operation of an
international satellite communications system also requires approvals from
national telecommunications authorities and Intelsat and, in certain cases,
from regional satellite authorities. See "--Item 7. Management's Discussion and
Analysis of Financial Condition and results of Operations--Risk Factors--Risks
of Government Regulation." While the trend around the world is to liberalize
these regulatory requirements, obtaining the necessary licenses presently
involves significant time, expense and expertise.
Value-Added Service Providers
In some cases, PanAmSat competes with companies to provide value-added
satellite services. These companies typically lease large amounts of satellite
capacity from satellite operators and then use that capacity to provide value-
added communications networks for their customers. For instance, several
carriers operate VSAT networks for businesses that PanAmSat also could provide
VSAT networks. In addition, brokers in the United States offer value-added
special events services to broadcasters, businesses and educational
institutions that also could be provided by PanAmSat. Many of these value-added
service providers and brokers use PanAmSat's services to meet their customers'
demands for satellite capacity.
Optical Fiber Cables
Optical fiber cables, considered to be a reliable method of transmitting data
and telephony, generally do not compete with PanAmSat's current services. The
primary use of optical fiber cables is to carry high-volume telephony and
data/Internet communications on a point-to-point basis. Transcontinental and
intercontinental optical fiber cables currently carry video traffic, but this
service is largely for point-to-point traffic (e.g., New York to London).
Optical fiber cables are not readily usable for point-to-multipoint broadcast
applications or for the transmission of ad hoc events that require
transportable uplink earth stations. However, optical fiber is being deployed
at a rapid pace by several major companies, including Qwest Communications,
Global Crossing, Enron Corp and Level 3 Communications, and as fiber networks
are deployed it is possible that the additional bandwidth may be marketed on a
point-to-multipoint basis. If this occurs, PanAmSat may face competition from
optical fiber companies, especially for Internet and data delivery services.
For certain services, particularly point-to-point, optical fiber is less
expensive than satellite services. As a result, any competition that PanAmSat
faces from optical fiber companies is likely to be based primarily on price and
reliability.
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GOVERNMENT REGULATION
As an operator of a privately-owned global satellite system, PanAmSat is
subject to: (i) the regulatory authority of the U.S. government; (ii) the
regulatory authority of other countries in which PanAmSat operates; and (iii)
the frequency coordination process of the International Telecommunications
Union ("ITU").
U.S. REGULATION
The ownership and operation of PanAmSat's satellite system is regulated by
the FCC. PanAmSat is subject to the FCC's jurisdiction primarily for: (i) the
licensing of satellites and U.S.-based earth stations in the United States;
(ii) avoidance of interference with other radio stations; and (iii) compliance
with FCC rules governing U.S.-licensed satellite systems. Violations of the
FCC's rules can result in various sanctions including fines, loss of
authorizations, or the denial of applications for new authorizations or to
renew existing authorizations. PanAmSat is not regulated as a common carrier
and, therefore, is not subject to rate regulation or the obligation not to
discriminate among customers, and operates with minimal governmental scrutiny
of its business decisions. PanAmSat must pay FCC filing fees in connection
with its space station and earth station applications; annual regulatory fees
that are intended to defray the FCC's regulatory expenses; and, to the extent
PanAmSat is deemed to be providing interstate or international
telecommunications, universal service contributions.
Authorization to Launch and Operate Satellites. The FCC authorizes satellite
operators who meet its legal, technical and financial qualification
requirements to launch and operate satellites. Under the FCC's financial
qualification rules, an applicant must demonstrate that it has sufficient
funds to construct, launch, and operate each requested satellite for one year.
Licenses are issued for an initial ten-year term and the FCC gives licensees a
"replacement expectancy" with respect to the replacement of their satellites.
At the end of a ten-year license term, a satellite that has not been replaced,
or that has been re-located to another orbital location following its
replacement, may be able to continue operating under a grant of special
temporary authority. These operations, however, are secondary, and there can
be no assurance that the satellite will be permitted to continue operating
after the expiration of the initial ten-year license term. The FCC's rules and
policies limit the number of expansion satellite authorizations that may be
granted for the same frequency band at one time.
PanAmSat has final FCC authorization for sixteen satellites operating in the
C-band, the Ku-band, or both bands, and a non-final authorization for a hybrid
C/Ku-band satellite. PanAmSat has final FCC authorization for one additional
satellite, but the authorization does not cover certain design changes that
are the subject of a pending modification application. PanAmSat has special
temporary authority to operate the satellite as modified on an interim basis.
In addition, PanAmSat has a final authorization to operate nine satellites in
the Ka-band: (one in the AOR, to be located at 58 (degrees) W.L.; two in the
POR, to be located at 149 (degrees) E.L. and 173 (degrees) E.L.; four in the
IOR, to be located at 36 (degrees) E.L., 40 (degrees) E.L., 48 (degrees) E.L.,
and 124.5 (degrees) E.L.; and two in the United States, to be located at l03
(degrees) W.L. and 125 (degrees) W.L.). PanAmSat has also requested authority
to operate seven of these satellites in the broadcast satellite services
frequency ("BSS") band, and to operate five other satellites exclusively in
the BSS band, but FCC processing of PanAmSat's requests must await the
resolution of issues concerning the ITU's BSS band plan.
In addition to the above final authorizations, PanAmSat has a conditional
authorization for an IOR satellite in the C-band and Ku-band, to be located at
72 (degrees) E.L. In order to finalize this authorization, PanAmSat must make
a full financial showing.
Except as noted, none of PanAmSat's final or conditional authorizations is
subject to further administrative or judicial reconsideration or review. The
FCC reserves the right to require relocation of a satellite to a different
orbital location if it determines that relocation is in the public interest.
PanAmSat operates additional satellites under interim or special temporary
authority. PanAmSat operates PAS-7 at 68.5 (degrees) E.L. pursuant to a grant
of special temporary authority. PanAmSat is authorized to operate only the Ku-
band transponders on the satellite. Brasilsat Al previously provided U.S.
domestic service
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from 79 (degrees) W.L. under an interim authorization that expired on December
31, 1997. PanAmSat has requested, but has not yet received, an extension of
this authority. Pursuant to a grant of special temporary authority, the
Company has relocated Brasilsat A1 to 144 (degrees) W.L. and it is operating
there. The Company also has amended its request for an extension of interim
authority to specify the 144 (degrees) W.L. orbital location. Another
satellite, SBS-4, exceeded its regular license term in 1994 and, since that
time, has operated at 77 (degrees) W.L. under successive grants of special
temporary authority. SBS-4 must be relocated once the U.S. satellite assigned
to 77 (degrees) W.L. is launched. There can be no assurance that SBS-4 will be
authorized to operate at another orbital location. PanAmSat also has requested
a license modification or special temporary authority to continue operating
PAS-1 beyond the end of its license term. In addition, following the loss of
Galaxy IV, the FCC granted the Company special temporary authority to relocate
Galaxy VI from 74 (degrees) W.L. to 99 (degrees) W.L., to provide replacement
C-band capacity. PanAmSat operates the HGS-1 satellite at 60 (degrees) W.L.
under a grant of special temporary authority from the FCC, and may continue
such operations until 30 days before a satellite operating on the same
frequencies and serving the same geographic area, and that has filed a valid
prior coordination request with the ITU, is launched to within one degree of
60 (degrees) W.L. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations--Risk Factors--Risks of
Government Regulation."
PanAmSat has filed applications for additional or replacement satellites in
the C-band and/or the Ku-band at 58 (degrees) W.L., 45 (degrees) W.L., 133
(degrees) W.L., 127 (degrees) W.L., 125 (degrees) W.L., 99 (degrees) W.L., 95
(degrees) W.L., 93 (degrees) W.L., 91 (degrees) W.L., 79 (degrees) W.L., and
68.5 (degrees) E.L. In order to grant two of the U.S. additional satellite
applications, the FCC would have to assign different orbital locations than
those requested by PanAmSat (79 (degrees) W.L. and 93 (degrees) W.L.) because,
after PanAmSat's applications were filed, the FCC assigned these orbital
locations to other entities. PanAmSat has requested that the 79 (degrees) W.L.
application be associated with the 83 (degrees) W.L. orbital location as a C-
band only satellite.
In 1996, the FCC modified its rules for processing international satellite
system applications. PanAmSat has requested a waiver of these rules in
connection with one IOR application and one U.S. application.
PanAmSat has filed applications for six additional Ka-band satellites (two
in the AOR, two in the POR and two in the IOR), that will be processed in the
second Ka-band satellite processing round. Finally, PanAmSat has applied for
twelve V-band satellites (two in the AOR, six in the IOR and four in the
U.S.), but the FCC has not yet accepted these applications for filing.
Under the FCC's rules, unless an applicant has received an authorization to
launch and operate, it must notify the FCC in writing prior to commencing
satellite construction, and any construction engaged in is at the applicant's
own risk. While PanAmSat may proceed with the construction of planned
satellites without prior FCC approval, it must accept the risk that the FCC
may not grant the application, may not assign the satellite to its proposed
orbital location, or otherwise may act in a manner that limits or eliminates
some or all of the value of the construction previously done on the satellite.
Other FCC Authorizations. Under the FCC's rules, an entity that provides
international telecommunications services on a common carrier basis must first
receive authorization, pursuant to Section 214 of the Communications Act of
1934, as amended, to provide such services. The FCC has granted PanAmSat
Carrier Services, Inc. ("PCSI") and PanAmSat Communications Carrier Services,
Inc. ("PCCS"), wholly-owned subsidiaries of the Company, Section 214 authority
to provide international private line and public switched services. As common
carriers, PCSI and PCCS are subject to rate regulation, tariffing and
nondiscrimination requirements.
Scope of Services Authorized. In 1996, the FCC eliminated the regulatory
distinction between U.S. domestic satellites and U.S.-licensed international
satellites. As a result, each of PanAmSat's satellites may be used, to the
extent technically feasible, to provide service in the United States and
internationally. Due to a restriction in the FCC's rules, however, the
transponders on PAS-5 that operate in the 10.7-11.7 GHz and 12.75-13.25 GHz
frequency bands may be used solely for international service.
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Coordination Requirements. The FCC requires applicants to demonstrate that
their proposed satellites would be compatible with the operations of adjacent
satellites. The FCC expects adjacent satellite operators to coordinate with
one another to minimize frequency conflicts, and it does not become involved
unless the operators are unable to resolve their conflicts.
Other U.S. Government Regulation. The U.S. Congress has added communications
satellites to the munitions list governed by The International Traffic in Arms
Regulations ("ITAR"), and transferred responsibility from the Commerce
Department to the State Department for licensing the export of satellites and
technical information related to satellites to non-U.S. launch providers,
insurers, customers, potential customers, employees, and other non-U.S.
persons. The State Department's interpretation of the regulations as they
would be applied to PanAmSat is not clear, and it is possible that these
regulations could adversely affect or delay the Company's ability to launch
and insure its satellites and to sell capacity to non-U.S. customers.
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Risk Factors--Risks of Government Regulation" generally
and for a description of certain frequency coordination issues affecting PAS-
6, PAS-7 and Galaxy VIII-I.
REGULATION BY NON-U.S. NATIONAL TELECOMMUNICATIONS AUTHORITIES
Foreign laws and regulatory practices governing the provision of satellite
services to licensed entities and directly to end users vary substantially.
Most countries in which PanAmSat operates are signatories of Intelsat and, as
a result, may require PanAmSat to confirm that it has successfully completed
coordination with Intelsat before providing services on a given satellite. See
"--Intelsat Coordination." In addition, PanAmSat may be subject to national
communications and/or broadcasting laws with respect to its provision of
international satellite service. While these vary from country to country,
national telecommunications authorities, with limited exceptions, typically
have not required satellite operators to obtain licenses or regulatory
authorizations in order to provide space segment capacity to licensed
entities. "Space segment capacity" consists solely of capacity on a given
satellite without any uplink, downlink or other value-added services.
Many countries, particularly in Latin America, and increasingly in Europe,
Africa and Asia, have liberalized their regulations to permit multiple
entities to seek licenses to: (i) provide voice, data or video services for
their own use or for third-party use; (ii) own and operate private earth
station equipment; and (iii) to choose a provider of satellite capacity. This
trend should accelerate with the commitments by many World Trade Organization
("WTO") members, in the context of the WTO Agreement on Basic
Telecommunications Services, to open their satellite markets to competition.
Many countries allow licensed radio and television broadcasters and cable
television providers to own their own transmission broadcast facilities and
purchase satellite capacity without restriction. In such environments,
customer access to PanAmSat's services can be a relatively simple procedure.
Other countries, however, have maintained strict monopoly regimes. In these
markets, a single entity, often the government-owned posts, telephone and
telegraph authorities, may hold a monopoly on the ownership and operation of
facilities or on the provision of communications and/or broadcasting services
to, from, and within the country, including via satellite, making it more
difficult for PanAmSat and other companies to provide services on U.S.-
licensed satellites.
Most countries permit satellite carriers to provide space segment capacity
without any prior licensing or authorization. In others, however, a license is
required to provide space segment capacity. PanAmSat has obtained such
licenses in Argentina, Colombia, Ecuador, Pakistan and Peru. Additionally, the
Company has sought service-type licenses, in order to provide certain space
segment capacity directly to end users. PanAmSat has obtained such licenses in
Australia, France, Germany, Japan and the United Kingdom. PanAmSat does not,
however, have authorization in Brazil, Mexico and India, which affects its
ability to use certain portions of its satellite capacity. Notwithstanding the
wide variety of regulatory regimes in the countries where PanAmSat provides
service, PanAmSat believes that it is in compliance in all material respects
with all applicable laws and regulations.
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Intelsat Coordination. In connection with its international satellite
services, PanAmSat must coordinate with Intelsat to assure that the use by
PanAmSat of any new satellite will not cause Intelsat technical harm. The FCC
is responsible for ensuring that PanAmSat has undergone the necessary
coordinations and that it operates in accordance with the technical parameters
forming the basis for each coordination. If PanAmSat changes the terms (either
technical or service) of its operation in a significant manner, it may need to
re-coordinate with Intelsat.
The ITU Frequency Coordination Process. Each ITU member nation is required
to register its proposed use of orbital slots with the ITU's Radio Regulations
Board. Other nations then may give notice of any use or intended use of the
radio spectrum that would conflict with the proposal. The nations then are
obligated to seek to coordinate the proposed uses and resolve interference
concerns. If all disputes are resolved, the ITU notifies the proposed use
which, at least theoretically, protects it from subsequent or nonconforming
interfering uses. The ITU Radio Regulations Board has no dispute resolution or
enforcement mechanisms, however, and international law provides no clear
remedies if this voluntary process fails.
While the right to use most frequencies is determined on a "first-come,
first-served" basis, the ITU has "planned" the use of certain frequency bands
in a manner that effectively reserves for various countries the right to use
those frequencies in accordance with certain technical parameters at a given
orbital location. PanAmSat's proposed use of BSS frequencies on eleven
satellites is subject to unresolved issues concerning the ITU's BSS band plan.
All of the registrations for PanAmSat's satellites are or will be subject to
the ITU coordination process. Certain entities have filed notices of intended
use with respect to certain orbital slots which conflict with PanAmSat's
registered orbital slots for PAS-2, PAS-4, PAS-7 and PAS-8. Such filings may
delay the receipt of final registration of such orbital slots with the ITU
Radio Regulations Board. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations--Risk Factors--Risks of
Government Regulation."
EMPLOYEES
At December 31, 1999, PanAmSat had approximately 600 full-time employees.
PanAmSat believes that its relations with its employees are good.
ITEM 2. PROPERTIES
PanAmSat's executive offices currently are located in Greenwich,
Connecticut. PanAmSat leases its executive offices pursuant to a lease that
will expire on March 31, 2003. In August 1999, the Company announced its
purchase of a new office facility in Stamford, Connecticut to serve as its
corporate headquarters. The Company will move its headquarters to Stamford
when renovations at the new facility are complete. The move is expected to
occur in 2000.
PanAmSat currently operates seven teleports and operations control centers
in conjunction with its global satellite network. PanAmSat operates its
primary teleport in Ellenwood, Georgia and operates regional teleports in
Castle Rock, Colorado; Fillmore, California; Homestead, Florida; Napa,
California; and Spring Creek, New York. PanAmSat's operations control centers
located in Ellenwood and Long Beach provide other services, such as customer
service support in addition to teleport operations. PanAmSat owns its
teleports in Ellenwood, Georgia; Homestead, Florida; Spring Creek, New York;
Napa, California; and Fillmore, California. The Company owns its operations
control center in Long Beach, California and leases offices in Long Beach
where its network operations center is located. PanAmSat leases its teleport
in Castle Rock, Colorado.
PanAmSat also leases office space for its offices in Washington, D.C.; Coral
Gables, Florida; Sydney, Australia; Johannesburg, South Africa; London,
England; Tokyo, Japan; Seoul, South Korea; Hong Kong, Peoples' Republic of
China. PanAmSat's leases for its foreign offices have been entered into upon
terms that PanAmSat believes to be reasonable and customary.
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ITEM 3. LEGAL PROCEEDINGS
On or about October 25, 1996, an action was commenced by Comsat against
PanAmSat, News Corporation Limited ("News") and Grupo Television, S.A.
("Televisa") in the United States District Court for the Central District of
California. The complaint alleges that News wrongfully terminated an agreement
with Comsat for the lease of transponders on an Intelsat satellite over the
term of a five-year lease, breached certain alleged promises related to such
agreement, and breached its alleged obligations under a tariff filed by Comsat
with the FCC. As to PanAmSat, the complaint alleges that PanAmSat, alone and
in conspiracy with Televisa, intentionally interfered with the alleged
agreement and with Comsat's economic relationship with News. Comsat had
previously filed a similar action in the United States District Court for the
District of Maryland. By order dated October 10, 1996, the Maryland District
Court dismissed without prejudice the complaint in that action on the ground
that the court lacked personal jurisdiction over all of the defendants. The
complaint in the present action seeks actual and consequential damages, and
punitive or exemplary damages in an amount to be determined at trial. PanAmSat
believes this action is without merit. It intends to vigorously contest this
matter, although there can be no assurance that PanAmSat will prevail. On
December 29, 1999, all claims in Comsat's complaint were dismissed on summary
judgment. Comsat may and can appeal this decision. If PanAmSat were not to
prevail in this case, the amounts involved could be material to PanAmSat.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of fiscal 1999, no matters were submitted to a
vote of stockholders through the solicitation of proxies or otherwise.
17
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PanAmSat Common Stock is listed on the Nasdaq National Market and commenced
trading on May 19, 1997 under the symbol "SPOT."
The following table sets forth, for the calendar periods indicated, the high
and low closing sales price per share for PanAmSat Common Stock, as reported
by the Nasdaq National Market and the Dow Jones News Retrieval Service.
<TABLE>
<CAPTION>
1999 HIGH LOW
- ---- --------- --------
<S> <C> <C>
First Quarter................................................ $45 7/16 $31 1/8
Second Quarter............................................... $38 15/16 $26 9/16
Third Quarter................................................ $42 3/8 $34
Fourth Quarter............................................... $63 1/4 $35
<CAPTION>
1998 HIGH LOW
- ---- --------- --------
<S> <C> <C>
First Quarter................................................ $60 7/8 $37 7/16
Second Quarter............................................... $64 7/8 $51
Third Quarter................................................ $57 7/8 $35 1/8
Fourth Quarter............................................... $42 $28 7/8
</TABLE>
As of March 20, 2000, there were approximately 149,446,936 holders of record
of PanAmSat Common Stock.
To date, the Company has not declared or paid cash dividends on PanAmSat
Common Stock. The Company presently intends to retain future earnings to
support the growth of its business and, therefore, does not anticipate paying
cash dividends in the near future. The payment of any future dividends on
PanAmSat Common Stock will be determined by the Company's Board of Directors
in light of conditions then existing, including the Company's earnings,
financial condition and capital requirements, restrictions in financing
agreements, business conditions and other factors.
