SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(MARK ONE)
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/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____________ to ___________
Commission File No. 0-26712
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PanAmSat International Systems, Inc. *
PanAmSat Capital Corporation
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(Exact Name of Registrant as Specified in its Charter)
Delaware 06-1407851
Delaware 06-1371155
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(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
One Pickwick Plaza, Greenwich, CT. 06830
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(Address of Principal Executive Offices)
Registrant's telephone number, including area code: 203-622-6664
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(Former Name, Former Address and Former
Fiscal Year if Changed Since Last Report)
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
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As of September 30, 1997, an aggregate of 38,309,154 shares of the Company's
Common Stock, 21,231,415 shares of the Company's Class A Common Stock and
40,459,431 shares of the Company's Class B Common Stock were outstanding.
* PanAmSat International Systems, Inc. ("Old PanAmSat" or the
"Company") which was known as "PanAmSat Corporation" until May
16, 1997, became a wholly owned subsidiary of PanAmSat
Corporation ("New PanAmSat")(Commission File No. 0-22531; IRS
Employer Identification No. 95-4607698) as a consequence of
the combination of Old PanAmSat and the commercial satellite
business of Hughes Communications, Inc. ("HCI"), as more fully
described herein. PanAmSat Capital Corporation is a
wholly-owned subsidiary of the Company and a co-obligor on the
Company's 9 3/4% Senior Secured Notes, 11 3/8% Senior
Subordinated Discount Notes and 12 3/4% Senior Subordinated
Notes. References herein to the "Company" or "Old PanAmSat"
shall also apply to PanAmSat Corporation.
PanAmSat International Systems, Inc.
For the Quarter Ended September 30, 1997
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PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
Balance Sheets, September 30, 1997 (unaudited) and December 31, 1996.
Statements of Operations for the Nine Months Ended September 30, 1997
and 1996 (unaudited).
Statements of Operations for the Three Months Ended September 30, 1997
and 1996 (unaudited).
Statements of Cash Flows for the Nine Months Ended September 30, 1997
and 1996 (unaudited).
Notes to Financial Statements.
ITEM 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations.
PART II - OTHER INFORMATION
ITEM 6 - Exhibits and Reports on Form 8-K
Signature
Cautionary Statement For Purposes Of The "Safe Harbor"
Provisions Of The Private Securities Litigation Reform Act of 1995
This Quarterly Report contains historical information and forward-looking
statements. The Private Securities Litigation Reform Act of 1995 provides a
"safe harbor" for certain forward-looking statements. When used in this Form
10-Q and the documents incorporated by reference herein, the words "estimate,"
"project," "anticipate," "expect," "believe" and other expressions used to
indicate future events are intended to identify forward-looking statements. Such
statements are subject to risks and uncertainties that could cause the Company's
actual results in future periods to be materially different from any future
performance suggested herein. Further, the Company operates in an industry
sector where securities values may be volatile and may be influenced by economic
and other factors beyond the Company's control. In the context of the
forward-looking information provided in this Quarterly Report and in other
reports, please refer to the discussions of risk factors detailed in, as well as
the other information contained in, the Company's other filings with the
Securities and Exchange Commission.
PanAmSat International Systems, Inc.
BALANCE SHEETS
September 30, December 31,
1997 1996
(Unaudited)
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 229,466,666 $ 1,453,055
Accounts receivable, less allowance
for doubtful accounts of $200,000 11,459,827 10,235,520
Prepaid expenses and other current assets 12,457,139 8,228,455
--------------- ---------------
TOTAL CURRENT ASSETS 253,383,632 19,917,030
SATELLITES AND OTHER PROPERTY AND
EQUIPMENT, AT COST 1,104,168,122 864,683,595
Less: Accumulated Depreciation and
Amortization (186,300,959) (138,091,220)
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917,867,163 726,592,375
MARKETABLE SECURITIES 242,544,676 379,178,538
SATELLITE SYSTEMS UNDER DEVELOPMENT 516,268,815 479,748,974
DEBT ISSUANCE COSTS (Net of amortization) 18,053,684 9,454,276
OTHER ASSETS 38,249,138 472,166
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TOTAL ASSETS $ 1,986,367,108 $ 1,615,363,359
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The accompanying notes are an integral part
of these consolidated financial statements
PanAmSat International Systems, Inc.