18
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data as of December 31, 1996 and 1995 and
for each year in the two-year period ended December 31, 1996 have been derived
from the audited financial statements of Galaxy, which changed its name to
PanAmSat Corporation concurrent with its May 1997 acquisition of PanAmSat
International. The selected financial data as of December 31, 1999, 1998 and
1997 and for each year of the three-year periods ended December 31, 1999 have
been derived from the audited consolidated financial statements of PanAmSat
appearing elsewhere in this Annual Report, and should be read in conjunction
with such consolidated financial statements and notes related thereto and
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31,
1999 1998 1997(1) 1996 1995
---------- ---------- ----------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DA-
TA:
Total revenues.......... $ 810,617 $ 767,263 $ 629,939 $ 482,770 $ 386,126
---------- ---------- ----------- ---------- ----------
Costs and expenses
Cost of outright sales
and sales-type leases -- -- 20,476 52,969 49,616
Leaseback expense, net
of deferred gain....... 15,391 47,223 61,907 59,927 36,597
Depreciation and amorti-
zation................. 280,472 234,945 149,592 58,523 76,522
Direct operating costs.. 103,973 96,510 61,199 34,794 29,931
Selling, general & ad-
ministrative........... 72,415 70,251 42,561 34,119 30,146
---------- ---------- ----------- ---------- ----------
Operating income........ 338,366 318,334 294,204 242,438 163,314
Interest expense,
net(2)................. 112,002 97,788 30,973 4,903 5,828
Other income............ -- -- (385) (2,184) (7,892)
---------- ---------- ----------- ---------- ----------
Income before taxes, mi-
nority interest and ex-
traordinary item. 226,364 220,546 263,616 239,719 165,378
Income tax expense...... 104,127 95,940 117,325 89,895 62,017
Minority interest....... -- -- 12,819 -- --
Extraordinary item(3)... -- -- 20,643 -- --
---------- ---------- ----------- ---------- ----------
Net income.............. $ 122,237 $ 124,606 $ 112,829 $ 149,824 $ 103,361
========== ========== =========== ========== ==========
OTHER FINANCIAL DATA:
EBITDA(4)............... $ 618,838 $ 553,279 $ 444,181 $ 303,145 $ 247,728
EBITDA margin(4)........ 76% 72% 71% 63% 64%
Net cash provided by op-
erating activities..... $ 439,863 $ 568,172 $ 121,476 $ 151,238 $ 83,690
Net cash used in invest-
ing activities......... (499,480) (576,518) (1,639,972) (42,122) (270,396)
Net cash provided by
(used in) financing ac-
tivities............... (666) 94,149 1,610,206 (109,122) 186,720
Capital expenditures.... 526,191 678,593 541,879 294,122 280,543
Total assets............ 5,984,709 5,890,497 5,682,434 1,275,516 1,137,978
Total long-term obliga-
tions.................. 3,025,577 3,058,480 3,016,680 394,187 290,963
Total stockholders' eq-
uity................... 2,815,989 2,688,415 2,560,836 -- --
</TABLE>
- --------
(1) Results for the year ended December 31, 1997 include financial data for
PanAmSat International from May 16, 1997 (the effective date of the
Merger). See Note 1 to the Consolidated Financial Statements for a
description of the Merger.
(2) Net of capitalized interest of $60.7 million, $59.9 million, $80.5
million, $14.6 million and $10.1 million for the years ended December 31,
1999, 1998, 1997, 1996 and 1995, respectively, and net of interest income
of $3.2 million, $10.4 million and $28.0 million in 1999, 1998 and 1997,
respectively.
(3) Represents loss on early extinguishment of debt, net of tax.
(4) Represents earnings before net interest expense, income tax expense,
depreciation and amortization. EBITDA is commonly used in the
telecommunications industry to analyze companies on the basis of operating
performance, leverage and liquidity. EBITDA should not be considered as a
measure of profitability or liquidity as determined in accordance with
generally accepted accounting principles in the statements of income and
cash flows.
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and the notes thereto and the pro
forma financial information appearing elsewhere in this Annual Report.
RESULTS OF OPERATIONS
The Company's results of operations as reported incorporate PanAmSat
International's activity commencing May 16, 1997, the effective date of the
Merger. Since this represents only seven and one-half months of activity for
PanAmSat International in 1997, management has determined that, for
comparative purposes, it would be more meaningful to present the information
shown for 1997 on a "pro forma" basis reflecting the Merger as though it had
occurred at the beginning of 1997 (excluding the impact of PanAmSat
International's $225 million gain on the sale of its direct-to-home television
rights in certain foreign markets to an affiliate concurrent with the Merger,
as well as certain professional and advisory fees and other expenses incurred
in connection with the Merger totaling $31.6 million, both of which are
nonrecurring items that are not indicative of the Company's ordinary course of
business). The pro forma results are not necessarily indicative of the
combined results that would have occurred had the Merger actually occurred at
the beginning of 1997.
<TABLE>
<CAPTION>
PRO FORMA
AS REPORTED (UNAUDITED)
-------------------------- -----------
YEAR YEAR YEAR
ENDED ENDED ENDED YEAR ENDED
1999 1998 1997 1997
-------- -------- -------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
REVENUES
Operating leases, satellite services
and other........................... $787,509 $736,624 $558,622 $684,663
Outright sales and sales-type leases. 23,108 30,639 71,317 71,317
-------- -------- -------- --------
Total revenue...................... 810,617 767,263 629,939 755,980
-------- -------- -------- --------
COSTS AND EXPENSES
Cost of outright sales and sales-type
leases.............................. -- -- 20,476 20,476
Leaseback expense, net of deferred
gain................................ 15,391 47,223 61,907 61,907
Direct operating and SG&A costs...... 176,388 166,761 l03,760 130,076
Depreciation and amortization........ 280,472 234,945 149,592 197,116
-------- -------- -------- --------
Total.............................. 472,251 448,929 335,735 409,575
-------- -------- -------- --------
Income from operations............... 338,366 318,334 294,204 346,405
Interest expense, net................ 112,002 97,788 30,973 68,981
Other income......................... -- -- (385) (385)
-------- -------- -------- --------
Income before income taxes, minority
interest and extraordinary item..... 226,364 220,546 263,616 277,809
Income tax expense................... 104,127 95,940 117,325 134,343
-------- -------- -------- --------
Income before minority interest and ex-
traordinary item...................... 122,237 124,606 146,291 143,466
Minority interest, subsidiary pre-
ferred stock dividend............... -- -- 12,819 24,838
-------- -------- -------- --------
Income before extraordinary item..... 122,237 124,606 133,472 118,628
Extraordinary item: loss on extin-
guishment of debt, net of tax....... -- -- 20,643 20,643
-------- -------- -------- --------
Net income........................... $122,237 $124,606 $112,829 $ 97,985
======== ======== ======== ========
Net income per share--basic and di-
luted............................... $ 0.82 $ 0.83 N/A $ 0.66
</TABLE>
20
<PAGE>
CONSOLIDATED RESULTS
1999 (AS REPORTED) COMPARED TO 1998 (AS REPORTED)
Revenues. Revenues increased $43.3 million, or 6%, to $810.6 million for the
year ended December 31, 1999 from $767.3 million for the same period in 1998.
Video services revenues were $580.2 million for the year ended December 31,
1999, an increase of 3% from the same period in 1998. The increase was
primarily due to new service agreements on satellites placed in service in
1999, as well as continued growth in special events service revenues as
compared to the same period in 1998. Telecommunications services revenues were
$186.7 million for the year ended December 31, 1999, an increase of 17% from
the same period in 1998. The increase was due primarily to the growth in data
and Internet-related service agreements.
Revenue results can also be analyzed based on the type of agreement.
Revenues from sales and sales-type leases decreased to $23.1 million for the
year ended December 31, 1999, from $30.6 million for the same period in 1998.
The decrease is attributable to a lower volume in 1999 relative to 1998 of
outright sales and sales-type leases. Revenues from operating leases of
transponders, satellite services and other increased $50.9 million, or 7%, to
$787.5 million for the year ended December 31, 1999, from $736.6 million for
the same period in 1998. The increase was primarily due to the commencement of
commercial service on new international satellites, as well as continued
growth in special events service revenues in 1999.
Leaseback Expense, Net of Deferred Gain. Leaseback expense, net of deferred
gain, decreased $31.8 million, or 67%, to $15.4 million for the year ended
December 31, 1999, from $47.2 million for the same period in 1998. The
decrease was primarily attributable to the exercise by the Company of early
buy-out opportunities on sale-leaseback agreements during 1999.
Direct Operating and Selling, General and Administrative Costs. Direct
operating and selling, general and administrative costs increased $9.6
million, or 6%, to $176.4 million for the year ended December 31, 1999, from
$166.8 million for the same period in 1998. The increase was primarily due to
direct costs associated with additional satellites placed in service and
operating costs associated with the normal growth of the Company attributable
to the growth in the size of the satellite network.
Depreciation and Amortization. Depreciation and amortization increased $45.6
million, or 19%, to $280.5 million for the year ended December 31, 1999 from
$234.9 million for the same period in 1998, due primarily to depreciation
expense associated with additional satellites placed in service.
Income from Operations. Income from operations increased $20.1 million, or
6%, to $338.4 million for the year ended December 31, 1999 from $318.3 million
for the same period in 1998. The increase was primarily due to increased
revenue generated by the expanded satellite network and decreased leaseback
expense, net of deferred gain as a result of the exercise by the Company of
early buy-out opportunities, offset by increased depreciation and direct
operating costs associated with the Company's expanded satellite network.
Interest Expense, Net. Interest expense, net increased $14.2 million, or
15%, to $112.0 million for the year ended December 31, 1999 from $97.8 million
for the same period in 1998. The increase was due primarily to higher interest
expense resulting from new debt assumed in connection with the exercise of an
early buy-out opportunity under a sale-leaseback transaction during 1999 as
well as increased borrowing levels during the year.
Income Tax Expense. Income tax expense increased $8.2 million, or 9%, to
$104.1 million for the year ended December 31, 1999 from $95.9 million for the
same period in 1998. The increase was due to the increase in income before
income taxes as well as an increase in the effective tax rate between 1999 and
1998 as a result of a reduction in foreign sales corporation tax benefits.
1998 (AS REPORTED) COMPARED TO 1997 (PRO FORMA AND AS REPORTED)
The following discussion of 1998 versus 1997 performance is primarily based
on pro forma results. Pro forma results for 1997 and as reported results
reflect the impact of the acquisition of PanAmSat International, including the
use of purchase accounting. Comparisons of as reported results reflect
significant increases in
21
<PAGE>
amortization of intangible assets, interest expense, the effective income tax
rate and shares outstanding arising from the Merger.
Revenues. Revenues increased $11.3 million, or 1%, to $767.3 million for the
year ended December 31, 1998 from $756.0 million for the same pro forma period
in 1997. Video services revenues were $560.7 million for the year ended
December 31, 1998, a decrease of 8% from the same pro forma period in 1997.
The decrease was primarily due to fewer sales and less sales-type lease
activity as compared to the same pro forma period in 1997. Telecommunications
services revenues were $159.1 million for the year ended December 31, 1998, an
increase of 29% from the same pro forma period in 1997. The increase was due
primarily to the growth in data and Internet-related service agreements.
Revenue results can also be analyzed based on the type of agreement.
Revenues from sales and sales-type leases decreased to $30.6 million for the
year ended December 31, 1998, from $71.3 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. Revenues from operating leases
of transponders, satellite services and other increased $51.9 million, or 8%,
to $736.6 million for the year ended December 31, 1998, from $684.7 million
for the same pro forma period in 1997. The increase was primarily due to the
commencement of commercial service on two new satellites, PAS-5 and Galaxy
VIII-I, which were launched in the latter part of 1997 and generated a full
year of operating lease revenues in 1998.
As reported, revenues increased $137.3 million, or 22%, to $767.3 million in
1998 from $629.9 million in 1997, primarily due to the impact of the Merger,
and also due to increased service agreements associated with available
transponder capacity.
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 year ended December 31, 1998, as compared to $20.5 million for the same
pro forma period in 1997. The pro forma cost of outright sales and sales-type
leases of transponders for the year ended December 31, 1997 are related to
several outright sales and sales-type leases executed during that period.
Leaseback Expense, Net of Deferred Gain. Leaseback expense, net of deferred
gain, decreased $14.7 million, or 24%, to $47.2 million for the year ended
December 31, 1998, from $61.9 million for the same pro forma period in 1997.
The decrease was primarily attributable to the exercise by the Company of
early buy-out opportunities on sale-leaseback agreements during 1998.
Direct Operating and Selling, General and Administrative Costs. Direct
operating and selling, general and administrative costs increased $36.7
million, or 28%, to $166.8 million for the year ended December 31, 1998, from
$130.1 million for the same pro forma period in 1997. The increase was due
primarily to direct costs associated with additional satellites placed in
service and operating costs associated with the normal growth of the Company
attributable to the growth in the size of the satellite network.
Depreciation and Amortization. Depreciation and amortization increased $37.8
million, or 19%, to $234.9 million for the year ended December 31, 1998 from
$197.1 million for the same pro forma period in 1997, due primarily to
depreciation expense associated with additional satellites placed in service.
As reported, depreciation and amortization increased $85.3 million, or 57%,
to $234.9 million in 1998, from $149.6 million in 1997. In addition to the
impact of the Merger, the increase was a result of depreciation expense
associated with additional transponder capacity placed in service.
Income from Operations. Income from operations decreased $28.1 million, or
8%, to $318.3 million for the year ended December 31, 1998 from $346.4 million
for the same pro forma period in 1997. The decrease was due primarily to
increased depreciation and direct operating costs associated with the
Company's expanded satellite network, offset by increased revenue generated by
the expanded satellite network.
22
<PAGE>
Interest Expense, Net. Interest expense, net increased $28.8 million, or
42%, to $97.8 million for the year ended December 31, 1998 from $69.0 million
for the same pro forma period in 1997. The increase was due primarily to
higher average borrowing levels during 1998 as well as less interest income
earned as a result of the Company's smaller investment portfolio and a lower
amount of capitalized interest cost for the satellites under construction
resulting from the lower borrowing rate in 1998.
Income Tax Expense. Income tax expense decreased $38.4 million, or 29%, to
$95.9 million for the year ended December 31, 1998 from $134.3 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 year ended December 31, 1998 as
compared to $24.8 million for the same pro forma period in 1997. 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 in the third quarter of 1997 and the related
termination of dividend payment obligations. Approximately 99% of the 12 3/4%
Senior Subordinated Notes were subsequently retired in connection with the
tender offer and restructuring program described above.
Extraordinary Item. The Company recorded an extraordinary charge of $20.6
million ($34.3 million before taxes) during 1997 related to the early
extinguishment of certain indebtedness of PanAmSat's subsidiaries. The charge
principally represented the excess of the price paid for the debt over its
carrying value, net of any deferred financing costs and fair value adjustments
recognized in connection with the Merger.
SATELLITE DEPLOYMENT PLAN AND PLANNED SATELLITES
Satellite Deployment Plan
PanAmSat's Satellite Deployment Plan is intended to enable the Company to
provide back-up and replacement capacity as well as expanded satellite
services on an expedited basis in the United States and worldwide. PanAmSat
launched the first two satellites in the Satellite Deployment Plan, Galaxy XI
and Galaxy XR, on December 21, 1999 and January 24, 2000, respectively.
PanAmSat expects to launch five additional satellites by mid-2001, consisting
of three new satellites for the AOR (PAS-1R, PAS-9 and Galaxy III-C), one new
satellite for the United States (Galaxy IVR), and one new satellite for the
IOR (PAS-10). PanAmSat also plans to retire one satellite, SBS-5, this year.
This will result in a planned total fleet of 24 satellites, including multiple
satellites in each ocean region worldwide and one in-orbit spare satellite
(Galaxy VI) for the United States. The Company also has options to procure two
additional satellites for launch on an expedited basis.
Planned Satellites
Galaxy IVR. Galaxy IVR is an HS-601-HP model spacecraft and is scheduled for
launch during the second quarter of 2000 on an Ariane 4 launch vehicle. Galaxy
IVR will serve at 99 (degrees) W.L. as the replacement for Galaxy IV.
PAS-1R. PAS-1R will be an HS-702 spacecraft and is scheduled for launch in
the second quarter of 2000. PAS-1R will be launched on an Ariane 4 launcher
and will be located at 45 (degrees) W.L. The Company plans to use PAS-1R in
the Americas, Europe and Africa. PAS-lR is intended to replace and
significantly expand upon the capacity offered by PAS-l, which has reached the
end of its design life but may be used to back up PAS-1R or moved to another
orbital location to be determined.
PAS-9. This satellite will be an HS-601 spacecraft, and will be located in
the AOR. The Company anticipates that it will be launched aboard the Sea
Launch launch vehicle in the second quarter of 2000. The orbital location of
PAS-9 will be at 58 (degrees) W.L. The Company's Mexico DTH customer that had
contracted for service on PAS-5 instead has contracted to take service on PAS-
9. The Ku-band transponders on PAS-5 will not be resold on a full-time basis,
and the Company anticipates that this will minimize potential disruptions to
PAS-5's C-band customers related to the battery cell anomalies affecting PAS-
5. See "--Risk Factors--Risk of In-Orbit Failure or Reduced Performance."
23
<PAGE>
PAS-10. This satellite will be an HS-601 spacecraft. It is scheduled for
launch in the fourth quarter of 2000 on a Proton launch vehicle and is
expected to occupy an orbital position in the IOR at 68.5 (degrees) E.L. Some
of the Company's key customers on PAS-4 have contracted to migrate to PAS-10
upon its deployment.
Galaxy III-C. This satellite will be an HS-702 spacecraft, designed to cover
the United States and Latin America. It is scheduled to be launched in the
second quarter of 2001 and it is expected to occupy an orbital position
located at 95 (degrees) W.L.
As a result of the Company's planned launches, the Company currently intends
to relocate a number of its satellites.
. Upon deployment of Galaxy IVR at 99 (degrees) W.L., Galaxy XI (currently
at 99 (degrees) W.L.) will be moved to 91 (degrees) W.L. Galaxy VII will
then be moved from 91 (degrees) W.L to an orbital location to be
determined and Galaxy VI will be moved from 91 (degrees) W.L to 74
(degrees) W.L. where it will continue to provide back-up services.
. Galaxy IX will be relocated from 123 (degrees) W.L. to 127 (degrees)
W.L. because Galaxy XR is now permanently located at 123 (degrees) W.L.
. Galaxy III-C is expected to be deployed at 95 (degrees) W.L., Galaxy
IIIR's current location, to provide services to the United States and
Latin America. Upon this launch, Galaxy IIIR will be moved for service
at a new orbital location to be determined.
. It is anticipated that the PAS-6 satellite will be used for back-up
capacity for PAS-6B customers from a location to be determined.
The implementation of the Satellite Deployment Plan is subject to regulatory
approval by the FCC. The Company expects that after the launch of the
satellites as described above, the revenues attributable to the Galaxy VI,
Galaxy VII, PAS-5 and PAS-6 satellites will be at reduced levels compared to
the Company's other satellites. The Company has not yet determined whether
revenue will be adversely affected on Galaxy IIIR after the completion of the
Satellite Deployment Plan. No assurance can be given that commercially
suitable orbital locations will be obtained for all of these satellites.
Successful implementation of the Satellite Deployment Plan is subject to risks
attendant to the Company's business and the requirement of additional capital.
See "--Liquidity and Capital Resources and--Risk Factors."
LIQUIDITY AND CAPITAL RESOURCES
In connection with the Merger, the Company obtained a term loan in the
amount of $1.725 billion (the "Hughes Term Loan") from Hughes Electronics. In
addition to the Hughes Term Loan, as of December 31, 1999, the Company also
had long-term indebtedness of $817.8 million comprised primarily of $750
million of Notes (as defined below) and $67.8 million of notes assumed in
connection with the exercise of an early buy-out opportunity under a sale-
leaseback transaction (as described below).
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 debt securities (the "Offering"). The net proceeds from the Offering
were used to repay bank loans incurred partially to finance a tender offer for
certain debt securities of PanAmSat's subsidiaries, as well as for general
corporate purposes. In August 1998, the Company converted the private
securities to public debt (the "Notes") by means of a registered exchange
offer.
The Company is party to a Credit Agreement (the "Credit Agreement"), dated
December 24, 1997, with certain lenders and Citicorp USA, Inc. as
administrative agent. The Credit Agreement provides the Company with loans of
up to $500 million under a five-year revolving credit facility (the "Revolving
Credit Facility"). In the third quarter of 1999, the Company amended the
Credit Agreement to modify a financial covenant principally as a result of the
impact of a manufacturing delay announced in May 1999. The Company currently
has $500
24
<PAGE>
million available under the Revolving Credit Facility less any amounts
outstanding under its commercial paper program (as described below).
On July 27, 1998, the Company initiated a $500 million commercial paper
program (the "Commercial Paper Program"). Borrowings under the Revolving
Credit Facility 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. There were no borrowings outstanding under the
Commercial Paper Program or the Revolving Credit Facility as of December 31,
1999.
In April 1999, the Company filed two insurance claims related to anomalies
on its PAS-8 and PAS-5 satellites. The claim on the PAS-8 satellite was for a
partial loss primarily resulting from the loss in geographic coverage,
connectivity and/or switchability of the Ku-band transponders. The claim on
PAS-5 was for a constructive total loss of the satellite because the Company
has ceased using all of the Ku-band capacity of the satellite on a full-time
basis, which represents more than 50% of the satellite's communications
capacity. In August 1999, the Company filed an insurance claim on its Galaxy
VIII-I satellite for a partial loss primarily resulting from battery cell
failures. In September 1999, the Company met with its insurance carriers and
agreed to settle all of the claims for net cash to PanAmSat of approximately
$304 million, of which approximately $271 million was collected as of December
31, 1999. The insurance settlements were recognized as offsets to the carrying
values of the related satellites, and no gain or loss has been recognized in
1999 as a result of these settlements.
During the third quarter of 1999, the Company's credit ratings were
downgraded to BBB-/A3 by Standard and Poor's. As a result of this downgrade,
the Company expects that it will not issue commercial paper pursuant to its
Commercial Paper Program and instead expects to draw upon its Revolving Credit
Facility to fund its borrowing needs. Loans under the Revolving Credit
Facility of up to $185.0 million were made during the fourth quarter at
interest rates ranging from 5.73% to 6.80%. The Company repaid these loans in
the fourth quarter of 1999 with the proceeds from its insurance.
The Hughes Term Loan is subordinate to the Notes issued in connection with
the Offering, the Revolving Credit Facility and any notes issued under the
Commercial Paper Program.
The Company had options under sale-leaseback arrangements to repurchase the
transponders on Galaxy VII and Galaxy IIIR prior to the end of their
respective lease terms. In January 1999, the Company repurchased 12 C-band and
10 Ku-band transponders on Galaxy VII for approximately $141.3 million,
including a make-whole premium of $2.7 million. The Company repurchased the
remaining transponders on Galaxy VII and the transponders on Galaxy IIIR in
July 1999 for a total cost of approximately $103.5 million in cash, plus the
assumption of $124.1 million of floating rate debt. The notes bear interest at
LIBOR plus 0.25% and mature on various dates through January 2, 2002. As of
December 31, 1999, other than indemnity obligations, the Company no longer had
any obligations under sale-leaseback agreements.
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 five
satellites under various stages of development and intends to deploy NET/36
for which it has budgeted capital expenditures. The Company will require
approximately $500 million to construct, insure and launch the satellites, and
plans to invest up to $250 million in capital and operating expenses over the
next two years to deploy NET/36. The largest portion of PanAmSat's investment
in NET/36 will be used to deploy PanAmSat-owned antennas and servers at ISPs,
cable headends and DSL 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, PanAmSat believes that amounts available under
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
25
<PAGE>
next twenty-four months. There can be no assurance, however, that PanAmSat'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
shortfall in funding for (i) launches caused by launch failures, (ii) cost
overruns, (iii) delays or (iv) other unanticipated expenses. In addition, if
the Company were to consummate any strategic transactions or undertake any
other projects requiring significant capital expenditures, it may be required
to seek additional financing. 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.
Net cash provided by operating activities decreased to $439.9 million in
1999, from $568.2 million in 1998, an increase from $121.5 million in 1997.
The decrease in 1999 was primarily attributable to proceeds from insurance
claims received during 1998. The increase in 1998 was primarily attributable
to increased operating results, proceeds from insurance claims and reductions
in non-cash working capital as compared to 1997.
Net cash used in investing activities decreased to $499.5 million in 1999,
from $576.5 million in 1998, a decrease from $1,640.0 million in 1997. The
decrease in 1999 was primarily attributable to reduced capital expenditures in
1999. The decrease in 1998 was primarily attributable to the acquisition of
PanAmSat International during the same period in 1997, coupled with proceeds
from insurance claims received during 1998.
Net cash used in financing activities was $0.7 million in 1999, compared to
net cash provided by financing activities of $94.1 million in 1998 and
$1,610.2 million in 1997. The decrease in 1999 was primarily due to lower net
borrowings associated with the Company's satellites under construction. The
decrease in 1998 was primarily due to obtaining the Hughes Term Loan during
the same period in 1997.
MARKET RISKS
The following discussion and the estimated amounts generated from the
sensitivity analyses referred to below includes forward-looking statements of
market risk which assume for analytical purposes that certain market
conditions may occur. Actual future market conditions may differ materially
from such assumptions because the amounts noted below are the result of
analyses used for the purpose of assessing possible risks and the mitigation
thereof. Accordingly, the forward-looking statements should not be considered
projections by PanAmSat of future events or losses.
PanAmSat's cash flows and earnings are subject to fluctuations resulting
from changes in interest rates and certain of its financial instruments are
subject to changes in market value as a result of changes in interest rates.
PanAmSat manages its exposure to these market risks through internally
established policies and procedures and, when deemed appropriate, through the
use of derivative financial instruments. PanAmSat's policy does not allow
speculation in derivative instruments for profit or execution of derivative
instrument contracts for which there are no underlying exposures. PanAmSat
does not use financial instruments for trading purposes and is not a party to
any leveraged derivatives.
As of December 31, 1999 and December 31, 1998, long-term debt, which is
classified as held-to-maturity, consisted of fixed-rate borrowings of $750.0
million, $1,725.0 million of floating rate Merger related borrowings due to
Hughes and various other fixed and floating rate borrowings. PanAmSat is
subject to fluctuating interest rates on its floating rate debt and any
changes in interest rates would impact results of operations and cash flows.
The potential effect of a hypothetical 10% adverse fluctuation in interest
rates for one year on PanAmSat's floating rate debt outstanding at December
31, 1999 would be a reduction in cash flows of approximately $12.0 million,
and a reduction in net income of approximately $7.2 million in each year.
Fluctuations in interest rates may also affect the market values of fixed-
rate borrowings and fixed-rate net investments in sales-type lease
receivables. At December 31, 1999 and 1998, outstanding borrowings bore
interest at rates ranging from 6.00% to 6.875% and sales type lease
receivables bore interest at 12.00%. The potential fair value change resulting
from a hypothetical 10% fluctuation in interest rates related to PanAmSat's
outstanding debt and sales-type receivable balances would be approximately
$27.4 million and $4.1 million, as of December 31, 1999 and December 31, 1998,
respectively.
26
<PAGE>
In connection with debt refinancing activities in 1997, PanAmSat entered
into certain U.S. Treasury rate lock contracts to reduce its exposure to
fluctuations in interest rates. The aggregate notional value of these
contracts was $375.0 million and these contracts were accounted for as hedges.
The cost to settle these instruments in 1998 was $9.1 million and is being
amortized to interest expense over the term of the related debt securities.
RISK FACTORS
Risk of Launch Failure. Satellites are subject to significant risks related
to delayed and failed launches. Of the 31 satellite launches by PanAmSat or
its predecessors since 1983, the Company has experienced four launch failures.
For example, in 1998 the Company's Galaxy X satellite was destroyed during the
inaugural launch of the Boeing Delta III rocket which exploded shortly after
liftoff. In addition, certain launch vehicles scheduled to be used by PanAmSat
have unproven track records and are susceptible to certain risks associated
with new launch vehicles. For example, on October 27, 1999, a Proton launch
vehicle (that did not carry any of the Company's satellites) suffered a launch
failure. In addition, Sea Launch is a launcher that is scheduled to be used by
PanAmSat to launch satellites within the next year. Although successful
demonstration launches on the Sea Launch were completed in March 1999 and a
successful commercial launch was conducted in October 1999, a commercial
satellite launched from Sea Launch by a British communications company failed
in March 2000 just after liftoff. The failure is currently under investigation
by the Sea Launch program and, as a result, it is unclear how this failure
will affect future launches scheduled for Sea Launch. PanAmSat is currently
evaluating its options with respect to its satellites that are scheduled for
launch from Sea Launch during the next year in light of the recent failure and
the potential delays that may result while the failure is under investigation.
Although PanAmSat's insurance coverage for these potential losses is
sufficient to substantially recover the Company's investment, the Company does
not obtain insurance to recover lost revenues or business opportunities. In
addition, the design, construction and delivery of a replacement satellite
could take up to 24 months.
Risk of Launch Delays. The Company has experienced launch delays in the past
which have an adverse affect on revenues. Future delays may have the same
result. Launch delays can result from the delays in the construction of
satellites and launch vehicles, the periodic unavailability of reliable launch
opportunities, possible delays in obtaining regulatory approvals and launch
failures. Launch failures result in significant delays in the deployment of
satellites because of the need both to construct replacement satellites and
obtain other launch opportunities. Further, a significant delay in the
delivery of any satellite would adversely affect the Company's marketing plan
for the satellite. If satellite construction schedules are not met, there can
be no assurance that a launch opportunity will be available at the time a
satellite is ready to be launched. Finally, any significant delay in the
launch of any of PanAmSat's satellites could enable customers who pre-
purchased or agreed to lease capacity of the satellites to terminate their
contracts. The failure to implement the Satellite Deployment Plan on schedule
could have a material adverse affect on the Company's business, financial
condition and results of operations.
Risk of In-Orbit Failure or Reduced Performance. Satellites are also subject
to risks after they have been properly deployed and put into operation. If any
of these risks set forth below occur, the Company's business, financial
condition and results of operations would be materially adversely affected.
These risks include:
. Manufacturing Errors
Following the launch of the Company's PAS-8 satellite, an error of the
satellite's manufacturer was discovered that affected the geographical
coverage or flexibility of all of the Ku-band transponders on the
satellite. The C-band beams have not been affected by the error.
. New Technology
The likelihood of in-orbit failure or performance reduction may be
heightened by PanAmSat's use of new technology on certain of its
satellites. Galaxy XI, PAS-1R and Galaxy III-C are Hughes-manufactured
HS-702 model spacecraft. The HS-702 model has no track record and may
be susceptible
27
<PAGE>
to certain risks related to its new technology. There can be no
assurance that PanAmSat's planned use of HS-702 model spacecraft will
be successful.
. Circuit Failures
PAS-6 experienced several circuit failures in its solar arrays and may
experience additional failures in the future. Circuit failures require
the Company to forego the use of some transponders initially and to
turn off additional transponders in later years. No assurance can be
given that additional circuit failures will not occur.
. Spacecraft Control Processor Failures
Three of the Company's satellites, Galaxy IV, Galaxy VII and PAS-4,
experienced an anomaly in their on-board spacecraft control processors
("SCPs"), which are believed to have resulted from electrical short
circuits involving tin-plated relay switches. Each satellite contains a
primary SCP and a back-up SCP. Galaxy IV was declared a total loss in
May 1998 after both of its SCPs failed and Galaxy VII and PAS-4 are
operating on back-up SCP systems after their primary SCPs failed. Of
the 14 satellites owned by PanAmSat that were constructed by HSC, five
satellites are the same model spacecraft as the affected satellites. No
assurance can be given that similar or additional SCP failures will not
occur.
. Battery Cell Failures
PAS-5 and Galaxy VIII-I have experienced battery cell failures. The
batteries' sole purpose is to power the payload and spacecraft
operations during the daily eclipse periods, having a duration of one
minute to a maximum of 75 minutes per day, which occur during two 40-
day periods around each of March 21 and September 21. The manufacturer
of the satellites, HSC, conducted an extensive analysis of the battery
data and concluded that the nature of the battery problem is such that
slow degradation of the battery cells may occur during normal battery
management procedures. PanAmSat has adopted a battery management
strategy during eclipse seasons intended to manage any future problems
with battery cells. There can be no assurance that additional battery
cell failures will not occur in future eclipse seasons.
Risks of Government Regulation. PanAmSat is subject to the regulatory
authority of the U.S. government, primarily the FCC, and the national
communications authorities of the countries in which it operates. If PanAmSat
does not obtain all requisite regulatory approvals for the construction,
launch and operation of any of PanAmSat's future satellites and for the
orbital slots planned for these satellites or, the licenses obtained impose
operational restrictions on PanAmSat, PanAmSat's business, financial condition
and results of operations could be materially adversely affected. In addition,
there can be no assurance that PanAmSat will succeed in coordinating any or
all of its future satellites internationally. The risks of government
regulation include:
. Some Orbital Slot Designations May Change or Expire
SBS-4's FCC license expired in 1994, and the satellite is operated
pursuant to grants of special temporary authority that are renewed
periodically. Following the failure of Galaxy IV, the FCC granted the
Company special temporary authority to relocate Galaxy VI from 74
(degrees) W.L. to 99 (degrees) W.L. to provide replacement C-band
capacity. In addition, the Company has received special temporary
authority to relocate Brasilsat A1 from 79 (degrees) W.L. to 144
(degrees) W.L. and to operate Brasilsat A1 at the new orbital location.
No assurance can be given that the Company's orbital slots granted
under temporary authority will be renewed in the future. The FCC also
reserves the right to require satellites to be re-located to a
different orbital location if it determines that re-location is in the
public interest.
. Replacement Satellites and Expanded Frequency Coverage are Subject to
Regulatory Approval
Some of the Company's planned satellites are intended as replacements
for the Company's current satellites. There can be no assurance that
these planned replacement satellites will be able to occupy their
proposed orbital location. Generally, the FCC gives a "replacement
expectancy" with respect to the use of the same orbital location at the
same frequencies for replacement satellites. The grant of a
28
<PAGE>
replacement expectancy may increase the likelihood that PanAmSat will
be able to use its replacement satellite to expand the frequencies or
coverages employed by the predecessors; however, no assurance can be
given that the Company will be successful at expanding such frequencies
and coverages.
. The U.S. Government Limits the Use of Non-U.S. Launch Providers
All of PanAmSat's planned launches are scheduled to occur on non-U.S.
launch providers. Because the U.S. Government limits the use of non-
U.S. launch providers, PanAmSat scheduled launches could be delayed or
canceled if PanAmSat cannot find an alternate launch provider. There is
a trade agreement between the United States and the Russian Federation
that limits the number of satellites manufactured in the United States
that may be launched aboard Russian launch vehicles through the end of
the year 2000. These limitations may affect PanAmSat launches on
Russian rockets. Although PanAmSat's Russian launch provider has
informed the Company that it is seeking to have the limit raised or
eliminated, it may not be. The failure to have such limits raised or
eliminated could result in a launch delay or increased launch costs.
. Use and Coverage Areas of Satellite Frequencies are Regulated
Certain of the Ku-band downlink beams on PAS-8 include coverage, at
very low power levels, of the West Coast of the United States and of
Hawaii. Because the Ku-band frequencies on these beams are allocated in
the United States to the BSS, PanAmSat's coverage of the United States
is on a "non-conforming use" basis, requiring that PanAmSat not
interfere with, and accept interference from, any authorized users in
the United States. If PanAmSat's efforts to resolve issues relating to
this non-conforming use status are not successful, PanAmSat may not be
able to operate these satellites as intended.
. Some Satellite Frequencies Must be Coordinated Individually with the
Government
Certain of the frequencies that are intended to be used to uplink to
PAS-7, PAS-6 PAS-6B, Galaxy VIII-I and Galaxy III-C must be coordinated
with the U.S. government on an earth-station-by-earth-station basis to
ensure that harmful interference to government operations is minimized.
Although PanAmSat has undertaken such coordination and believes that it
will either be able to coordinate successfully with federal government
users or to institute operational solutions that will mitigate the
problem, its failure to do so may make it impossible to operate these
satellites as planned.
PanAmSat's successful implementation of the Satellite Deployment Plan
depends upon the Company's ability to obtain regulatory authorization to
operate its satellites at certain locations. If PanAmSat does not obtain all
of the authorizations necessary to complete the Satellite Deployment Plan on
schedule, its business prospects could be materially adversely affected. See
"Item 1. Business--Government Regulation."
Risks of Doing Business Internationally. PanAmSat, its customers or
companies with which PanAmSat does business must have authority from each
country in which PanAmSat provides services or its customers use its
satellites. The failure to obtain the authorizations necessary to operate its
satellites internationally could have a material adverse effect on PanAmSat's
business. The risks of doing business internationally include:
. New or Changes in Law or Policies
The Company could be adversely affected by new laws, regulations,
policies or changes in the interpretation or application of existing
laws, regulations or policies that modify the present regulatory
environment. For instance, the governments of Pakistan and India
recently notified the Company that they separately intend to impose
withholding tax on payments to the Company for providing satellite
services to India and Pakistan, respectively. The Company believes that
the payments are exempt from Indian and Pakistani taxation under the
United States-India income tax treaty and the United States-Pakistan
income tax treaty, respectively, and, therefore, has taken measures to
contest the imposition of such withholding taxes. Even if the
withholding taxes were imposed and upheld, the Company believes its
customers would be contractually responsible for the payment of such
taxes and the Company would be entitled to full payment, without
deduction for any such taxes. There can be no assurance that the
Company will be successful in its efforts to contest the imposition of
such taxes by the Governments of India and Pakistan. If other
governments decide to adopt similar policies, the
29
<PAGE>
operations and business of the Company could be materially adversely
affected. See "Item 1. Business--Government Regulation."
. Local Non-U.S. Regulatory Schemes
PanAmSat believes that it presently holds the requisite licenses and
approvals for the countries in which it currently operates. The
regulatory schemes in each country, however, are different. As a
result, there may be non-U.S. governmental regulations of which
PanAmSat is not aware. Further, portions of PanAmSat's present and
future satellites are designed to provide service to countries in which
regulatory impediments exist. There can be no assurance that any
current regulatory approvals held by PanAmSat are, or will remain,
sufficient in the view of foreign regulatory authorities, or that any
additional necessary approvals will be granted on a timely basis, or at
all, in all jurisdictions in which the Company wishes to operate its
new satellites or that applicable restrictions in those jurisdictions
will not be unduly burdensome. In addition, it is unlikely that PAS-7
will be permitted to operate any of its C-band transponders until
certain coordination issues are resolved with the Russian Federation.