BALANCE SHEETS - (continued)
September 30, December 31,
1997 1996
(Unaudited)
--------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 4,487,371 $ 4,166,778
Accounts payable 455,902 2,318,877
Accrued interest 2,844,676 7,109,375
Accrued liabilities and taxes 61,314,801 6,656,741
Deferred revenue 7,165,307 8,423,704
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TOTAL CURRENT LIABILITIES 76,268,057 28,675,475
LONG-TERM DEBT 1,074,241,962 626,009,539
DEFERRED INCOME TAXES 96,913,671 61,631,004
DEFERRED REVENUE 65,395,548 71,920,802
OTHER LIABILITIES 552,934 687,934
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TOTAL LIABILITIES 1,313,372,172 788,924,754
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COMMITMENTS AND CONTINGENCIES
PREFERRED STOCK, 12-3/4% Mandatorily
Exchangeable Senior Redeemable Preferred
Stock - 329,070,909
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STOCKHOLDERS' EQUITY:
Class A Common Stock, $0.01 par value
100,000,000 shares authorized, 21,231,415
shares issued and outstanding 212,314 404,594
Class B Common Stock, $.01 par value, 100,000,000
shares authorized, 40,459,431 shares issued
and outstanding 404,594 404,594
Common Stock, $0.01 par value, 400,000,000
shares authorized, 38,309,154 shares issued
and outstanding 383,092 190,891
Additional paid-in-capital 490,586,935 477,505,039
Retained earnings 181,408,001 18,862,578
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Total Stockholders' Equity 672,994,936 497,367,696
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,986,367,108 $ 1,615,363,359
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The accompanying notes are an integral part
of these consolidated financial statements
PanAmSat International Systems, Inc.
STATEMENTS OF OPERATIONS (UNAUDITED)
For the Nine Months Ended September 30, 1997 and 1996
September 30, September 30,
1997 1996
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REVENUES:
Unaffiliated parties $ 218,485,405 $ 170,920,581
Related parties 24,031,480 6,713,364
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242,516,885 177,633,945
OPERATING EXPENSES:
Direct expenses-service agreements 20,524,287 6,831,774
Sales and marketing 9,892,577 10,318,748
Engineering and technical services 13,842,527 12,334,312
General and administrative 27,143,269 18,641,535
Depreciation and amortization 49,536,659 45,224,473
Compensatory Programs - 4,799,933
Reorganization costs 17,258,784 2,528,177
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138,198,103 100,678,952
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INCOME FROM OPERATIONS 104,318,782 76,954,993
INTEREST INCOME (19,334,833) (17,615,682)
INTEREST EXPENSE 4,661,101 20,588,872
OTHER INCOME (225,000,000) -
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INCOME BEFORE INCOME TAXES 343,992,514 73,981,803
INCOME TAXES 146,894,468 31,085,000
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NET INCOME $ 197,098,046 $ 42,896,803
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PREFERRED STOCK DIVIDEND 34,552,624 30,545,183
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NET INCOME TO COMMON SHARES $ 162,545,422 $ 12,351,620
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EARNINGS PER COMMON SHARE $ 0.12
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WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 100,324,978
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The accompanying notes are an integral part
of these consolidated financial statements
PanAmSat International Systems, Inc.
STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Months Ended September 30, 1997 and 1996
September 30, September 30,
1997 1996
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REVENUES:
Unaffiliated parties $ 74,034,762 $ 64,410,187
Related parties 3,978,332 2,516,592
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78,013,094 66,926,779
OPERATING EXPENSES:
Direct expenses-service agreements 5,967,723 3,107,203
Sales and marketing 3,944,411 3,085,276
Engineering and technical services 4,719,733 4,562,193
General and administrative 4,786,412 6,594,795
Depreciation and amortization 17,054,040 16,132,786
Compensatory Programs - 4,799,933
Reorganization costs 1,624,533 2,528,177
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38,096,852 40,810,363
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INCOME FROM OPERATIONS 39,916,242 26,116,416
INTEREST INCOME (7,693,874) (5,346,337)
INTEREST EXPENSE 288,805 5,704,954
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INCOME BEFORE INCOME TAXES 47,321,311 25,757,799
INCOME TAXES 21,080,292 11,699,000
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NET INCOME $ 26,241,019 $ 14,058,799
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PREFERRED STOCK DIVIDEND 11,891,403 10,525,683
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NET INCOME TO COMMON SHARES $ 14,349,616 $ 3,533,116
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EARNINGS PER COMMON SHARE $ 0.04
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WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 100,414,456
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The accompanying notes are an integral part
of these consolidated financial statements
PanAmSat International Systems, Inc.
STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Months Ended September 30, 1997 and 1996
September 30, September 30,
1997 1996
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CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income $ 197,098,046 $ 42,896,803
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 49,536,659 45,224,473
Deferred income taxes 35,282,667 19,532,310
Accretion of interest on senior
subordinated discount notes 33,314,451 29,835,300
Accretion of interest on marketable securities (5,407,387) (2,623,629)
Interest expense capitalized (46,455,925) (27,269,311)
Compensation expense on exercise of employee
stock options 13,081,818 -
Changes in assets and liabilities:
Increase in accounts receivable (1,224,307) (4,542,151)
Increase in prepaid expenses and other current
assets (4,228,684) (8,122,890)
Decrease in accounts payable (1,862,975) (53,532)
Decrease in accrued interest (4,264,699) (4,265,625)
Increase in accrued liabilities
and taxes 54,658,060 2,296,606
Increase (decrease) in deferred revenue (7,783,651) 28,092,779
Decrease in other liabilities (135,000) (135,000)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 311,609,073 120,866,133
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CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment (13,621,280) (17,395,302)
Expenditures for satellite systems under
development (169,283,600) (235,670,725)
Proceeds from maturity of marketable securities 142,041,249 125,296,869
Increase in other assets (37,776,973) (671,143)
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NET CASH USED IN INVESTING ACTIVITIES (78,640,604) (128,440,301)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (4,954,858) (2,678,426)
Proceeds from exercise of employee stock options - 27,200
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NET CASH USED IN FINANCING ACTIVITIES (4,954,858) (2,651,226)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 228,013,611 (10,225,394)
CASH AND CASH EQUIVALENTS, beginning of period 1,453,055 13,562,113
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CASH AND CASH EQUIVALENTS, end of period $ 229,466,666 $ 3,336,719
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash received for interest $ 16,760,367 $ 14,992,053
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Cash paid for interest $ 22,067,274 $ 22,288,506
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Cash paid for taxes $ 71,272,800 $ 11,566,000
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The accompanying notes are an integral part
of these consolidated financial statements
FORM 10-Q
PanAmSat International Systems, Inc.
NOTES TO FINANCIAL STATEMENTS
(1) General.
The interim unaudited Financial Statements should be read in
conjunction with the audited Financial Statements and the notes
thereto for the year ended December 31, 1996 included in the
Company's Annual Report on Form 10-K, as filed with the Securities
and Exchange Commission (Commission File Number 33-63284) (the
"Annual Form 10-K"). The balance sheet as of September 30, 1997,
and the related statements of operations and cash flows for the
nine months ended September 30, 1997 and 1996 have been prepared by
the Company and are unaudited. In the opinion of management, all
adjustments which are of a normal recurring nature necessary to
present fairly the financial position, results of operations and
cash flows as of and for the three and nine month periods ended
September 30, 1997 and 1996 have been made. The accounting policies
followed during the interim periods reported are in conformity with
generally accepted accounting principles and are consistent with
those applied for annual periods and described in the Company's
Annual Form 10-K. The results of operations for the nine month
periods ended September 30, 1997 and 1996 are not necessarily
indicative of the operating results for the full year.
(2) Changes in Control of Registrant.
On May 16, 1997, HCI and the Company combined their commercial
satellite operations pursuant to an Agreement and Plan of
Reorganization, dated as of September 20, 1996, as amended as of
April 4, 1997 (the "Reorganization Agreement"), between HCI and
certain of its subsidiaries and the Company (the "Merger"). The
Merger was consummated through the merger of a wholly owned
subsidiary of a newly formed holding company (such holding company,
"New PanAmSat"), with and into the Company and a contribution of
the commercial satellite services business of HCI (the "Galaxy
Business") to New PanAmSat, with the result that the Company became
a wholly owned subsidiary of New PanAmSat and New PanAmSat became
the owner and operator of the Galaxy Business. Following the
Merger, the Company was renamed PanAmSat International Systems,
Inc. and New PanAmSat was renamed PanAmSat Corporation.