Risk of Uninsured Loss. Although the Company obtains launch insurance
policies designed to cover the cost to construct, launch and insure
replacement satellites, there is a risk that certain losses may not be covered
by the Company's policies. Typically, PanAmSat's launch policies are effective
for a period ranging between three and five years from the date of a satellite
launch. During that time, if a covered malfunction occurs, but no loss is
incurred until after the expiration of the policy, the launch insurance policy
will not cover the loss, and a subsequent in-orbit policy obtained may either
exclude losses related to the known event or impose deductibles that exceed
the loss associated with the event. In addition, PanAmSat does not obtain
insurance to cover the risk of revenues lost as a result of satellite
malfunctions. See "Item 1. Business--Insurance."
Risks Associated with the Internet Initiative
Net/36 will rely on PanAmSat's existing and future satellite network. Net/36
will utilize PanAmSat's satellites, and will be subject to all of the risks
described above. Furthermore, PanAmSat initially has allocated up to 24 Ku-
band transponders. The availability of these transponders assumes that
PanAmSat's existing satellites do not suffer any material in-orbit failures
and that future launches are timely and successful. Any delays or failures of
PanAmSat satellites could adversely affect the availability of satellite
coverage for Net/36.
NET/36 will be deployed in complex environments and is dependent on
integrating various existing technologies into a seamless network. NET/36 is
highly complex. As a result, during its initial commercial deployment, the
network may suffer technical problems due to integrating the various
technologies. If these technical problems occur, NET/36's deployment could be
delayed and the Company may incur additional expenses and suffer lost
anticipated revenues.
The successful deployment of NET/36 depends on PanAmSat's ability to
establish relationships with third parties for the use and ownership of
technology and the right to deploy equipment at ISPs. The Company will need to
deploy its servers in the facilities of ISPs, including cable headends and DSL
providers. PanAmSat has entered into and must continue to enter into
relationships with other technology providers in order to successfully roll-
out NET/36. There can be no assurance that PanAmSat will be able to enter into
additional relationships with technology providers on commercially reasonable
terms, or at all, or that these relationships will allow PanAmSat to achieve
its intended objectives.
The success of NET/36 is dependent upon the growth of the last mile
broadband capacity. The success of NET/36 depends in part on the growth of
available, last-mile broadband capacity for Internet end-users, such as DSL,
cable television, fiber optic cable and fixed wireless systems. No assurance
can be given that this growth will occur or that Internet end-users will
purchase the broadband capacity consistent with PanAmSat's expectations.
30
<PAGE>
The success of NET/36 depends on market acceptance of the services that
PanAmSat intends to offer over its network. PanAmSat believes that new and
existing content providers, such as data and video customers, and Internet
end-users will purchase, on a pay-per-view basis, the services offered by
NET/36. There can be no assurance, however, that either content providers or
Internet end-users will purchase the services offered by NET/36 in the
quantity or on the terms that PanAmSat expects. In addition, new and existing
content providers and Internet end-users may require features and capabilities
that NET/36 does not have. To achieve market acceptance of NET/36, PanAmSat
must effectively anticipate and adapt to the requirements and demands of
content providers and Internet end-users. Failure of PanAmSat to meet these
demands may result in delays, additional expense and lost anticipated
revenues.
Litigation. See "Item 3. Legal Proceedings."
YEAR 2000 EVENT DISCLOSURE
In connection with the Year 2000 event, the Company instituted a Year 2000
Plan (the "Y2K Plan") in 1997 and implemented it in 1998 and 1999. The Company
funded the Y2K Plan from cash flows from its operations. The Company incurred
costs of approximately $4.4 million in connection with the Y2K Plan through
December 31, 1999. Of this amount, the Company incurred approximately $250,000
during 1998 and $200,000 during 1997. The Company currently does not
anticipate that it will incur any additional expenses in connection with the
Y2K Plan.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Market Risks."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
31
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.............................................. 33
Consolidated Statements of Income for Each of the Three Years Ended Decem-
ber 31, 1999............................................................. 34
Consolidated Balance Sheets--December 31, 1999 and 1998................... 35
Consolidated Statements of Changes in Stockholders' Equity for Each of the
Three Years Ended December 31, 1999...................................... 37
Consolidated Statements of Cash Flows for Each of the Three Years Ended
December 31, 1999........................................................ 38
Notes to Consolidated Financial Statements................................ 39
</TABLE>
32
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
PanAmSat Corporation
We have audited the accompanying consolidated balance sheets of PanAmSat
Corporation and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of PanAmSat
Corporation and subsidiaries as of December 31, 1999 and 1998 and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1999 in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Stamford, Connecticut
January 14, 2000
33
<PAGE>
PANAMSAT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Operating leases, satellite services and other... $787,509 $736,624 $558,622
Outright sales and sales-type leases............. 23,108 30,639 71,317
-------- -------- --------
Total revenues................................. 810,617 767,263 629,939
-------- -------- --------
OPERATING COSTS AND EXPENSES:
Cost of outright sales and sales-type leases..... -- -- 20,476
Leaseback expense, net of deferred gains......... 15,391 47,223 61,907
Depreciation and amortization.................... 280,472 234,945 149,592
Direct operating costs........................... 103,973 96,510 61,199
Selling, general and administrative expenses..... 72,415 70,251 42,561
-------- -------- --------
Total operating costs and expenses............. 472,251 448,929 335,735
-------- -------- --------
INCOME FROM OPERATIONS............................. 338,366 318,334 294,204
INTEREST EXPENSE--Net.............................. 112,002 97,788 30,973
OTHER INCOME....................................... -- -- (385)
INCOME BEFORE INCOME TAXES, MINORITY INTEREST AND
EXTRAORDINARY ITEM................................ 226,364 220,546 263,616
INCOME TAXES....................................... 104,127 95,940 117,325
-------- -------- --------
INCOME BEFORE MINORITY INTEREST AND EXTRAORDINARY
ITEM.............................................. 122,237 124,606 146,291
MINORITY INTEREST--Subsidiary preferred stock divi-
dend.............................................. -- -- 12,819
-------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM................... 122,237 124,606 133,472
EXTRAORDINARY ITEM--LOSS ON EXTINGUISHMENT OF DEBT,
NET OF TAX........................................ -- -- 20,643
-------- -------- --------
NET INCOME......................................... $122,237 $124,606 $112,829
======== ======== ========
EARNINGS PER COMMON SHARE--Basic and diluted....... $ 0.82 $ 0.83
======== ========
Weighted average common shares outstanding......... 149,586 149,564
======== ========
</TABLE>
See notes to consolidated financial statements.
34
<PAGE>
PANAMSAT CORPORATION
CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 117,259 $ 177,542
Accounts receivable--net............................... 41,941 63,326
Net investment in sales--type leases................... 21,814 22,595
Prepaid expenses and other (principally prepaid insur-
ance)................................................. 26,808 38,692
Deferred income taxes.................................. 17,353 36,438
Insurance claim receivable............................. 33,359 --
---------- ----------
Total current assets................................. 258,534 338,593
---------- ----------
SATELLITES AND OTHER PROPERTY AND EQUIPMENT--Net......... 3,140,014 2,895,191
NET INVESTMENT IN SALES--TYPE LEASES..................... 146,147 173,382
GOODWILL--Net of amortization............................ 2,368,579 2,433,538
DEFERRED CHARGES......................................... 71,435 49,793
---------- ----------
TOTAL ASSETS............................................. $5,984,709 $5,890,497
========== ==========
</TABLE>
See notes to consolidated financial statements.
35
<PAGE>
PANAMSAT CORPORATION
CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities............... $ 122,094 $ 88,005
Deferred gains on sale-leasebacks...................... -- 34,303
Deferred revenues...................................... 21,049 21,294
---------- ----------
Total current liabilities............................ 143,143 143,602
---------- ----------
DUE TO AFFILIATES (principally merger related indebted-
ness)................................................... 1,797,163 1,788,353
LONG-TERM DEBT........................................... 817,814 750,056
DEFERRED GAINS ON SALE-LEASEBACKS........................ -- 121,477
DEFERRED INCOME TAXES.................................... 306,922 231,373
DEFERRED CREDITS AND OTHER (principally customer deposits
and deferred revenue)................................... 103,678 111,239
ACCRUED OPERATING LEASEBACK EXPENSE...................... -- 55,982
---------- ----------
TOTAL LIABILITIES........................................ 3,168,720 3,202,082
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value--400,000,000 shares au-
thorized; 149,351,786 and 149,231,121 outstanding at
December 31, 1999 and 1998, respectively.............. 1,493 1,492
Additional paid-in-capital............................. 2,509,652 2,504,316
Retained earnings...................................... 304,844 182,607
---------- ----------
Total stockholders' equity........................... 2,815,989 2,688,415
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............... $5,984,709 $5,890,497
========== ==========
</TABLE>
See notes to consolidated financial statements.
36
<PAGE>
PANAMSAT CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
PARENT PAR VALUE ADDITIONAL
COMPANY'S ------------------ PAID-IN RETAINED
NET INVESTMENT SHARES AMOUNT CAPITAL EARNINGS
-------------- ----------- ------ ---------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1997................... $ 802,093
Net income prior to
Merger................. 54,828 $(54,828)
Net contributions from
Parent................. 370,424 --
Capitalization in con-
nection with Merger.... (1,227,345) 149,122,807 $1,491 $2,500,854 --
Additional issuance of
common stock........... -- 12,847 -- 490 --
Net income.............. -- -- -- -- 112,829
----------- ----------- ------ ---------- --------
BALANCE, DECEMBER 31,
1997................... -- 149,135,654 1,491 2,501,344 58,001
----------- ----------- ------ ---------- --------
Additional issuance of
common stock........... -- 95,467 1 2,972 --
Net income.............. -- -- -- -- 124,606
----------- ----------- ------ ---------- --------
BALANCE, DECEMBER 31,
1998................... -- 149,231,121 1,492 2,504,316 182,607
=========== =========== ====== ========== ========
Additional issuance of
common stock........... -- 120,665 1 5,336 --
Net income.............. -- -- -- -- 122,237
----------- ----------- ------ ---------- --------
BALANCE, DECEMBER 31,
1999................... $ -- 149,351,786 $1,493 $2,509,652 $304,844
=========== =========== ====== ========== ========
</TABLE>
See notes to consolidated financial statements.
37
<PAGE>
PANAMSAT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVI-
TIES:
Net income............................. $ 122,237 $ 124,606 $ 112,829
Adjustments to reconcile net income to
net cash provided by operating
activities:
Gross profit on sales--type leases..... -- -- (33,180)
Depreciation and amortization.......... 280,472 234,945 149,592
Deferred income taxes.................. 94,634 62,608 129,065
Amortization of gains on sale-
leasebacks............................ (10,762) (36,140) (42,870)
Amortization of debt issuance costs.... 6,110 6,105 3,600
Provision for uncollectible receiv-
ables................................. 3,994 (4,943) --
Interest expense capitalized........... (60,719) (59,947) (80,468)
Insurance proceeds (net of $257.6 mil-
lion of satellite costs).............. -- 184,026 --
Minority interest...................... -- -- 12,819
Extraordinary item..................... -- -- 20,643
Changes in assets and liabilities, net
of acquired assets and liabilities:
Collections on investments in sales-
type leases.......................... 21,986 43,139 21,978
Operating lease and other receivables. 23,420 (20,103) (8,086)
Prepaid expenses and other assets..... (19,746) 48,296 (23,683)
Accounts payable and accrued liabili-
ties................................. (11,090) 21,065 (119,428)
Accrued operating leaseback expense... (18,624) (17,079) (7,657)
Deferred revenues and other........... 7,951 (18,406) (13,678)
----------- ----------- -----------
Net cash provided by operating activ-
ities............................... 439,863 568,172 121,476
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of PanAmSat International,
net of cash acquired.................. -- -- (1,486,266)
Capital expenditures................... (526,191) (678,593) (541,879)
Proceeds from sales of marketable secu-
rities................................ -- -- 388,173
Early buy-out of sale-leaseback (net of
$124.1 million of assumed indebtedness
in 1999).............................. (245,335) (155,530) --
Net book value of satellites recovered
through insurance..................... 272,046 257,605 --
----------- ----------- -----------
Net cash used in investing activi-
ties................................ (499,480) (576,518) (1,639,972)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
New borrowings (net of $124.1 million
of assumed indebtedness in 1999 and
including acquisition borrowings of
$1.725 billion in 1997)............... 1,700,000 1,165,000 2,349,336
Parent company contributions prior to
the Merger............................ -- -- 370,424
Repayments of long-term debt........... (1,700,000) (1,024,060) (1,082,952)
Repayments of incentive obligations.... (6,003) (30,632) (9,842)
Debt issuance costs.................... -- (19,132) (17,250)
Stock issued to 401(k) plan............ 5,337 2,973 490
----------- ----------- -----------
Net cash (used in) provided by fi-
nancing activities.................. (666) 94,149 1,610,206
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................ (60,283) 85,803 91,710
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR................................... 177,542 91,739 29
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR.. $ 117,259 $ 177,542 $ 91,739
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements
38
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
BASIS OF PRESENTATION--Effective May 16, 1997, PanAmSat Corporation (the
"Company") acquired the business of PanAmSat International Systems, Inc. (then
operating under its previous name, PanAmSat Corporation) ("PanAmSat
International"). In connection with the acquisition, the net assets of the
Galaxy Business of Hughes Communications, Inc. (the "Galaxy Business") were
contributed to the Company. (As used herein, the Company refers to the
business and operations of PanAmSat International Systems, Inc., formerly
known as PanAmSat Corporation, and the Galaxy Business, its predecessor
entity.) The consideration paid to PanAmSat International's common
stockholders consisted of $1.5 billion in cash and 42.5 million shares of
common stock of the Company having an estimated value of $1.3 billion. The
acquisition of PanAmSat International was accounted for as a purchase and its
operating results have been consolidated from the date of acquisition. The
purchase price exceeded the estimated fair value of PanAmSat International's
net assets (principally satellites) by approximately $2.5 billion, which has
been allocated to goodwill and is being amortized on a straight-line basis
over forty years.
In a separate but related transaction, as a condition precedent to the
merger, the Company redeemed 7.5 million shares of its common stock that were
received by a PanAmSat International stockholder for $225 million in cash, and
these proceeds were used by the former PanAmSat International stockholder to
acquire the Company's rights to equity interests in certain direct-to-home
businesses in Latin America and the Iberian Peninsula (the "DTH Rights").
In connection with the transactions described above, the Company borrowed
$1.725 billion from Hughes Electronics Corporation ("Hughes"), a wholly-owned
subsidiary of General Motors Corporation ("GM"), which then owned 71 1/2% of
the Company's common stock. The Hughes borrowings initially had a term of
three years, a floating interest rate of London Interbank Offered Rate
("LIBOR") plus 2% and quarterly principal payments of $50 million that
commenced in August 1998. (See Note 7 for a description of certain
modifications made to the terms of these borrowings.)
As a result of the merger transactions described above (the "Merger"), the
Company acquired the indebtedness of PanAmSat International consisting
primarily of 9 3/4% Senior Secured Notes due 2000 and 11 3/8% Senior
Subordinated Discount Notes due 2003, as well as its 12 3/4% Mandatorily
Exchangeable Senior Redeemable Preferred Stock due 2005 (the "Preferred
Stock"). During the third quarter of 1997, PanAmSat International exchanged
the Preferred Stock into 12 3/4% Senior Subordinated Notes due 2005. These
debt instruments are collectively referred to as the "Old Notes." (See Note 5
for a discussion of the refinancing of the Old Notes.)
The principal components of the Merger were as follows (in millions):
<TABLE>
<S> <C>
Fair value of assets acquired (excluding goodwill)................... $1,955
Goodwill............................................................. 2,470
Fair value of liabilities assumed (including the Old Notes).......... (1,425)
Fair value of common stock issued.................................... (1,275)
------
Subtotal-debt issued in connection with the Merger................... 1,725
Less: Cash acquired................................................ (239)
------
Net cash paid in connection with the Merger...................... $1,486
======
</TABLE>
39
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Unaudited pro forma summary results of operations as if PanAmSat
International had been acquired at the beginning of 1997 are presented below
(in thousands, except per share data):
<TABLE>
<CAPTION>
1997
--------
<S> <C>
Revenues........................................................... $755,980
Income before extraordinary items.................................. $118,628
Net income......................................................... $ 97,985
Income before extraordinary item per share--basic and diluted...... $ 0.80
Net income per share--basic and diluted............................ $ 0.66
</TABLE>
The unaudited pro forma results of operations include adjustments to reflect
the issuance of certain indebtedness related to the Merger, fair value
adjustments and the recognition of goodwill associated with the transaction.
The unaudited pro forma results exclude the impact of PanAmSat International's
$225 million pre-tax gain on the sale of the direct to home rights ("DTH
Rights"), as well as certain professional and advisory fees and other expenses
incurred by PanAmSat International in connection with the Merger totaling
$31.6 million, both of which are nonrecurring items that are not indicative of
the Company's ordinary course of business. The pro forma earnings per share
amounts for the year ended December 31, 1997 are calculated on a basic and
diluted basis using the pro forma average number of common shares assumed to
be outstanding during the period.
On May 1, 1998, Hughes increased its beneficial ownership of the Company
from approximately 71.5% to approximately 81% through the purchase of
approximately 11.2 million shares of common stock from the shareholder that
previously acquired the DTH Rights, and 2.9 million shares of common stock
from a group of founding shareholders of PanAmSat International, which
included certain former officers of the Company. These shares were purchased
for an aggregate amount of $851.0 million or $60 per share.
DESCRIPTION OF THE BUSINESS--PanAmSat is the world's largest commercial
provider of satellite-based communications services through its global network
of 20 satellites that provide state-of-the-art telecommunications services for
customers worldwide. The Company is a leading provider of satellite capacity
for television program distribution to network, cable and other redistribution
sources in the United States, Latin America, Africa, South Asia and the Asia-
Pacific region. The Company also provides satellite services and related
technical support for live transmissions for news and special events coverage.
In addition, PanAmSat provides satellite services to telecommunications
carriers, corporations and Internet service providers for the provision of
satellite-based communications networks, including private corporate networks
employing very small aperture antennas and international access to the U.S.
Internet backbone.
Prior to the Merger, the Galaxy Business was an operating division of a
wholly-owned subsidiary of Hughes and its financial information for these
periods was derived from the historical financial statements of the subsidiary
based upon assumptions that the Company's management believes represent a
reasonable basis for presenting results of operations and financial position.
Financial data for these periods also included the allocation of certain
corporate expenses of Hughes and its wholly-owned subsidiary based upon a
systematic allocation process that was uniformly applied to similar operating
business units of Hughes.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
the accounts of the Company and its domestic and foreign subsidiaries. All
significant intercompany balances and transactions have been eliminated.
40
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect amounts reported therein. Due to the inherent
uncertainty involved in making estimates, actual results reported in future
periods may be based upon amounts that differ from those estimates.
REVENUE RECOGNITION--The Company enters into contracts to provide satellite
capacity and related services. Revenues are generated from outright sale,
sales-type lease and operating lease contracts with customers to provide
satellite transponders and transponder capacity and, in certain cases, earth
station and teleport facilities, for periods typically ranging from one year
to the life of the satellite. All contracts stipulate payment terms in U.S.
dollars.
Pursuant to an outright sale contract, all rights and title to a transponder
may be purchased. In connection with an outright sale, the Company recognizes
the sale amount as revenue and the cost basis of the transponder is removed
and charged to cost of sales. Contracts for the sale of transponders include a
TT&C service agreement with the customer.
Lease contracts qualifying for capital lease treatment (typically based on
the term of the lease) are accounted for as sales-type leases. For sales-type
lease transactions, the Company recognizes as revenue the net present value of
the future minimum lease payments. The cost basis of the transponder is
removed and charged to cost of sales. During the life of the lease, the
Company recognizes as revenue in each respective period, that portion of each
periodic lease payment deemed to be attributable to interest income. The
balance of each periodic lease payment, representing principal repayment, is
recognized as a reduction of the net investment in sales-type leases. Interest
income from sales-type leases of approximately $23 million, $31 million and
$38 million is included in sales-type lease revenues for the years ended
December 31, 1999, 1998 and 1997, respectively. The allowance for doubtful
accounts for sales-type leases decreased $0.3 million in 1999, $2.3 million in
1998 and $5.1 million in 1997. There were no material additions to the
allowance for doubtful accounts for each of the three-year periods.
Lease contracts that do not qualify as sales-type leases are accounted for
as operating leases. Operating lease revenues are generally recognized on a
straight-line basis over the lease term unless collectibility is not
reasonably assured. Differences between operating lease payments received and
revenues recognized are deferred as, or amortized from, operating lease
receivables. Revenues for occasional services are recognized as services are
performed and billed. The Company has certain obligations, including providing
spare or substitute capacity if available, in the event of satellite service
failure under certain long-term agreements. If no spare or substitute capacity
is available, the agreements may be terminated. Except for certain deposits,
the Company is not obligated to refund operating lease payments previously
made.
Future cash payments expected from customers under all long-term
arrangements described above aggregate approximately $6.1 billion as of
December 31, 1999, including approximately $250 million relating to agreements
on satellites that are under construction at December 31, 1999 and are
expected to be in service by mid-2000.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The carrying amounts of cash, accounts
receivable, accounts payable and accrued liabilities approximate their fair
values generally due to the short maturity of these items. The carrying amount
of the net investment in sales-type leases approximates fair value based on
the interest rates implicit in the leases.
41
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1997, in connection with its debt refinancing activities,
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 fair value of these financial
instruments at December 31, 1997 approximated their contract value. The cost
to unwind these instruments in 1998 was $9.1 million and this amount has been
deferred and is being amortized to interest expense over the terms of the
related debt securities.
CONCENTRATION OF CREDIT RISK--The Company provides satellite transponders
and related services and extends credit to a large number of customers in the
commercial satellite communications market. Management monitors its exposure
to credit losses and maintains allowances for anticipated losses that are
charged to selling, general and administrative expenses. The currency in which
the contracts are denominated is the U.S. dollar. Revenues derived from
affiliates of Hughes comprised approximately 17% of total revenues in 1999. No
customer provides the Company with revenues in excess of 10% of total
revenues.
CASH AND CASH EQUIVALENTS--Cash and cash equivalents consists of cash on
hand and highly liquid investments with maturities at date of acquisition of
three months or less.
Supplemental cash flow information for 1999, 1998 and 1997 is as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash received for interest...................... $ 3,166 $ 13,364 $ 22,229
======== ======== ========
Cash paid for interest.......................... $166,749 $138,678 $109,858
======== ======== ========
Cash (recovered) paid for taxes................. $(14,666) $ 3,425 $105,218
======== ======== ========
</TABLE>
ACCOUNTS RECEIVABLE--Accounts receivable include amounts earned under
service agreements and occasional services which are billable as performed. An
allowance for doubtful accounts is maintained in the amount of approximately
$4.6 million and $6.0 million at December 31, 1999 and 1998, respectively.
SATELLITES AND OTHER PROPERTY AND EQUIPMENT--Satellites and other property
and equipment are stated at historical cost, or in the case of satellites
acquired from PanAmSat International, the fair value at the date of
acquisition. The capitalized cost of satellites includes all construction
costs, incentive obligations, launch costs, launch insurance, direct
development costs, and capitalized interest. Substantially all other property
and equipment consists of the Company's teleport facilities.
Depreciation and amortization are provided using the straight-line method
over the estimated useful lives of the respective assets as follows:
<TABLE>
<CAPTION>
ESTIMATED LIVES
(YEARS)
---------------
<S> <C>
Satellite systems under development.......................... --
Satellites in service........................................ 13-15
Communications equipment..................................... 7
General support equipment.................................... 5-10
Buildings.................................................... 25
</TABLE>
The estimated useful lives of the satellites are determined by an
engineering analysis performed at the initial in-service dates. As the
telecommunications industry is subject to rapid technological change, the
Company may be required to revise the estimated useful lives of its satellites
and communications equipment or to adjust their
42
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
carrying amounts. Accordingly, the estimated useful lives are periodically
reviewed using current TT&C data provided by various service providers. If a
significant change in the estimated useful lives is identified, the Company
accounts for such changes on a prospective basis.
EVALUATION OF LONG-LIVED ASSETS--The Company periodically evaluates
potential impairment loss relating to long-lived assets, including goodwill,
when a change in circumstances occurs, by assessing whether the unamortized
carrying amount can be recovered over the remaining life through undiscounted
future expected cash flows generated by the underlying assets (excluding
interest payments).
DEBT ISSUANCE COSTS--Included in Deferred Charges in the accompanying
balance sheet are debt issuance costs of $29.9 million at December 31, 1999
and 1998. These costs are being amortized to interest expense on a straight-
line basis over the life of the related indebtedness and the accumulated
amortization at December 31, 1999 and 1998 amounted to $13.6 million and $8.6
million, respectively.
GOODWILL--Goodwill is primarily related to the acquisition of PanAmSat
International and is being amortized over 40 years. Accumulated amortization
was $207.7 million and $142.8 million at December 31, 1999 and 1998,
respectively.
DEFERRED REVENUES--The Company enters into agreements with its customers
under which they make prepayments for services to be rendered over a specific
period. Payments received are deferred and amortized over the periods of
performance.
TRANSPONDER INSURANCE--The Company accrues an obligation for the present
value of estimated in-orbit performance insurance costs on transponder sales,
sales-type leases and other agreements with performance warranty provisions,
concurrently with the recognition of the related revenue. The Company also
purchases insurance for the book value of its owned satellite transponders.
Premiums paid relative to such insurance are amortized to expense over the
insurance policy terms, which are typically one to five years.
INCOME TAXES--The provision for income taxes is based upon reported income
before income taxes. Deferred income tax assets and liabilities reflect the
impact of temporary differences between the amounts of assets and liabilities
recognized for financial reporting purposes and such amounts recognized for
tax purposes, as measured by applying currently enacted tax rates. Beginning
in 1998, the Company and its subsidiaries joined with Hughes and GM in filing
a consolidated U.S. Federal income tax return. Under the tax sharing agreement
with Hughes, the portion of the Hughes consolidated tax liability recorded by
PanAmSat is generally equivalent to the liability it would have incurred on a
separate return basis. From the Merger date in 1997 and up to the date upon
which Hughes became an 81% shareholder in PanAmSat, the Company and its
domestic subsidiaries filed a separate consolidated U.S. Federal income tax
return.
Prior to the Merger, Hughes Communications, Inc. (which owned the Galaxy
Business), along with other Hughes subsidiaries, joined with GM in filing a
consolidated U.S. Federal tax return. Current and deferred income taxes were
computed by Hughes and allocated to the Company in accordance with principles
established by Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes." Hughes paid the Company's share of the
consolidated income tax liability and these payments increased the parent
company's net investment in the business.
EARNINGS PER SHARE--The Company reports its earnings per share in accordance
with SFAS No. 128, "Earnings Per Share." As the Company was an operating
division of Hughes for the period prior to the Merger, earnings per share data
for the year ended December 31, 1997 has not been presented. The Company's
only dilutive securities are common stock options and these options have no
dilutive effect on the presented amounts of earnings per share.
43
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
STOCK-BASED COMPENSATION--As permitted by SFAS No. 123, "Accounting for
Stock-Based Compensation", the Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees".
BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION--The Company operates in a
single industry segment, which is to provide satellite-based
telecommunications services to customers on a worldwide basis. Substantially
all of the Company's operating facilities are located in the United States.
The geographic distribution of the Company's revenues for 1999, 1998 and 1997
was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
United States................................................. 43% 59% 72%
Latin America................................................. 23% 21% 13%
Asia.......................................................... 18% 11% 5%
Other......................................................... 16% 9% 10%
</TABLE>
NEW ACCOUNTING PRONOUNCEMENTS--In June 1998, the Financial Accounting
Standards Board issued 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. PanAmSat will
adopt SFAS No. 133 by January 1, 2001, as required and management is currently
assessing the impact of this statement.
RECLASSIFICATION--Certain prior period amounts have been reclassified to
conform with the current year's presentation.
3. NET INVESTMENT IN SALES-TYPE LEASES
The components of the net investment in sales-type leases are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
-------- --------
<S> <C> <C>
Total minimum lease payments............................. $249,045 $301,878
Allowance for doubtful accounts.......................... (10,273) (10,562)
Less unearned interest income............................ (70,811) (95,339)
-------- --------
Total net investment in sales-type leases................ 167,961 195,977
Less current portion..................................... (21,814) (22,595)
-------- --------
$146,147 $173,382
======== ========
</TABLE>
Future minimum payments due from customer under sales-type leases and
related service agreements (primarily TT&C and in-orbit performance
protection) as of December 31, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
MINIMUM SERVICE
LEASE AGREEMENT
PAYMENTS PAYMENT
-------- ---------
<S> <C> <C>
2000...................................................... $ 42,028 $ 5,325
2001...................................................... 43,404 5,700
2002...................................................... 43,437 5,700
2003...................................................... 43,391 5,700
2004...................................................... 39,688 5,175
2005 and thereafter....................................... 37,097 5,235
-------- -------
$249,045 $32,835
======== =======
</TABLE>
44
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. SATELLITES AND OTHER PROPERTY AND EQUIPMENT--NET
The Company's principal operating assets consist of satellites in service,
summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
Satellite transponders under lease................... $2,398,407 $2,142,710
Satellite systems under development.................. 1,204,823 1,088,861
Buildings and leasehold improvements................. 58,690 44,253
Machinery and equipment.............................. 206,175 171,642
Other................................................ 19,350 14,307
---------- ----------
3,887,445 3,461,773
Less accumulated depreciation........................ (747,431) (566,582)
---------- ----------
$3,140,014 $2,895,191
========== ==========
</TABLE>
At December 31, 1999, the Company had contracts for the construction and
development of five satellites with Hughes. Satellite contracts typically
require the Company to make progress payments during the period of the
satellite's construction and orbital incentive payments (plus interest) over
the orbital life of the satellite. The incentive obligations are subject to
reduction or refund if the satellite fails to meet specific technical
operating standards. The satellite construction contracts contain provisions
that would enable the Company to terminate the contracts with or without
cause. If terminated without cause, the Company would forfeit its progress
payments and be subject to termination payments that escalate with the passage
of time. If terminated for cause, the Company would be entitled to recover any
payments it made under the contracts and certain liquidated damages as
specified in the contracts.
On January 13, 2000, Hughes announced that it had reached an agreement to
sell its satellite manufacturing businesses to The Boeing Company in a
transaction that is expected to close in the second or third quarter of 2000.
PanAmSat does not believe that this transaction will have any material effect
on its existing contracts for satellites currently under construction, or its
ability to obtain future satellite contracts on terms that are commercially
reasonable.
The Company has entered into launch contracts for the launch of both
specified and unspecified future satellites. Each of the Company's launch
contracts provides that the Company may terminate such contract at its option,
subject to payment by the Company of a specified termination liability that
increases in magnitude as the applicable launch date approaches. In addition,
in the event of a failure of any launch, the Company may exercise the right to
obtain a replacement launch within a specified period following the Company's
request for re-launch.
The Company has experienced various technical incidents on a number of its
in-orbit satellites. These incidents generally have resulted in one or more of
the following: (i) a limitation or total loss of the satellite's ability to
provide the full complement of services that it was designed to provide, (ii)
a material reduction to the satellite's expected orbital life, or (iii) a
reduction in certain of the satellite's on-board redundant systems making it
more exposed to potential damage in the event of an additional incident.
Whenever the Company experiences a satellite anomaly or failure, management
conducts an investigation of the cause of the event and determines the effects
that the anomaly may have on the carrying value of its satellites and other
assets and liabilities. The Company has insurance coverage that generally
reimburses the Company for all or a substantial portion of the carrying value
of the net assets that are affected by the anomaly.
45
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In April 1999, the Company filed two insurance claims related to anomalies
on its PAS-8 and PAS-5 satellites. The claim on the PAS-8 satellite was for a
partial loss primarily resulting from the loss in geographic coverage,
connectivity and/or switchability of the Ku-band transponders. The claim on
PAS-5 was for a constructive total loss of the satellite because the Company
has ceased using all of the Ku-band capacity of the satellite on a full-time
basis, and this capacity represents more than 50% of the satellite's
communications capacity. In August 1999, the Company filed an insurance claim
on its Galaxy VIII-I satellite for a partial loss primarily resulting from
battery cell failures. In September 1999, the Company met with its insurance
carriers and agreed to settle all of the claims for net cash to PanAmSat of
approximately $304 million, of which approximately $271 million was collected
as of December 31, 1999. The insurance settlements were recognized as offsets
to the carrying values of the related satellites, and no gain or loss has been
recognized in 1999 as a result of these settlements.
During 1998, the Company received insurance proceeds of $441.6 million
resulting from insurance claims and disposed of the carrying value of the
related assets as follows (in millions):
<TABLE>
<CAPTION>
DISPOSITION NET BOOK VALUE OF
---------------------------------- EXCESS/
NET INVESTMENT OTHER (DEFICIENCY)
INSURANCE IN SALES-- ASSETS OR OF PROCEEDS OVER NET
PROCEEDS SATELLITE TYPE LEASES LIABILITIES BOOK VALUE
--------- --------- -------------- ----------- --------------------
<S> <C> <C> <C> <C> <C>
Galaxy IV............... $ 162.5 $ 56.8 $72.2 $39.8 $(6.3)
Galaxy X................ 250.0 171.7 43.8 28.4 6.1
PAS-6................... 29.1 -- -- -- --
-------
$ 441.6
=======
</TABLE>
The insurance proceeds relating to the PAS-6 anomaly were recorded as a
reduction in the carrying value of the PAS-6 satellite.
Future minimum lease payments due from customers under non-cancelable
operating leases on completed satellites are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1999
MINIMUM LEASE
PAYMENTS
-----------------
<S> <C>
2000....................................................... $ 811,219
2001....................................................... 727,405
2002....................................................... 666,969
2003....................................................... 624,947
2004....................................................... 583,413
2005 and thereafter........................................ 2,191,447
----------
$5,605,400
==========
</TABLE>
In February 1996, the Company entered into a sale-leaseback agreement for
certain transponders on Galaxy IIIR with General Motors Acceptance Corporation
("GMAC"), a subsidiary of GM. Proceeds from the sale were $252 million and the
sale resulted in a deferred gain of $109.0 million that was deferred and is
being amortized over the seven-year leaseback period. In prior years, the
Company entered into sale-leaseback agreements for the sale of certain
transponders on SBS-6 and Galaxy VII, resulting in deferred gains that were
being amortized over the expected term of the leaseback periods. The Company's
obligations under each sale-leaseback arrangement were guaranteed by GM (as
successor-in-interest to Hughes). In connection with the Merger, the Company
agreed to pay and indemnify GM for performing any of its obligations under
such guarantees. In 1998,
46
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the Company exercised its early buy-out options for certain transponders on
the SBS-6 transaction and repurchased the transponders for total payments of
$155.5 million. In January 1999, the Company exercised an early buy-out option
for $141.3 million (including a make-whole premium of $2.7 million) related to
certain transponders on Galaxy VII. In July 1999, the Company exercised its
final early buy-out options on Galaxy IIIR and Galaxy VII for approximately
$103.5 million in cash and $124.1 million of debt assumed in connection with
the Galaxy IIIR transaction. Other than indemnity obligations, the Company no
longer has any obligations under sale-leaseback agreements.
5. LONG-TERM DEBT
As of December 31, 1999 and 1998, long-term debt consisted of the following
(in thousands):
<TABLE>
<CAPTION>
1999 1998
----------------- -----------------
FAIR FAIR
BOOK MARKET BOOK MARKET
VALUE VALUE VALUE VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
6% Notes due 2003....................... $200,000 $187,550 $200,000 $196,310
6 1/8% Notes due 2005................... 275,000 248,250 275,000 268,076
6 3/8% Notes due 2008................... 150,000 129,030 150,000 146,253
6 7/8% Notes due 2028................... 125,000 96,040 125,000 118,080
Galaxy IIIR Notes....................... 124,123 124,123 -- --
Other................................... 56 56 56 56
-------- -------- -------- --------
874,179 785,049 750,056 728,775
Less current maturities (included in ac-
counts payable and accrued liabili-
ties).................................. 56,365 56,365 -- --
-------- -------- -------- --------
$817,814 $728,684 $750,056 $728,775
======== ======== ======== ========
</TABLE>
Fair value amounts were determined based on quoted market prices for the
Notes or on current rates available to the Company for debt with similar
maturities and similar terms.
In December 1997, the Company completed a debt tender offer and
restructuring program (the "Program") for the Old Notes. In connection with
the Program, the Company purchased approximately 99% of the principal amount
of each class of the Old Notes then outstanding. The Company also entered into
a bank borrowing agreement (the "Bank Agreement") that provided for bridge
loans of up to $300 million (terminating in April 1998) and loans of up to
$500 million under a five-year revolving credit facility (the "Revolving
Credit Facility"). Borrowings under the Revolving Credit Facility, at the
Company's option, bear interest at a rate based upon either a defined Base
Rate, or LIBOR plus applicable margins that are based upon the Company's
credit rating. The interest margins include a component that is a facility
fee, which ranges from 0.35% to 0.75% depending on the rating level. Using
$600 million in borrowings under the Bank Agreement (including $100 million
under the bridge loans) and available cash (including cash from the
liquidation of certain marketable securities), the Company retired Old Notes
having a principal value of approximately $1.1 billion. The Program resulted
in the recognition of an extraordinary charge of $20.6 million ($34.3 million
before taxes) in 1997 related principally to the excess of the price paid for
the debt over its carrying value, net of any deferred financing costs and fair
value adjustments recognized in connection with the Merger.
In January 1998, the Company borrowed an additional $125 million under the
Bank Agreement principally for the purpose of exercising an early buy-out
option on a sale-leaseback agreement. Also in January 1998, the Company
completed a private placement debt offering for five, seven, ten and thirty
year notes aggregating $750 million (the "Notes Offering"), the proceeds of
which were used to retire all of the outstanding borrowings
47
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
under the Bank Agreement. As a result of the Notes Offering, the bridge loan
under the Bank Agreement terminated, and the Revolving Credit Facility remains
in place to be used for future borrowings, or as a back-up facility for a
commercial paper program. In August 1998, the Company converted the private
placement debt to public debt by means of a debt exchange offer.
In July 1998, the Company launched a $500 million Commercial Paper Program
to provide for short-term borrowings that the Company can refinance on a long-
term basis with loans under the Revolving Credit Facility. Borrowings under
the Revolving Credit Facility and the Commercial Paper Program are limited to
$500 million in the aggregate. There were no Commercial Paper or Revolving
Credit Facility borrowings outstanding at December 31, 1999.
In July 1999, in connection with the early buy-out of the Galaxy IIIR sale-
leaseback, the Company assumed variable rate notes. The notes bear interest at
LIBOR plus 0.25% and mature on various dates through January 2, 2002. At
December 31, 1999, $124.1 million was outstanding of which $56.4 million is
classified as current.
The Hughes Term Loan is subordinate to the notes issued in connection with
the Notes Offering, the Revolving Credit Facility and the notes issued under
the Commercial Paper Program.
Annual maturities of long-term debt are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
2000............................................................ $ 56,365
2001............................................................ 21,216
2002............................................................ 46,542
2003............................................................ 200,000
2004............................................................ --
2005 and thereafter............................................. 550,056
--------
$874,179
========
</TABLE>
Interest expense for 1999 and 1998 is presented net of interest income of
$1.8 million and $5.8 million, respectively.