FORM 10-Q
PanAmSat International Systems, Inc.
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Satellite Capacity for DTH Services.
In November 1995, the Company announced that it would serve as a
satellite service provider for a Latin America DTH service ("Latin
America DTH") to be offered by the Globo Participacoes, Ltd.
("Globo"), Televisa, The News Corporation Limited ("News Corp.")
and Tele-Communications International, Inc. ("TCI"). On February
29, 1996, the Company signed a binding letter agreement with Globo,
Televisa and News Corp. (the "1996 Letter Agreement") to provide
service to a series of joint ventures (the "Latin America JVs") to
be formed. Under the 1996 Letter Agreement, Globo, Televisa and
News Corp. agreed to proportionally guaranty 100% of the Company's
fees for transponder services provided to the Latin America JVs. On
June 26, 1996, a full-scale agreement was executed for service in
Brazil on twelve transponders (the "Brazil Agreement"). The 1996
Letter Agreement remains in force. Globo and News Corp have
proportionately guaranteed the obligations under the Brazil
Agreement. Concurrent with the Merger (see Note 2), the Company
sold the equity interest in certain joint ventures to be formed to
offer DTH services in Latin America and the Iberian Peninsula for
$225 million. This resulted in a gain of $225 million which was
recorded as other income in the financial statements.
(4) Conversion of 12 3/4% Preferred Stock.
On August 14, 1997, a triggering event occurred under the
Certificate of Designation for the Company's 12 3/4% Preferred
Stock as a result of the Company's attainment of certain financial
ratios for the quarter ended June 30, 1997. The Certificate of
Designation required that upon the occurrence of a triggering
event, the Company would promptly exchange its 12 3/4% Preferred
Stock for 12 3/4% Senior Subordinated Notes. On September 30 1997,
the Company exchanged its 12 3/4% Preferred Stock into 12 3/4%
Senior Subordinated Notes. In connection with the exchange, each
share of 12 3/4% Preferred Stock was exchanged for $1,000 of
principal amount of 12 3/4% Senior Subordinated Notes. Fractional
shares were paid in cash. Dividends on shares of 12 3/4% Preferred
Stock ceased to accrue on the exchange date, and interest on the 12
3/4% Senior Subordinated Notes began to accrue at that time.
(5) PAS-6 Placed in Service.
On August 8, 1997, the Company successfully launched its PAS-6
Atlantic Ocean Region satellite, the first communications satellite
ever dedicated for direct-to-home ("DTH") television services in
Latin America. The entire PAS-6 payload, 36 Ku-band transponders,
is fully sold to Sky Latin America, one of the Latin America JVs,
which will use the satellite to beam hundreds of television
channels to its DTH service subscribers in Latin America. PAS-6
reached its final orbital location at 43 degrees West Longitude and
commenced service on September 19, 1997 after successful completion
of its in-orbit testing. See Note 6 below.
(6) Subsequent Events.
On August 27, 1997, the Company successfully launched its PAS-5
Atlantic Ocean Region Satellite. Service of the PAS-5 Satellite
commenced on October 12, 1997.
An anomaly has been detected in PAS-6's solar arrays. The
satellite, which contains 36 Ku-band transponders, has experienced
several circuit failures in its solar arrays and may experience
additional failures in the future. The circuit failures will
require the Company to forego the use of some transponders
initially and to turn off additional transponders in later years.
The ability of transponders to provide transmission power for DTH
signal reception using 60-centimeter dishes is not affected.