6. INCOME TAXES
The income tax provision consisted of the following (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- --------
<S> <C> <C> <C>
Taxes currently (receivable) payable U.S.
federal, state and foreign...................... $ 9,493 $33,331 $(11,740)
Deferred tax liabilities (assets)--net U.S.
federal, state and foreign...................... 94,634 62,609 129,065
-------- ------- --------
Total income tax provision....................... $104,127 $95,940 $117,325
======== ======= ========
</TABLE>
48
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The income tax provision was different than the amount computed using the
U.S. statutory income tax rate for the reasons set forth in the following
table (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- --------
<S> <C> <C> <C>
Expected U.S. statutory income tax rate........ $ 79,227 $77,191 $ 92,266
U.S. state and local income tax rates--net of
federal income tax effect..................... 8,534 10,035 12,900
Foreign sales corporation tax benefit.......... (6,684) (14,000) (9,485)
Non-deductible goodwill amortization........... 22,736 22,582 14,527
Other.......................................... 314 132 7,117
-------- ------- --------
Total income tax provision..................... $104,127 $95,940 $117,325
======== ======= ========
</TABLE>
Temporary differences that give rise to deferred tax assets and liabilities
are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
------------------------ ------------------------
DEFERRED DEFERRED
TAX DEFERRED TAX DEFERRED
ASSETS TAX LIABILITIES ASSETS TAX LIABILITIES
-------- --------------- -------- ---------------
<S> <C> <C> <C> <C>
Sale-leasebacks........... $ -- $ -- $ 65,428 $ --
Depreciation.............. -- 315,909 -- 235,390
Launch insurance costs.... -- 121,340 -- 103,070
Customer deposits......... 15,814 -- 17,798 --
Accruals and advances..... 20,091 -- 27,343 --
Tax credit carryforward... 65,966 -- 13,894 --
Net operating loss
carryforward............. 18,746 -- -- --
Other..................... 33,882 6,819 24,440 5,378
-------- -------- -------- --------
Total deferred taxes...... $154,499 $444,068 $148,903 $343,838
======== ======== ======== ========
</TABLE>
At December 31, 1999, the Company had non-current deferred tax liabilities
of $444,068 thousand and deferred tax assets of $154,499 thousand, of which
$17,353 thousand was current in nature. At December 31, 1998, the Company had
non-current deferred tax liabilities of $343,838 thousand and deferred tax
assets of $148,903 thousand, of which $36,438 thousand was current in nature.
At December 31, 1999, the Company had $65,966 thousand of alternative minimum
tax credits that can be carried forward indefinitely. The Company also had
$18,746 thousand of deferred tax assets relating to operating loss
carryforwards that expire in varying amounts over the period of 2004-2018 if
not utilized.
7. RELATED PARTY TRANSACTIONS AND BORROWINGS
The Company purchases certain of its satellites and launch services from a
subsidiary of Hughes and has provided services to several subsidiaries of
Hughes. The Company also reimburses Hughes for the allocated costs of certain
expense items it jointly incurs with Hughes, principally relating to
administrative and other expenses. The aggregate amounts of related party
transactions are summarized below (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Satellite Purchases.............................. $184,242 $267,133 $345,546
Satellite Services Revenues:
Operating lease revenues....................... 116,044 105,663 87,235
Other satellite services....................... 21,573 17,791 5,363
Allocations of Expenses:
Administrative and other expenses.............. 2,187 3,211 9,005
Interest expense............................... 111,090 108,288 91,020
</TABLE>
49
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Interest expense for 1999 and 1998 is presented net of $1.4 million and $4.6
million of interest income, respectively.
The following table provides summary information relative to the Company's
accounts receivable and borrowings from Hughes and its affiliates (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
Due from affiliates................................. $ 7,696 $ 31,115
========== ==========
Due to affiliates:
Merger-related borrowings......................... $1,725,000 $1,725,000
Incentive obligations............................. 77,628 67,368
---------- ----------
1,802,628 1,792,368
Less current portion of incentive obligations (in-
cluded in accounts payable and accrued liabili-
ties)............................................ (5,465) (4,015)
---------- ----------
Total due to affiliates........................... $1,797,163 $1,788,353
========== ==========
</TABLE>
In connection with the Notes Offering described in Note 5, the Company also
modified the terms of its indebtedness with Hughes so that the maturity of the
borrowings was extended to June 24, 2003, the mandatory principal payments
were eliminated (however, prepayments of principal are permitted under certain
circumstances depending upon the level of cash flow from operations), the
interest rate on the debt was adjusted to be a floating rate equal to that
under the Bank Agreement, and the debt became subordinated to that under the
Bank Agreement and the Notes Offering. In addition, subsequent to May 16, 2000
(the original maturity of the indebtedness), Hughes has the right to request
that the Company use its best efforts to replace the credit facility with
another credit facility on terms that may then be available to the Company.
Annual maturities of amounts due to affiliates are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
2000.............................................................. $ 5,465
2001.............................................................. 6,028
2002.............................................................. 6,648
2003.............................................................. 1,732,330
2004.............................................................. 7,613
2005 and thereafter............................................... 44,544
----------
$1,802,628
==========
</TABLE>
8. RETIREMENT AND INCENTIVE PLANS
EMPLOYEE BENEFIT PLANS:
DEFINED CONTRIBUTION PLANS 401(K) PLAN--The Company has a 401(k) plan for
qualifying employees. A portion of employee contributions is matched by the
Company with shares of its common stock. The number of shares contributed to
the plan and the respective market values were 33,470, 23,681 and 12,847
shares and $1.2 million, $1.1 million and $0.5 million for 1999, 1998, and
1997 respectively.
DEFERRED COMPENSATION PLAN--The Company has a Restoration and Deferred
Compensation Plan (the "Deferred Compensation Plan") for eligible employees.
Under the Deferred Compensation Plan, executives and
50
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
other highly compensated employees of the Company are entitled to defer a
portion of their compensation to future years. The annual amount that can be
deferred is subject to certain limitations, and a portion of the employee's
contribution may be matched by the Company if the employee elected to defer
the maximum amount permissible under the Deferred Compensation Plan and the
Internal Revenue Code of 1986, as amended. The maximum annual Company match
under both the 401(k) Plan and the Deferred Compensation Plan is limited to an
aggregate level of 4% of annual compensation. The Company matched portion of
the Deferred Compensation Plan consists of "credits" which vest when awarded.
Contributions that receive employer matching are required to be deferred until
termination of employment, and any non-matched contributions may be deferred
over a period selected by the employee. In addition, the Company, at its
discretion, may make contributions to the Plan for the benefit of any
participant as supplemental compensation. The Deferred Compensation Plan is an
unfunded plan, and the deferrals and matching credits will receive earnings
based upon rates set by the Compensation Committee of the Board of Directors
(the "Compensation Committee"), but in no event will these amounts earn less
than 100% of the Moody's Corporate Bond Index Rate.
1997 STOCK INCENTIVE PLAN--On May 5, 1997, the Company's Board of Directors
adopted the PanAmSat Corporation Long-Term Stock Incentive Plan (the "Stock
Plan"), which provides for the granting of nonqualified stock options,
incentive stock options, alternate appreciation rights, restricted stock,
performance units and performance shares to executive officers, other
employees, directors and independent contractors of the Company. Restricted
stock, performance units and performance shares may be granted at the
discretion of the Compensation Committee on such terms as the committee may
decide. The maximum number of shares of common stock that may be issued under
the Stock Plan is 7,456,140 and the maximum number of shares of common stock
that may be issued to any grantee pursuant to the plan is 2,000,000. The Stock
Plan is administered by the Compensation Committee. As of December 31, 1999,
nonqualified options for 3,598,255 shares of common stock (net of options
expired or terminated) have been granted under the Stock Plan. Such options
are exercisable at a price equal to 100% of the fair market value at the date
of grant and generally vest ratably over three years for grants prior to 1999.
In 1999, the Company issued 2,298,625 options under a two-year grant program
with ratable vesting over a four-year period, and 308,166 options under the
existing annual grant program with ratable vesting over three years. Employees
receiving option grants under the two-year program will not be eligible for
additional grants until 2001. Activity in the Company's Stock Plan during the
past three years is summarized below:
<TABLE>
<CAPTION>
SHARES EXERCISE PRICE RANGE
--------- -------------- -------------
<S> <C> <C> <C>
Options granted..................... 584,890 $29.09 $29.00-$38.25
Options exercised................... -- -- --
Options expired or terminated....... -- -- --
--------- ------ -------------
Outstanding at December 31, 1997.... 584,890 $29.09 $29.00-$38.25
--------- ------ -------------
Options granted..................... 1,037,719 39.81 35.06- 59.75
Options exercised................... (63,059) 29.00 29.00
Options expired or terminated....... (129,290) 33.57 29.00- 59.75
--------- ------ -------------
Outstanding at December 31, 1998.... 1,430,260 $36.48 $29.00-$59.75
--------- ------ -------------
Options granted..................... 2,606,791 33.41 31.13- 63.25
Options exercised................... (79,364) 33.37 29.00- 39.00
Options expired or terminated....... (501,855) 34.67 29.00- 59.75
--------- ------ -------------
Outstanding at December 31, 1999.... 3,455,832 $34.50 $29.00-$63.25
--------- ------ -------------
Options exercisable at December 31,
1999............................... 439,420 $36.46 $29.00-$59.75
========= ====== =============
</TABLE>
51
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As permitted by SFAS No. 123, "Accounting for Stock Based Compensation", the
Company has applied the recognition and measurement principles of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued To Employees",
to its stock options and other stock-based compensation awards and,
accordingly, no compensation expense has been recognized on options granted to
date. Had compensation expense for stock options granted been determined based
on the fair value of the options at the grant dates (consistent with the
provisions of SFAS 123), the Company's net income would have been reduced by
approximately $13.6 million, or $0.09 per basic and diluted share in 1999,
$6.7 million, or $0.04 per basic and diluted share, in 1998, and $2.0 million
in 1997.
The Company uses the Black-Scholes model for estimating the fair value of
its compensation instruments. The estimated fair value of options granted in
1999 was $22.35 and the weighted average assumptions used for calculation of
the value were as follows: risk-free interest rate of 5.6%; dividend yield 0%;
expected life of ten years; and stock volatility of 30.6%. The estimated fair
value of options granted in 1998 was $21.85 and the weighted average
assumptions used for calculation of the value were as follows: risk-free
interest rate of 5.7%; dividend yield 0%; expected life of ten years; and
stock volatility of 30.7%. The estimated fair value of options granted in 1997
was $16.80 and the weighted average assumptions used for calculation of the
value were as follows: risk-free interest rate of 6.7%; dividend yield 0%;
expected life of ten years; stock volatility of 30.0%.
Beginning in 1998, directors who are not full-time employees of the Company
receive their annual retainers in shares of restricted Common Stock of the
Company. The shares are issued each year after the Company's annual meeting,
vest quarterly over the course of the year served, and may not be sold for a
period of six months after vesting, subject to the Company's trading policies.
Directors also receive meeting fees in shares of restricted Common Stock of
the Company. The shares are issued after each in-person or telephonic board or
committee meeting attended, and may not be sold for a period of six months
following the date of grant, subject to the Company's trading policies. As a
group, non-employee directors received 7,468 shares with a weighted average
fair value of $37.66 per share in 1999, and 5,284 shares with a weighted
average fair value of $50.64 per share in 1998. Directors also were granted
non-qualified stock options for 1,216 shares at an average price of $35.88 in
1999, and 4,284 shares at an average price of $53.09 in 1998 under the Stock
Plan (as described above) upon their initial year of election to the Board.
Director stock option grants vest over a six-month period from the date of
grant and all 5,500 shares became exercisable in 1999.
In January 1999, the Company terminated the stock options previously granted
to a senior executive of the Company and issued new options to this individual
whose status changed from employee to consultant. Under the terms of the new
option agreement, the options have strike prices equal to the strike prices of
the former options and vest over a six-month period. The new options have a
term of five years and contain a twelve-month non-compete restriction with
respect to options exercised on or before December 31, 2000. These
nonqualified stock options were not issued from shares reserved for the Stock
Plan and consist of options for 40,000 shares at a strike price of $39.00 per
share, and 31,250 shares with a strike price of $29.00 per share. In 1999,
compensation expense of $1.2 million was recognized relative to these options
based on the Black-Scholes valuation of the options as they vested.
COMPENSATION PLANS--On May 16, 1997, the Company assumed the certain
obligations of PanAmSat International with respect to its General Severance
Policy, Employee Separation Plan and an Executive Severance Pay Program. These
plans allow for benefits to be paid to the former employees of PanAmSat
International who became employees of the Company as a result of the Merger
under certain circumstances relating to a termination of employment. The
benefits provided under these programs expired at various dates through May
1999. Agreements with two officers of the Company were replaced with new
retention agreements that provide for cash payments and the issuance of
restricted stock units that entitle the holder to receive shares of common
stock of the Company. These latter agreements contain a vesting term of three
years, and the related
52
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
compensation expense is being amortized over the vesting period. Two other
officers of the Company exercised their severance agreements and were entitled
to separation payments that are subject to a non-compete agreement. A portion
of the separation compensation expense has been assigned to the non-compete
agreement and is being amortized over its term. During 1999 and 1998,
compensation expense of $1.6 million and $3.1 million, respectively, has been
recorded for these separation and retention agreements. During 1997, no
material compensation expense was recognized under these programs.
9. COMMITMENTS AND CONTINGENCIES
The Company has commitments for operating leases primarily relating to
equipment and its executive office facilities in Greenwich, Connecticut and
various other locations. These leases contain escalation provisions for
increases as a result of increases in real estate taxes and operating
expenses. Minimum annual rentals of all leases, exclusive of potential
increases in real estate taxes and operating assessments, are as follows (in
thousands):
<TABLE>
<S> <C>
2000................................................................. $ 3,208
2001................................................................. 2,831
2002................................................................. 2,509
2003................................................................. 1,409
2004................................................................. 3,389
2005 and thereafter.................................................. 5,368
-------
$18,714
=======
</TABLE>
Rental expenses under the operating leases were $3.3 million in 1999, $2.7
million in 1998 and $1.3 million in 1997.
The Company maintains launch and in-orbit insurance coverage for all of its
satellites. Coverage under the policies usually commences at the date of
launch for an initial period of three to five years, followed by periodic
renewals of the in-orbit portion of the coverage for periods of one to three
years. The policies cover the Company for the unamortized book value of the
satellites (including construction, launch and launch insurance costs) in the
event of catastrophic loss of the satellite, failure to obtain proper orbit,
or failure to perform in accordance with design specifications as to the
launch coverage, and full or partial loss of the satellite's communications
capacity, as defined in the policies, during the in-orbit coverage period. The
policies are subject to certain deductibles and customary exclusions. Certain
of the Company's satellites have experienced malfunctions or design failures
that have not resulted in total loss claims under the existing insurance
coverage at the time the incidents occurred. These anomalies have been, or may
be excluded from coverage in future renewals of in-orbit insurance and thus
expose the Company to losses in the event that satellite failures occur as a
result of these anomalies.
In October 1996, Comsat Corporation ("Comsat") initiated an action seeking
unspecified actual, consequential and punitive or exemplary damages against
PanAmSat International, Televisa and News Corporation ("News"). The complaint
alleges that the Company interfered with the alleged termination by News of an
alleged contract between Comsat and News. The Company filed a motion to
dismiss the case for lack of personal jurisdiction, which was denied by the
Court of Common Pleas on December 1, 1999. Discovery in this action has
commenced and is ongoing. The complaint seeks compensatory damages in an
amount not to exceed $70,000 per plaintiff. On December 29, 1999, all claims
in Comsat's complaint were dismissed on summary judgment. Comsat may and can
appeal this decision.
53
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company is involved in other litigation in the normal course of its
operations. Management does not believe the outcome of such matters will have
a material effect on the consolidated financial statements.
10. QUARTERLY FINANCIAL INFORMATION--UNAUDITED
Summary financial information on a quarterly basis for the Company in 1999
and 1998 follows (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------
MARCH
31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1999 1999 1999 1999
-------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues.......................... $193,509 $200,382 $210,739 $205,987
Operating income.................. 78,315 82,392 98,244 79,415
Net income........................ 30,468 30,565 33,996 27,208
Net income per share--basic and
diluted.......................... 0.20 0.20 0.23 0.18
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------
MARCH
31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998 1998 1998 1998
-------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues.......................... $193,025 $191,080 $186,540 $196,618
Operating income.................. 84,876 73,569 78,327 81,562
Net income........................ 35,348 27,757 29,925 31,576
Net income per share--basic and
diluted.......................... 0.24 0.19 0.20 0.21
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
54
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See the information set forth under the captions "Election of Directors" and
"Executive Officers of the Company" contained in the Company's Proxy Statement
(to be filed not later than 120 days after the end of the Company's fiscal
year) for the 2000 Annual Meeting of Stockholders, which information is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
See the information set forth under the caption "Executive Compensation" (up
to but not including the subcaption "Report of the Compensation Committee")
contained in the Company's Proxy Statement (to be filed not later than 120
days after the end of the Company's fiscal year) for the 2000 Annual Meeting
of Stockholders, which information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the information set forth under the caption "Security Ownership of
Certain Beneficial Owners and Management" contained in the Company's Proxy
Statement (to be filed not later than 120 days after the end of the Company's
fiscal year) for the 2000 Annual Meeting of Stockholders, which information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the information set forth under the subcaptions "Compensation Committee
Interlocks and Insider Participation" and "Certain Transactions" under the
caption "Executive Compensation" contained in the Company's Proxy Statement
(to be filed not later than 120 days after the end of the Company's fiscal
year) for the 2000 Annual Meeting of Stockholders, which information is
incorporated herein by reference.
55
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A)1.FINANCIAL STATEMENTS
See Index to Financial Statements on page .
2.FINANCIAL STATEMENT SCHEDULES
Financial statement schedules are omitted because of the absence of
the conditions under which they are required, or because the
information is set forth in the financial statements or notes
thereto.
(B)REPORTS ON FORM 8-K
During the last quarter of 1999, the Company did not file any
Current Reports on Form 8-K with the Securities and Exchange
Commission.
(C)EXHIBITS
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2.1 Agreement and Plan of Reorganization, dated September 20, 1996, among
Hughes Communications, Inc., Hughes Communications Galaxy, Inc.,
Hughes Communications Satellite Services, Inc., Hughes Communications
Services, Inc., Hughes Communications Carrier Services, Inc., Hughes
Communications Japan, Inc., PanAmSat Corporation (formerly known as
Magellan International, Inc. ("PanAmSat")) and PanAmSat International
Systems, Inc. (formerly known as PanAmSat Corporation and successor
corporation to PanAmSat, L.P. ("PanAmSat International")) is
incorporated herein by reference to Exhibit 2.3 to PanAmSat
International's Quarterly Report on Form 10-Q for the period ended
June 30, 1996.
2.2 Amendment to Agreement and Plan of Reorganization dated as of April 4,
1997 constituting Exhibit 2.1 hereto is incorporated herein by
reference to Appendix AA to the Proxy Statement/Prospectus (the "Proxy
Statement/Prospectus") contained in PanAmSat's Registration Statement
on Form S-4 (Reg. No. 333-25293) filed on April 16, 1997 (the
"Registration Statement").
2.3 Agreement and Plan of Merger, dated as of April 4, 1997, among
PanAmSat International, PAS Merger Corp. and PanAmSat is incorporated
herein by reference to Appendix B to the Proxy Statement/Prospectus.
2.4 Assurance Agreement, dated September 20, 1996, between Hughes
Electronics Corporation, PanAmSat International, Satellite Company,
L.L.C. and PanAmSat is incorporated herein by reference to Appendix K
to the Proxy Statement/Prospectus.