FORM 10-Q
PanAmSat International Systems, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview. The Company's first satellite, PAS-1, was launched in
1988 for service over the Atlantic Ocean Region and is the leading
satellite for television and cable programming distribution in
Latin America. The Company's second satellite, PAS-2, was launched
in July 1994 for service over the Pacific Ocean Region and is a
leading satellite for distribution in the Asia-Pacific region. The
Company's PAS-4 satellite was launched in August 1995 for service
over the Indian Ocean Region and commenced service on September 5,
1995. PAS-4 is the leading satellite for program distribution in
South Asia and Africa. The Company's PAS-3 satellite (a replacement
for a satellite lost as a result of a launch failure in December
1994) was launched on January 12, 1996 and commenced service on
February 19, 1996 over the Atlantic Ocean Region. The Company's
PAS-6 satellite was launched on August 8, 1997 and commenced
service on September 19, 1997 over the Atlantic Ocean Region. The
Company's PAS-5 satellite was launched August 27, 1997 and
commenced service on October 12, 1997 over the Atlantic Ocean
Region. See Note 6 to the Financial Statements above for more
information regarding subsequent events affecting PAS-6.
During the construction period of each of its new satellites, and
thereafter, the Company may incur increased operating expenses,
including expenditures for sales and marketing in excess of the
levels historically incurred, increased engineering and technical
expenses, as well as increased general and administrative expenses,
which increased expenses may not be offset by additional revenues
until the new satellites are successfully launched and commence
service. Also, commencing at the in-service date of any
successfully launched satellite, all satellite construction costs,
launch, launch insurance, capitalized interest and development
costs for such satellite will be depreciated on a straight-line
basis over the estimated useful life of the satellite. Further,
after the in-service date of any successfully launched satellite
(or upon a launch failure), the Company will be required to
expense, and no longer will be able to capitalize, interest
allocable to such satellite's construction, launch and development
costs.
Revenues. Total revenues for the three months ended September 30,
1997 were $78.0 million, an increase of $11.1 million or 17% as
compared to the comparable period in 1996. Total revenues for the
nine months ended September 30, 1997 were $242.5 million, an
increase of $64.9 million or 37% as compared to the comparable
period in 1996. The growth in revenue for the three and nine month
periods is principally due to the increase in broadcasting services
revenue. Broadcasting services revenue for the three months ended
September 30, 1997 was $63.9 million, an increase of $7.8 million,
or 14% over the same period in 1996. Broadcasting services revenue
for the nine months ended September 30, 1997 was $206.5 million, an
FORM 10-Q
PanAmSat International Systems, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
increase of $60.8 million, or 42% over the same period in 1996. The
growth in broadcasting services revenue during the three and nine
month periods was due primarily to the commencement of new video
service, ad-hoc and special events traffic and revenue during the
first, second and third quarters of 1997.
Business communications services revenue was $13.6 million in the
three months ended September 30, 1997, increasing $3.2 million or
31%, over the comparable period in 1996. Business communications
services revenue was $34.3 million in the nine months ended
September 30, 1997, increasing $3.6 million or 12%, over the
comparable period in 1996. The increase during the three and nine
month periods was primarily due to the completion during 1997 of
several short-term business communications service agreements.
Long-distance telephony services revenue increased from $0.4
million for the three months ended September 30, 1996 to $0.5
million for the three months ended September 30, 1997, an increase
of $0.1 million or 25%. Long-distance telephony services revenue
increased from $1.2 million for the nine months ended September 30,
1996 to $1.7 million for the nine months ended September 30, 1997,
an increase of $0.5 million or 42%.
Direct Expenses. Direct expenses were $6.0 million, or 8% of total
revenues, in the three months ended September 30, 1997 ,an increase
of $2.9 million or 94%, from the same period in 1996 when direct
expenses were 5% of total revenues. Direct expenses were $20.5
million, or 8% of total revenues, in the nine months ended
September 30, 1997, an increase of $13.7 million or 201%, from the
same period in 1996 when direct expenses were 4% of total revenues.
The increase in direct expenses over the three and nine month
periods was primarily attributable to costs associated with the
increased ad-hoc and special events revenue recognized during the
periods.
Sales and Marketing Expenses. Sales and marketing expenses were
$3.9 million, or 5% of total revenues, in the three months ended
September 30, 1997, compared to $3.1 million, or 5% of total
revenues, in the three months ended September 30, 1996. Sales and
marketing expenses were $9.9 million, or 4% of total revenues, in
the nine months ended September 30, 1997, compared to $10.3
million, or 6% of total revenues, in the nine months ended
September 30, 1996. The decrease in sales and marketing expenses
for the nine month period was primarily attributable to the
Company's reduced marketing activity on the PAS Global System in
anticipation of future satellite launches.