2.5 Principal Stockholders Agreement, dated September 20, 1996, among
Hughes Communications, Inc., Hughes Communications Galaxy, Inc.,
Satellite Company, L.L.C., Univisa Satellite Holdings, Inc., the
holders of Class A Common Stock of PanAmSat International and the
Trustees of that certain Voting Trust of certain holders of Class A
Common Stock of PanAmSat International is incorporated herein by
reference to Appendix L to the Proxy Statement/Prospectus.
2.6 Stock Contribution and Exchange Agreement, dated September 20, 1996,
among Grupo Televisa, S.A., Satellite Company, L.L.C., PanAmSat and
Hughes Communications, Inc. is incorporated herein by reference to
Exhibit 2.4 to the Registration Statement.
3.1 Restated Certificate of Incorporation of PanAmSat is incorporated
herein by reference to Exhibit 3.1 to PanAmSat's Annual Report on Form
10-K for the fiscal year ended December 31, 1997.
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3.2 Restated Bylaws of PanAmSat.
4.1.1 Amended and Restated Stockholder Agreement, dated as of May 16,
1997, by and among PanAmSat, Hughes Communications, Inc.,
Satellite Company, LLC and the former holders of Class A Common
Stock of PanAmSat International is incorporated herein by
reference to Appendix M to the Proxy Statement/Prospectus.
4.1.2 Letter Agreement, dated February 26, 1999, among PanAmSat, Hughes
Communications, Inc. and the former holders of Class A Common
Stock of PanAmSat International.
4.2 Amended and Restated Registration Rights Agreement, dated as of
May 16, 1997, by and among PanAmSat, Hughes Communications, Inc.,
Hughes Communications Galaxy, Inc., Hughes Communications
Satellite Services, Inc., Satellite Company, LLC and the former
holders of Class A Common Stock of PanAmSat International is
incorporated herein by reference to Appendix N to the Proxy
Statement/Prospectus.
4.3.1 Loan Agreement, dated May 15, 1997, between Hughes Network
Systems, Inc. and PanAmSat is incorporated by reference to Exhibit
4.3 to PanAmSat's Current Report on Form 8-K dated June 5, 1997.
4.3.2 First Amendment to Loan Agreement, constituting Exhibit 4.3.1
hereto, dated as of December 23, 1997, between Hughes Electronics
Corporation and PanAmSat is incorporated herein by references to
Exhibit 4.3.2 to PanAmSat's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997.
4.3.3 Subordination and Amendment Agreement, dated as of February 20,
1998, among Hughes Electronics Corporation, PanAmSat and Citicorp
USA, Inc., as administrative agent is incorporated herein by
references to Exhibit 4.3.3 to PanAmSat's Annual Report on Form
10-K for the fiscal year ended December 31, 1997.
4.3.4 Subordination Agreement, dated as of January 16, 1998, between
Hughes Electronics and PanAmSat is incorporated herein by
reference to Exhibit 4.3.4 to PanAmSat's Quarterly Report on Form
10-Q for the period ended September 30, 1998.
4.4 Indenture, dated as of January 16, 1998, between PanAmSat and The
Chase Manhattan Bank, as Trustee, is incorporated herein by
reference to Exhibit 4.1 to PanAmSat's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997.
4.5 Agreement, dated as of May 1, 1998, by and among PanAmSat and the
former holders of Class A Common Stock of 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).
4.6 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.
4.7 Letter Agreement, dated July 22, 1998, between Hughes Electronics
Corporation and PanAmSat is incorporated herein by reference to
Exhibit 4.3.4 to PanAmSat's Quarterly Report on Form 10-Q for the
period ended June 30, 1998.
10.1 Participation Agreement, dated as of December 27, 1991, among
Satellite Transponder Leasing Corporation, GM Hughes Electronics
Corporation, Security Pacific Equipment Leasing, Inc., Wilmington
Trust Company, State Street Bank and Trust Company of Connecticut,
National Association ("State Street") and Goldman, Sachs & Co. is
incorporated herein by reference to Exhibit 10.1 to the
Registration Statement.
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10.2 Lease Agreement, dated as of December 27, 1991, among GM Hughes
Electronics Corporation, Satellite Transponder Leasing
Corporation and Wilmington Trust Company is incorporated herein
by reference to Exhibit 10.2 to the Registration Statement.
10.3 Participation Agreement, dated as of December 27, 1991, among
Satellite Transponder Leasing Corporation, GM Hughes Electronics
Corporation, Student Loan Marketing Association, Wilmington Trust
Company, State Street and Goldman Sachs & Co. is incorporated
herein by reference to Exhibit 10.3 to the Registration
Statement.
10.4 Lease Agreement, dated as of December 27, 1991, among GM Hughes
Electronics Corporation, Satellite Transponder Leasing
Corporation and Wilmington Trust Company is incorporated herein
by reference to Exhibit 10.4 to the Registration Statement.
10.5.1 Participation Agreement and Purchase Agreement, dated as of
August 21, 1992, among Hughes Communications Galaxy, Inc., Orion
One, Inc., State Street, Wilmington Trust Company, Hughes
Communications, Inc. and BT Securities Corporation, as agent is
incorporated herein by reference to Exhibit 10.5.1 to the
Registration Statement.
10.5.2 First Amendment to Participation Agreement and Purchase
Agreement, constituting Exhibit 10.5.1 hereto, dated as of
December 24, 1992, among Hughes Communications Galaxy, Inc.,
Orion One, Inc., State Street, Hughes Communications, Inc.,
Wilmington Trust Company, BT Securities Corporation, as agent,
and the other participants to the Transponder Purchase Agreement
is incorporated herein by reference to Exhibit 10.5.2 to the
Registration Statement.
10.5.3 Second Amendment to Participation Agreement and Purchase
Agreement, constituting Exhibit 10.5.1 hereto, dated as of June
18, 1993, among Hughes Communications Galaxy, Inc., Orion One,
Inc., State Street, CIBC Inc., Internationale Nederlanden Lease
Structured Finance B.V., Wilmington Trust Company and BT
Securities Corporation, as agent is incorporated herein by
reference to Exhibit 10.5.3 to the Registration Statement.
10.6.1 Lease Agreement, dated as of December 31, 1992, by and between
Hughes Communications Galaxy, Inc. and State Street is
incorporated herein by reference to Exhibit 10.6.1 to the
Registration Statement.
10.6.2 First Amendment to Lease Agreement constituting Exhibit 10.6.1,
dated as of June 18, 1993, by and between Hughes Communications
Galaxy, Inc. and State Street is incorporated herein by reference
to Exhibit 10.6.2 to the Registration Statement.
10.7 Schedule identifying certain agreements that have been omitted on
the basis that such agreements are substantially identical to the
agreements filed as Exhibits 10.5.1, 10.5.2, 10.5.3, 10.6.1 and
10.6.2 hereto is incorporated herein by reference to Exhibit 10.7
to the Registration Statement.
10.8.1 Launch Services Agreement No. 9411-002, dated November 14, 1994,
between Lockheed-Khrunichev-Energia International, Inc. and
PanAmSat International is incorporated herein by reference to
Exhibit 10.10 to Amendment No. 3 to PanAmSat International's
Registration Statement on Form S-1 (Reg. No. 33-84836), dated
March 9, 1995. (1)
10.8.2 First Amendment to Launch Services Agreement No. 9411-002
constituting Exhibit 10.8.1 hereto, dated March 30, 1995, between
Lockheed-Khrunichev-Energia International, Inc. and PanAmSat
International is incorporated herein by reference to Exhibit
10.10.2 to Amendment No. 1 to PanAmSat International's
Registration Statement on Form S-1 (Reg. No. 33-95396), dated
August 17, 1995. (1)
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10.8.3 Second Amendment to Launch Services Agreement No. 9411-002
constituting Exhibit 10.8.1 hereto, dated June 9, 1995, between
Lockheed-Khrunichev-Energia International, Inc. and PanAmSat
International is incorporated herein by reference to Exhibit
10.10.3 to Amendment No. 1 to PanAmSat International's
Registration Statement on Form S-1 (Reg. No. 33-95396), dated
August 17, 1995. (1)
10.8.4 Amendment Number 3 to Launch Services Agreement No. 9411-002
constituting Exhibit 10.8.1 hereto, dated August 23, 1996,
between Lockheed-Khrunichev-Energia International, Inc. and
PanAmSat International is incorporated herein by reference to
Exhibit. 10.10.4 to PanAmSat International's Quarterly Report on
Form 10-Q for the period ended September 30, 1996. (1)
10.9.1 Agreement for the Launching into Geostationary Transfer Orbit of
the PanAmSat 6 Satellite by an Ariane Launch Vehicle, No.
94.5.918, dated November 21, 1994, between PanAmSat
International and Arianespace S.A. is incorporated herein by
reference to Exhibit 10.12 to Amendment No. 4 to PanAmSat
International's Registration Statement on Form S-1
(Reg. No. 33-84836), dated March 29, 1995. (1)
10.9.2 Amendment No. 1 to Agreement for the Launching into
Geostationary Transfer Orbit of the PanAmSat 6 Satellite by an
Ariane Launch Vehicle, No. 94.5.918 constituting Exhibit 10.9.1
hereto, dated May 1995, between PanAmSat International and
Arianespace S.A. is incorporated herein by reference to Exhibit
10.12.2 to Amendment No. 1 to PanAmSat International's
Registration Statement on Form S-1 (Reg. No. 33-95396), dated
August 17, 1995. (1)
10.9.3 Amendment No. 2 to Agreement for the Launching into
Geostationary Transfer Orbit of the PanAmSat 6 Satellite by an
Ariane Launch Vehicle, No. 94.5.918 constituting Exhibit 10.9.1
hereto, dated as of April 29, 1996, between PanAmSat
International and Arianespace S.A. is incorporated herein by
reference to Exhibit S-1 to PanAmSat International's Quarterly
Report on Form 10-Q for the period ended March 31, 1996.
10.9.4 Amendment No. 3 to Agreement for the Launching into
Geostationary Transfer Orbit of the PanAmSat 6 Satellite by an
Ariane Launch Vehicle, No. 94.5.918 constituting Exhibit 10.9.1
hereto, dated December 31, 1996, between PanAmSat International
and Arianespace S.A. is incorporated herein by reference to
Exhibit 10.12.8 to PanAmSat International's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996. (1)
10.9.5 Side Letter, dated as of March 9, 1998, to Agreement for
Launching into Geostationary Transfer Orbit of the PanAmSat 6
Satellite by an Ariane Launch Vehicle, No. 94.5.918, between
PanAmSat International and Arianespace S.A. constituting Exhibit
10.9.1 hereto, is incorporated herein by reference to Exhibit
10.9.5 to PanAmSat's Quarterly Report on Form 10-Q for the
period ended March 31, 1998. (1)
10.10.1 Memorandum of Understanding, dated as of March 27, 1995, between
Grupo Televisa, S.A. and PanAmSat International is incorporated
herein by reference to Exhibit 10.13 to Amendment No. 4 to
PanAmSat International's Registration Statement on Form S-1
(Reg. No. 33-84836), dated March 29, 1995. (1)
10.10.2 Revised DTH System in Latin America Memorandum of Understanding,
dated as of September 20, 1996, between PanAmSat International
and Grupo Televisa, S.A. is incorporated herein by reference to
Exhibit 10.13.2 to PanAmSat International's Quarterly Report on
Form 10-Q for the period ended September 30, 1996.
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10.11.1 Satellite Purchase Contract, dated as of March 31, 1995, between
Hughes Aircraft Company and PanAmSat International is
incorporated by reference to Exhibit 10.14 to Amendment No. 5 to
PanAmSat International's Registration Statement on Form S-1
(Reg. No. 33-84836), dated April 13, 1995. (1)
10.11.2 Amendment No. 1 to Satellite Purchase Contract constituting
Exhibit 10.11.1, dated as of September 3, 1996, between Hughes
Aircraft Company and PanAmSat International is incorporated
herein by reference to Exhibit 10.14.1 to PanAmSat's Quarterly
Report on Form 10-Q for the period ended September 30, 1996. (1)
10.12 Galaxy IX Satellite and Services Contract, No. 95-HCG-001, dated
August 7, 1995, between Hughes Communications Galaxy, Inc. and
Hughes Space and Communications Company is incorporated herein
by reference to Exhibit 10.12 to the Registration Statement. (1)
10.13 Letter Agreement, dated November 29, 1995, between Hughes
Communications Galaxy, Inc. and Hughes Space and Communications
Company regarding the construction of Galaxy X and Galaxy XI is
incorporated herein by reference to Exhibit 10.13 to the
Registration Statement. (1)
10.14 Galaxy VIII-I Satellite and Services Contract (95-HCG-002),
dated October 31, 1995, between Hughes Communications Galaxy,
Inc. and Hughes Space and Communications Company is incorporated
herein by reference to Exhibit 10.14 to the Registration
Statement. (1)
10.15.1 Agreement for the Launching into Geostationary Transfer Orbit of
PanAmSat Satellites by an Ariane Launch Vehicle, No. 95.5.933,
dated as of December 20, 1995, between PanAmSat International
and Arianespace S.A. is incorporated herein by reference to
Exhibit 10.12.3 to PanAmSat International's Quarterly Report on
Form 10-Q of the Registrant for the period ended March 31, 1996.
(1)
10.15.2 Side Letter to Agreement for Launching into Geostationary
Transfer Orbit of PanAmSat Satellites by an Ariane Launch
Vehicle, No. 95.5.933, dated as of December 20, 1995, between
PanAmSat International and Arianespace S.A., constituting
Exhibit 10.15.1 hereto, is incorporated herein by reference to
Exhibit 10.12.4 to PanAmSat International's Quarterly Report on
Form 10-Q for the period ended March 31, 1996. (1)
10.15.3 Amendment No. 1 to Agreement for Launching into Geostationary
Transfer Orbit of PanAmSat Satellites by an Ariane Launch
Vehicle, No. 95.5.933, dated as of April 29, 1996, between
PanAmSat International and Arianespace S.A., constituting
Exhibit 10.15.1 hereto, is incorporated herein by reference to
Exhibit 10.12.5 to PanAmSat International's Quarterly Report on
Form 10-Q for the period ended March 31, 1996.
10.15.4 Amendment No. 2 to Agreement for Launching into Geostationary
Transfer Orbit of PanAmSat Satellites by an Ariane Launch
Vehicle, No. 95.5.933, dated December 31, 1996, between PanAmSat
International and Arianespace S.A., constituting Exhibit 10.15.1
hereto, is incorporated herein by reference to Exhibit 10.12.6
to PanAmSat International's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996. (1)
10.15.5 Amendment No. 3, dated as of January 8, 1998, to Agreement for
Launching into Geostationary Orbit of PanAmSat Satellites by an
Ariane Launch Vehicle, No. 95.5.933, between PanAmSat
International and Arianespace S.A., constituting Exhibit 10.15.1
hereto, is incorporated herein by reference to Exhibit 10.15.5
to PanAmSat's Quarterly Report on Form 10-Q for the period ended
March 31,1998. (1)
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10.15.6 Amendment No. 1, dated as of January 8, 1998, to Side Letter to
Agreement for Launching into Geostationary Transfer Orbit of
PanAmSat Satellites by an Ariane Launch Vehicle, No. 95.5.933,
between PanAmSat International and Arianespace S.A.
constituting Exhibit 10.15.2 hereto, is incorporated herein by
reference to Exhibit 10.15.6 to PanAmSat's Quarterly Report on
Form 10-Q for the period ended March 31, 1998. (1)
10.15.7 Amendment No. 4, dated as of March 9, 1998, to Agreement for
Launching into Geostationary Transfer Orbit of PanAmSat
Satellites by an Ariane Launch Vehicle, No. 95.5.933, between
PanAmSat and Arianespace S.A. constituting Exhibit 10.15.1
hereto, is incorporated herein by reference to Exhibit 10.15.7
to PanAmSat's Quarterly Report on Form 10-Q for the period
ended March 31, 1998. (1)
10.15.8 Side Letter No. 2, dated as of March 9, 1998, to Agreement for
Launching into Geostationary Transfer Orbit of PanAmSat
Satellites by an Ariane Launch Vehicle, No. 95.5.933, between
PanAmSat International and Arianespace S.A. constituting
Exhibit 10.15.1 hereto, is incorporated herein by reference to
Exhibit 10.15.8 to PanAmSat's Quarterly Report on Form 10-Q for
the period ended March 31, 1998. (1)
10.15.9 Amendment No. 5, dated as of October 12, 1998, to Agreement for
Launching into Geostationary Orbit of PanAmSat Satellites by an
Ariane Launch Vehicle, No. 95.5.933, between PanAmSat and
Arianespace S.A. constituting Exhibit 10.15.1 hereto. (1)
10.15.10 Side Letter No. 3, dated as of October 12, 1998, to Agreement
for Launching into Geostationary Orbit of PanAmSat Satellites
by an Ariane Launch Vehicle, No. 95.5.933, between PanAmSat and
Arianespace S.A. constituting Exhibit 10.15.1 hereto. (1)
10.15.11 Amendment No. 6, dated as of June 4, 1999, to Agreement for
Launching into Geostationing Transfer Orbit of PanAmSat
Satellites by an Ariane Launch Vehicle, No. 95.5.933, between
PanAmSat and Arianespace S.A., is incorporated herein by
reference to Exhibit 10.12.3 to PanAmSat International Systems,
Inc.'s ("PanAmSat International") Quarterly Report on Form 10-Q
for the period ended March 31, 1996. (1)
10.16 Participation Agreement, dated as of February 7, 1996, among
Hughes Communications Galaxy, Inc., General Motors Acceptance
Corporation, Wilmington Trust Company, Chemical Bank and the
lending institutions listed as loan participants in Schedule I
to the Agreement is incorporated herein by reference to Exhibit
10.16 to the Registration Statement.
10.17 Lease Agreement, dated as of February 7, 1996, by and between
Wilmington Trust Company and Hughes Communications Galaxy, Inc.
is incorporated herein by reference to Exhibit 10.17 to the
Registration Statement.
10.18.1 Letter Agreement, dated February 29, 1996, among The News
Corporation Limited, Globo Participacoes, Ltd., Grupo Televisa,
S.A., and PanAmSat International is incorporated herein by
reference to Exhibit 10.17.1 to PanAmSat International's
Quarterly Report on Form 10-Q/A for the period ended March 31,
1996. (1)
10.18.2 Amendment to Letter Agreement, dated November 4, 1996,
constituting Exhibit 10.18.1 hereto, among News Corporation
Limited, Globo Participacoes, Ltd., Grupo Televisa, S.A., and
PanAmSat International is incorporated herein by reference to
Exhibit 10.17.2 to PanAmSat International's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996.
10.18.3 Amendment, dated as of March 5, 1998, to Letter Agreement
between News Corporation Limited, Globo Comunicacoes e
Participacoes, S.A., Grupo Televisa, S.A. and PanAmSat
International constituting Exhibit 10.18.3 hereto, is
incorporated herein by reference to Exhibit 10.18.3 to
PanAmSat's Quarterly Report on Form 10-Q for the period ended
March 31, 1998. (1)
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10.19.1 Amended and Restated Contract for PanAmSat Program, dated May 2,
1996, between PanAmSat International and Space Systems/Loral,
Inc. is incorporated herein by reference to Exhibit 10.7.3 to
PanAmSat's International's Quarterly Report on Form 10-Q for the
period ended March 31, 1996. (1)
10.19.2 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 PanAmSat's Registration Statement on Form S-4
(Registration No. 333-56227). (1)
10.20 Letter Agreement, dated June 10, 1996, between Hughes
Communications Galaxy, Inc. and Hughes Space and Communications
Company regarding the construction of Galaxy XI is incorporated
herein by reference to Exhibit 10.20 to the Registration
Statement. (1)
10.21 Letter Agreement, dated August 12, 1996, between Hughes
Communications Galaxy, Inc. and Hughes Space and Communications
Company regarding the construction of Galaxy XII is incorporated
herein by reference to Exhibit 10.21 to the Registration
Statement. (1)
10.22 Letter Agreement, dated August 12, 1996, between Hughes
Communications Galaxy, Inc. and Hughes Space and Communications
Company regarding the construction of Galaxy XIII, XIV, XV and
XVI is incorporated herein by reference to Exhibit 10.22 to the
Registration Statement. (1)
10.23 Letter Agreement, dated August 21, 1996, between Hughes
Communications Galaxy, Inc. and Hughes Space and Communications
Company regarding the construction of Galaxy XI is incorporated
herein by reference to Exhibit 10.23 to the Registration
Statement. (1)
10.25.1 Full-Time Transponder Service Agreement From PAS-3 (European
Beam), dated as of September 20, 1996, between PanAmSat
International and Televisa, S.A. is incorporated herein by
reference to Exhibit 10.16 to PanAmSat International's Quarterly
Report on Form 10-Q for the period ended September 30, 1996. (1)
10.25.2 Amendment, dated as of March 5, 1998, to Full-Time Transponder
Service Agreement From PAS-3 (European Beam) between PanAmSat
International and Televisa S.A. constituting Exhibit 10.25.1
hereto, is incorporated herein by reference to Exhibit 10.25.1
to PanAmSat's Quarterly Report on Form 10-Q for the period ended
March 31, 1998. (1)
10.26 Transponder Purchase and Sale Agreement, dated as of June 26,
1996, between PanAmSat International and Net Sat Servicos Ltda.
is incorporated herein by reference to Exhibit 10.2 to Net Sat
Servicios Ltda.'s Registration Statement on Form F-4 (Reg. No.
333-6318), dated January 21, 1997. (1)
10.27.1 Amended and Restated Transponder Purchase and Sale Agreement,
dated as of June 26, 1996, between PanAmSat International and
Net Sat Servicos Ltda. is incorporated herein by reference to
Exhibit 10.2.1 to Net Sat Servicios Ltda.'s Registration
Statement on Form F-4 (Reg. No. 333-6318), dated January 21,
1997. (1)
10.27.2 Second Amended and Restated Transponder Purchase and Sale
Agreement, dated as of March 5, 1998, between PanAmSat
International and Net Sat Servicos Ltda. is incorporated herein
by reference to Exhibit 10.27.2 to PanAmSat's Quarterly Report
on Form 10-Q for the period ended March 31, 1998. (1)
10.27.3 First Amendment, dated as of June 17, 1999, to Second Amended
and Restated Transponder Purchase and Sale Agreement between
PanAmSat International and NetSat Servicios Ltda., constituting
Exhibit 10.2.1 to NetSat Servicios Ltda.'s Regulations Statement
on Form F-4 (Reg. No. 333-6318) dated January 21, 1997. (1)
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10.28.1 Amended and Restated Launch Services Agreement, dated as of
January 17, 1997, between Hughes Communications Galaxy, Inc. and
Hughes Space and Communications International, Inc. is
incorporated herein by reference to Exhibit 10.28 to the
Registration Statement. (1)
10.28.2 Letter Agreement, dated as of October 9, 1998, between PanAmSat
and Hughes Space and Communications Company International, Inc.,
regarding Amended and Restated Launch Services Agreement between
Hughes Communications Galaxy, Inc. and Hughes Space and
Communications International, Inc. constituting Exhibit 10.28.1
hereto. (1)
10.29 Galaxy X Spacecraft, Related Services and Documentation Contract
(96-HCG-001), dated March 20, 1997, between Hughes Communications
Galaxy, Inc. and Hughes Space and Communications Company is
incorporated herein by reference to Exhibit 10.29 to the
Registration Statement. (1)
10.30 Employment Agreement between PanAmSat and Frederick A. Landman,
dated as of May 15, 1997, is incorporated herein by reference to
Exhibit 10.30 to PanAmSat's Quarterly Report on Form 10-Q for the
period ended June 30, 1997.*
10.31.1 Amended and Restated Collateral Trust Agreement, dated as of May
16, 1997, 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
10.31 to PanAmSat's Quarterly Report on Form 10-Q for the period
ended June 30, 1997.
10.31.2 First Amendment, dated April 30, 1998, to Amended and Restated
Collateral Trust Agreement by and among PanAmSat, Hughes
Communications, Inc., Satellite Company, LLC, Grupo Televisa, S.A.
and IBJ Schroder Bank & Trust Company constituting Exhibit 10.31.1
hereto, 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.
10.32 Pledge and Security Agreement, dated as of May 16, 1997, by and
among Satellite Company, LLC, Grupo Televisa, S.A., in favor of
IBJ Schroder Bank & Trust Company is incorporated herein by
reference to Exhibit 10.30 to PanAmSat's Quarterly Report on Form
10-Q for the period ended June 30, 1997.
10.33 PanAmSat Corporation Long Term Incentive Plan established in 1997
is incorporated herein by reference to Exhibit 10.33 to PanAmSat's
Quarterly Report on Form 10-Q for the period ended June 30, 1997.*
10.33.2 Amendment to the PanAmSat Corporation Long-Term Incentive Plan,
Established in 1997, is incorporated herein by reference to
Exhibit 10.33.2 to PanAmSat's Quarterly Report on Form 10-Q for
the period ended September 30, 1999.*
10.34 PanAmSat Corporation Annual Incentive Plan, effective January l,
1997, is incorporated herein by reference to Exhibit 10.34 to
PanAmSat's Quarterly Report on Form 10-Q for the period ended June
30, 1997.*
10.35 Intellectual Property Cross License Agreement, dated as of May 16,
1997, by and between PanAmSat and Hughes Electronics Corporation
is incorporated herein by reference to Exhibit 10.35 to PanAmSat's
Quarterly Report on Form 10-Q for the period ended June 30, 1997.
10.36 Leveraged Lease Guaranty Indemnification Agreement, dated as of
May 16, 1997, by and between PanAmSat and Hughes Electronics
Corporation incorporated herein by reference to Exhibit 10.36 to
PanAmSat's Quarterly Report on Form 10-Q for the period ended June
30, 1997.
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10.37.1 Fixed Price Contract between Hughes Communications Galaxy, Inc.
and Hughes Space & Communications Company for Galaxy XI HS702,
Spacecraft, Related Services and Documentation, Contract No. 96-
HCG-002, executed May 1997 is incorporated herein by reference to
Exhibit 10.37 to PanAmSat's Quarterly Report on Form 10-Q for the
period ended June 30, 1997. (1)
10.37.2 Amendment No. 1, dated as of November 30, 1999, to Fixed Price
Contract between Hughes Communications Galaxy, Inc. and Hughes
Space and Communications Company for Galaxy XI HS702 Spacecraft,
Related Services and Documentation constituting Exhibit 10.37.1
hereto. (1)
10.38 Fixed Price Contract for PAS 1R and PAS 9 HS-702 Spacecraft,
Related Services and Documentation--Contract No. 97-HCG-001, dated
as of August 15, 1997, between Hughes Space and Communications
Company, Inc. and PanAmSat is incorporated herein by reference to
Exhibit 10.38 to PanAmSat's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997. (1)
10.39 Transponder Sublease Agreement for Galaxy IIIR between Hughes
Communications Galaxy, Inc. and California Broadcast Center, LLC,
dated April 21, 1997, is incorporated herein by reference to
Exhibit 10.39 to PanAmSat's Quarterly Report on Form 10-Q for the
period ended June 30, 1997. (1)
10.40 Transponder Lease Agreement for Galaxy VIII-I between Hughes
Communications Galaxy, Inc. and California Broadcast Center, LLC,
dated April 21, 1997, is incorporated herein by reference to
Exhibit 10.40 to PanAmSat's Quarterly Report on Form 10-Q for the
period ended June 30, 1997. (1)
10.41.1 Form of Indemnity Agreement between PanAmSat and each of its
directors and executive officers is incorporated herein by
reference to Exhibit 10.41 to PanAmSat's Quarterly Report on Form
10-Q for the period ended June 30, 1997.*
10.41.2 Schedule identifying substantially identical agreements to the
Indemnity Agreement constituting Exhibit 10.41.1 hereto in favor
of Charles H. Noski, Frederick A. Landman, Patrick J. Costello,
Steven D. Dorfman, Dennis F. Hightower, James M. Hoak, Joseph R.
Wright, Jr., Michael T. Smith, Carl A. Brown, Kenneth N. Heintz,
Robert A. Bednarek, James W. Cuminale, David P. Berman, Roxanne S.
Austin, Tig H. Krekel, Stephen R. Kahn and R. Douglas Kahn.*
10.42 Credit Agreement, dated February 20, 1998, among PanAmSat, certain
lenders and Citicorp USA, Inc., as administrative agent is
incorporated herein by reference to Exhibit 10.42 to PanAmSat's
Annual Report on Form 10-K for the fiscal year ended December 31,
1997.
10.42.2 Amendment to the Revolving Credit Agreement between Citibank and
PanAmSat Corporation, dated September 29, 1999, is incorporated
herein by reference to Exhibit 10.42.2 to PanAmSat's Quarterly
Report on Form 10-Q for the period ended September 30, 1999.
10.45.1 Agreement, dated as of May 15, 1996, between PanAmSat
International and Frederick A. Landman is incorporated herein by
reference to Exhibit 10.11.16 to PanAmSat International's
Quarterly Report on Form 10-Q for the period ended June 30, 1996.*
10.45.2 Amendment, dated as of March 6, 1998, to the Agreement between
PanAmSat International and Frederick A. Landman constituting
Exhibit 10.45.1 hereto is incorporated herein by reference to
Exhibit 10.45.1 to PanAmSat's Quarterly Report on Form 10-Q for
the period ended March 31, 1998.*
10.45.3 Amendment, dated as of August 31, 1998, to the Agreement, dated as
of May 15, 1996, between PanAmSat International and Frederick A.
Landman, as amended, constituting Exhibits 10.45.1 and 10.45.2
hereto, is incorporated herein by reference to Exhibit 10.44.3 to
PanAmSat's Quarterly Report on Form 10-Q for the period ended
September 30, 1998.*
</TABLE>
64
<PAGE>
<TABLE>
<C> <S>
10.45.4 Amendment, dated November 20, 1998, to the Agreement, dated as of
May 15, 1996, between PanAmSat International and Frederick A.
Landman, as amended, constituting Exhibits 10.45.1, 10.45.2 and
10.45.3 hereto.*
10.48 Agreement, dated as of May 15, 1996, between PanAmSat
International and David P. Berman incorporated herein by reference
to Exhibit 10.11.21 to PanAmSat International's Quarterly Report
on Form 10-Q for the period ended June 30, 1996.*
10.49 Agreement, dated April 7, 1997, between PanAmSat and Hughes
Electronics Corporation, regarding the terms of assignment of
Kenneth N. Heintz to PanAmSat is incorporated herein by reference
to Exhibit 10.50 to PanAmSat's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997.*
10.50 Fixed Price Contract for PAS 6B HS601HP Spacecraft, Related
Services and Documentation--Contract No. 98-PAS-001, dated as of
March 9, 1998, between PanAmSat International and Hughes Space and
Communications Company, is incorporated herein by reference to
Exhibit 10.51 to PanAmSat's Quarterly Report on Form 10-Q for the
period ended March 31, 1998. (1)
10.51 Transponder Service Agreement, dated as of March 5, 1998, between
PanAmSat International and Sky Multi-Country Partners, is
incorporated herein by reference to Exhibit 10.52 to PanAmSat's
Quarterly Report on Form 10-Q for the period ended March 31, 1998.
(1)
10.52 Agreement, dated as of July 10, 1998, between PanAmSat and Robert
A. Bednarek is incorporated herein by reference to Exhibit 10.46
to PanAmSat's Registration Statement on Form S-4 (Registration No.
333-56227).*
10.53 Agreement, dated as of July 10, 1998, between PanAmSat and James
W. Cuminale is incorporated herein by reference to Exhibit 10.47
to PanAmSat's Registration Statement on Form S-4 (Registration No.
333-56227).*
10.54 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 PanAmSat's Registration Statement on Form S-4
(Registration No. 333-56227). (1)
10.55 Fixed Price Contract for DOMSAT 1, DOMSAT 2, and Option
Spacecraft, Related Services and Documentation--Contract No. 98-
PAS-002, dated as of October 9, 1998, between PanAmSat and Hughes
Space and Communications Company. (1)
10.55.2 Amendment No. 1 to Fixed Price Contract for DOMSAT 1, DOMSAT 2 and
Option Spacecraft, Related Services and Documentation--Contract
No. 98-PAS-002, dated as of January 8, 1999, between PamAmSat
Corporation and Hughes Space and Communications Company, is
incorporated herein by reference to Exhibit 10.55.2 to PanAmSat's
Annual Report on Form 10-K for the fiscal year ended December 31,
1998. (1)
10.56 PanAmSat Corporation Amended and Restated Restoration and Deferred
Compensation Plan, is incorporated herein by reference to Exhibit
10.56 to PanAmSat's Quarterly Report on Form 10-Q for the
quarterly ended September 30, 1999.*
10.57 PanAmSat Corporation 1999 Non-Employee Directors Compensation
Deferral Plan, is incorporated herein by reference to Exhibit
10.57 to PanAmSat's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1999.*
10.58 Employment Agreement between PanAmSat Corporation and R. Douglas
Kahn, dated as of April 1, 1999, is incorporated herein by
reference to Exhibit 10.58 to PanAmSat's Quarterly Report on Form
10-Q for the period ended September 30, 1999.*
</TABLE>
65
<PAGE>
<TABLE>
<C> <S>
10.59 Amended and Restated Loan and Security Agreement by and among
PanAmSat Corporation, The Chase Manhattan Bank, and certain lending
institutions, dated as of July 2, 1999, is incorporated herein by
reference to Exhibit 10.59 to PanAmSat's Quarterly Report on Form
10-Q for the period ended September 30, 1999.
10.60 Transponder Service Agreement dated February 8, 1999, by and between
PanAmSat International Systems, Inc. and Corporacion de Radio y
Television del Norte de Mexico, S.A. de C.V is incorporated by
reference to Exhibit 10.56 to PanAmSat's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998. (1)
21.1 The list of subsidiaries of PanAmSat is incorporated herein by
reference to Exhibit 21.1 to PanAmSat's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997.
23.1 Consent of Deloitte & Touche LLP.
24.l Powers of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- --------
(1) Portions of this Exhibit have been omitted pursuant to an order of the
Securities and Exchange Commission granting confidential treatment with
respect thereto.
Exhibits indicated with a * symbol are an executive contract or compensatory
plan or arrangement filed pursuant to Item 14 of Form 10-K.
In lieu of filing certain instruments with respect to long-term debt of the
kind described in Item 601(b)(4) of Regulation S-K, Registrant agrees to
furnish a copy of such instruments to the Securities and Exchange Commission
upon request.
A copy of any of the exhibits included in this Annual Report on Form 10-K,
other than those as to which confidential treatment is pending or has been
granted by the Securities and Exchange Commission, upon payment of a fee to
cover the reasonable expenses of furnishing such exhibits, may be obtained by
written request to the Company, at the address set forth on the front cover,
attention General Counsel.
66
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this Report
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the Town of Greenwich, State of Connecticut.
PanAmSat Corporation
By: /s/ James W. Cuminale
----------------------------------
James W. Cuminale
Executive Vice President,
General Counsel and Secretary
March 29, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
* Chairman of the Board of March 29, 2000
___________________________________________ Directors
MICHAEL T. SMITH
* President and Chief March 29, 2000
___________________________________________ Executive Officer
R. DOUGLAS KAHN (principal executive
officer) and Director
* Director March 29, 2000
___________________________________________
ROXANNE S. AUSTIN
* Director March 29, 2000
___________________________________________
PATRICK J. COSTELLO
* Director March 29, 2000
___________________________________________
DENNIS F. HIGHTOWER
* Director March 29, 2000
___________________________________________
JAMES M. HOAK
* Director March 29, 2000
___________________________________________
STEPHEN R. KAHN
* Director March 29, 2000
___________________________________________
JACK A. SHAW
* Director March 29, 2000
___________________________________________
TIG H. KREKEL
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
* Director March 29, 2000
___________________________________________
JOSEPH R. WRIGHT, JR.
/s/ Kenneth N. Heintz Executive Vice President March 29, 2000
___________________________________________ and Chief Financial
KENNETH N. HEINTZ Officer (principal
financial officer and
principal accounting
officer)
*By: /s/ James W. Cuminale March 29, 2000
_____________________________________
(JAMES W. CUMINALE, ATTORNEY-IN-FACT)
</TABLE>
68
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No. 333-
95631, Registration Statement No. 333-28253 and Registration Statement No. 333-
57855 of PanAmSat Corporation on Form S-8 of our report dated January 14, 2000
appearing in this Annual Report on Form 10-K of PanAmSat Corporation for the
year ended December 31, 1999.
/s/ Deloitte & Touche LLP
Stamford, Connecticut
March 29, 2000
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
hereby constitutes and appoints James W. Cuminale his or her true and lawful
attorney-in-fact and agent, each acting alone, with full powers of substitution
and re-substitution, for him or her and in his or her name, place and stead, in
any and all capacities, to (i) approve and sign an annual report on Form 10-K
with the Securities and Exchange Commission, and any or all amendments thereto,
and to file the same, with all exhibits thereto, and (ii) approve and sign other
documents in connection therewith, with the Securities and Exchange Commission
and to file the same, with all exhibits thereto, and granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, and hereby ratifies and confirms all actions his or her said attorney-
in-fact and agent or his or her substitute may lawfully do or cause to be done
by virtue thereof.
This Power of Attorney may be executed in multiple counterparts, each of which
shall be deemed an original, but which taken together shall constitute one
instrument.
Dated: March 17, 2000
Name
- ----
/s/ Michael T. Smith
- --------------------------------
Michael T. Smith
/s/ Roxanne S. Austin
- --------------------------------
Roxanne S. Austin
/s/ Patrick J. Costello
- --------------------------------
Patrick J. Costello
/s/ Dennis F. Hightower
- --------------------------------
Dennis F. Hightower
/s/ James M. Hoak
- --------------------------------
James M. Hoak
/s/ R. Douglas Kahn
- --------------------------------
R. Douglas Kahn
/s/ Stephen R. Kahn
- --------------------------------
Stephen R. Kahn
/s/ Tig H. Krekel
- --------------------------------
Tig H. Krekel
/s/ Jack A. Shaw
- --------------------------------
Jack A. Shaw
/s/ Joseph R. Wright, Jr.
- --------------------------------
Joseph R. Wright, Jr.
/s/ Kenneth N. Heintz
- --------------------------------
Kenneth N. Heintz
1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This financial data schedule contains summary financial information extracted
from the Consolidated Balance Sheet and related Consolidated Statement of
Income as of and for the twelve month period ending December 31, 1999 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 117,259
<SECURITIES> 0
<RECEIVABLES> 46,500
<ALLOWANCES> 4,559
<INVENTORY> 0
<CURRENT-ASSETS> 258,534
<PP&E> 3,887,445
<DEPRECIATION> 747,431
<TOTAL-ASSETS> 5,984,709
<CURRENT-LIABILITIES> 143,143
<BONDS> 817,814
0
0
<COMMON> 1,493
<OTHER-SE> 2,814,496
<TOTAL-LIABILITY-AND-EQUITY> 5,984,709
<SALES> 810,617
<TOTAL-REVENUES> 810,617
<CGS> 0
<TOTAL-COSTS> 472,251
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 112,002
<INCOME-PRETAX> 226,364
<INCOME-TAX> 104,127
<INCOME-CONTINUING> 122,237
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 122,237
<EPS-BASIC> $.82
<EPS-DILUTED> $.82
</TABLE>