FORM 10-Q
PanAmSat International Systems, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Engineering and Technical Expenses. Engineering and technical
expenses were $4.7 million in the three month period ended
September 30, 1997, or 6% of total revenues, compared to $4.6
million, or 7% of total revenues, for the comparable period in
1996. Engineering and technical expenses were $13.8 million in the
nine month period ended September 30, 1997, or 6% of total
revenues, compared to $12.3 million, or 7% of total revenues, for
the comparable period in 1996. The dollar increase in engineering
and technical expenses during the three and nine month periods was
primarily due to increased costs associated with new teleport
facilities, as well as additional telemetry, tracking and
control costs associated with PAS-3.
General and Administrative Expenses. General and administrative
expenses were $4.8 million, or 6% of total revenues, in the three
months ended September 30, 1997, a decrease of $1.8 million or 27%,
as compared to the same period in 1996, when general and
administrative expenses were $6.6 million, or 10% of total
revenues. General and administrative expenses were $27.1 million,
or 11% of total revenues, in the nine months ended September 30,
1997, an increase of $8.5 million or 45%, as compared to the same
period in 1996, when general and administrative expenses were $18.6
million, or 10% of total revenues. The dollar decrease in general
and administrative expenses during the three month period was due
primarily to the inclusion of additional consulting and advisory
fees during the same period in 1996. The dollar increase in general
and administrative expenses during the nine month period was
primarily attributable to in-orbit insurance costs associated with
PAS-3 and additional personnel costs associated with the Company's
expansion.
Depreciation and Amortization. Depreciation and amortization was
$17.1 million in the three months ended September 30, 1997, as
compared to $16.1 million in the three months ended September 30,
1996, an increase of $1.0 million or 6%. Depreciation and
amortization was $49.5 million in the nine months ended September
30, 1997, as compared to $45.2 million in the nine months ended
September 30, 1996, an increase of $4.3 million or 10%. The dollar
and percentage increase in the three and nine month periods was
primarily due to increased depreciation expense associated with
PAS-3, and additional depreciation expense related to communication
equipment at the Company's new teleports.
Interest. Interest income, primarily earned from highly liquid
investment funds, was $7.7 million for the three months ended
September 30, 1997 compared to $5.3 million for the comparable
period in 1996, an increase of $2.4 million. Interest income was
$19.3 million for the nine months ended September 30, 1997 compared
to $17.6 million for the comparable period in 1996, an increase of
$1.7 million. The increase in interest income during the three
FORM 10-Q
PanAmSat International Systems, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
and nine month periods was primarily a result of the maturity of
marketable securities during 1996, the proceeds of which were used
to finance construction in progress. Interest expense, net of
capitalized interest, decreased from $5.7 million in the quarter
ended September 30, 1996 to $0.3 million in the same quarter in
1997. Interest expense, net of capitalized interest, decreased from
$20.6 million in the nine months ended September 30, 1996 to $4.7
million in the same period in 1997. The decrease in interest
expense during the three and nine month periods was primarily the
result of an increase in the amount of interest capitalized on
construction in progress.
Other Income. The Company had Other Income of $225.0 million for
the nine months ended September 30, 1997. The Other Income is a
result of the repurchase by Televisa of the Company's interest in
the Latin American DTH joint venture.
Income Taxes. The Company had an income tax provision of $21.1
million for the three months ended September 30, 1997 as compared
to $11.7 million for the comparable period in 1996. The Company had
an income tax provision of $146.9 million for the nine months ended
September 30, 1997 compared to $31.1 million for the comparable
period in 1996. The increase in income taxes during the three and
nine month periods was due to the increase in income before income
taxes.
Preferred Stock Dividend. The Company had Preferred Stock dividends
of $11.9 million for the three months ended September 30, 1997 as
compared to $10.5 million for the comparable period in 1996. The
Company had Preferred Stock dividends of $34.6 million for the nine
months ended September 30, 1997 compared to $30.5 million for the
comparable period in 1996. On September 30, 1997, the Preferred
Stock was converted into 12 3/4% Senior Subordinated Notes.
Dividends on the Preferred Stock ceased to accrue at such time and
interest began to accrue and is payable semi-annually each October
15 and April on the 12 3/4% Senior Subordinated Notes.
EBITDA. EBITDA was $57.0 million in the three months ended
September 30, 1997, an increase of $14.8 million or 35%, as
compared to $42.2 million for the comparable period in 1996. EBITDA
was $153.8 million in the nine months ended September 30, 1997, an
increase of $31.6 million or 26%, as compared to $122.2 million for
the comparable period in 1996. EBITDA was 63% of total revenues in
the first nine months of 1997 as compared to 69% of total revenues
for the same period in the prior fiscal year. The dollar increase
in EBITDA for the three and nine month periods ended September 30,
1997 was due primarily to the increase in total revenues.
FORM 10-Q
PanAmSat International Systems, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Liquidity and Capital Resources. Since inception, the Company and
its predecessors have financed their operations through a
combination of debt and equity financing, vendor financing, bank
financing, equipment leases and cash flow from operations. On
August 5, 1993 the Company completed the sale of the $175 million
aggregate principal amount of the Senior Secured Notes and $460.2
million aggregate principal amount of the Discount Notes
(collectively, the "Notes") and received net proceeds of
approximately $425.5 million. The original PAS-3 satellite was
destroyed during a launch failure on December 1, 1994. The Company
collected in 1995 the insurance proceeds in the amount of $214.0
million for the original PAS-3 satellite. On April 21, 1995, the
Company completed the sale of 275,000 shares of the Preferred Stock
in a public offering and received net proceeds of approximately
$261.8 million. On September 27, 1995, the public offering of
18,920,000 shares of the Common Stock was completed and the Company
received net proceeds of approximately $229 million.
The total cost for the construction and launch of PAS-7 and PAS-8,
including launch insurance, ground facilities and related
development expenses (but excluding capitalized interest expense)
is estimated to be approximately $420.0 million. The Company
expects to fund $224.6 million of such costs with the net proceeds
to it from the offering of the Common Stock. The balance of such
costs and any additional costs due to cost overruns, delays or
other unanticipated expenses is expected to be funded from vendor
financing and cash flow from operations.
The Company believes that the net proceeds to it from the offerings
of Preferred Stock and Common Stock, vendor financing, cash flow
from operations and cash on hand will be sufficient to fund the
Company's operations, its remaining costs for the construction and
launch of PAS-7 and PAS-8, as well as to pursue international
FORM 10-Q
PanAmSat International Systems, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
opportunities for DTH services which may be identified by the
Company in the future. Any additional costs due to cost overruns,
delays or other unanticipated expenses are expected to be funded
from additional vendor financing and cash flow from operations.
Cash flows provided by operating activities increased to $311.6
million in the nine months ended September 30, 1997, from $120.9
million in the nine months ended September 30, 1996. The 1997
increase is due primarily to the significant growth in revenues for
the nine months ended September 30, 1997 and the effect of non-cash
charges. The Company has and will continue to have significant
non-cash charges including depreciation of satellites and other
equipment and amortization of original issue discount on its Senior
Subordinated Discount Notes, as well as significant cash payments
that are capitalized rather than being currently expensed,
including capitalized interest.
Net cash used in investing activities decreased to $78.6 million
in the nine months ended September 30, 1997 from $128.4 million in
the nine months ended September 30, 1996. This decrease primarily
reflects $169.3 million of expenditures for satellite systems under
development partially funded by $142.0 million of proceeds from
maturity of marketable securities. This compares to $235.7 million
in expenditures for satellite systems under development during the
first nine months of 1996 partially funded by $125.3 million of
proceeds from maturity of marketable securities.
Net cash used in financing activities increased to $5.0 million in
the nine months ended September 30, 1997 from $2.7 million in the
nine months ended September 30, 1996.
FORM 10-Q
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None.
FORM 10-Q
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
PanAmSat International Systems, Inc.
Date: November 14, 1997 /s/ Kenneth N. Heintz
---------------------
Kenneth N. Heintz
Chief Financial Officer
and a Duly Authorized
Officer of the Company
PanAmSat Capital Corporation
Date: November 14, 1997 /s/ Kenneth N. Heintz
---------------------
Kenneth N. Heintz
Chief Financial Officer
and a Duly Authorized
Officer of the Company