PANAMSAT CORP /NEW/ - 10-K Annual Report

Back to GetFilings.com

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------

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, 2002

COMMISSION FILE NO. 0-22531
---------------------

PANAMSAT CORPORATION
(Exact name of registrant as specified in its charter)
---------------------

DELAWARE 95-4607698
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

20 WESTPORT ROAD, WILTON, CONNECTICUT 06897
(Address of principal executive offices)

---------------------

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(203) 210-8000
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
---------------------

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 whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). 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. [X]

As of February 27, 2003, the registrant had outstanding 150,028,729 shares
of Common Stock. As of such date, the aggregate market value of voting stock
held by non-affiliates of the registrant was approximately $392,142,559.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

DOCUMENTS INCORPORATED BY REFERENCE

Certain information contained in the Proxy Statement for the Annual Meeting
of Stockholders of PanAmSat Corporation, a Delaware corporation scheduled to be
held on May 30, 2003 (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. Unless
the context otherwise requires, in this Annual Report on Form 10-K, the terms
"we", "our", the "Company" and "PanAmSat" refer to PanAmSat Corporation and its
subsidiaries.

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 and construction delays and in-orbit failures or reduced performance,
(ii) risks that we may not be able to obtain new or renewal satellite insurance
policies on commercially reasonable terms or at all, (iii) risks related to
domestic and international government regulation, (iv) risks of doing business
internationally, (v) risks related to possible future losses on satellites that
are not adequately covered by insurance, (vi) risks of inadequate access to
capital for growth, (vii) risks related to competition, (viii) risks related to
the Company's contracted backlog for future services, (ix) risks associated with
the Company's indebtedness, (x) risks related to control by our majority
stockholder, and (xi) litigation. Such risk 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.

WEBSITE ACCESS TO COMPANY'S REPORTS

PanAmSat's Internet website address is WWW.PANAMSAT.COM. Our annual reports
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports filed or furnished pursuant to section 13(a) or
15(d) of the Exchange Act are available free of charge through our website as
soon as reasonably practicable after they are electronically filed with, or
furnished to, the Securities and Exchange Commission.

ITEM 1. BUSINESS

OVERVIEW

We are a leading global facilities-based provider of video, broadcasting
and network services through satellites. We lease transponder capacity on our
satellites, which we own and operate, and we are the distribution platform for
the delivery of entertainment and information to cable television systems,
television broadcast affiliates, direct-to-home ("DTH") television services,
Internet Service Providers ("ISPs"), telecommunications companies and other
corporations and governments. Our customers consist of some of the world's
leading media and communications companies, including AOL Time Warner (which
includes Home Box Office and Turner Broadcasting System), the BBC, News Corp.
(Fox family of channels), Sony, Viacom and The Walt Disney Company (which
includes ABC and ESPN). We operate in the most mature segment of the satellite
communications business, historically characterized by steady and predictable
revenue streams, strong cash flows from operations, substantial revenue backlog
and high barriers to entry.

We currently have 21 satellites in orbit, excluding Galaxy VI which was
deorbited in January of 2003. Our satellite fleet has approximately 913 36 MHz
equivalent transponders and is one of the world's largest commercial
geostationary earth orbit ("GEO") satellite networks, capable of reaching over
98% of the world's population. We are one of only a few companies worldwide
capable of servicing a global footprint through an owned fleet of satellites. We
operate our 21 satellites in 16 orbital slots. We have one of the most
sophisticated ground infrastructure networks available to support the needs of
our customers. We own teleports in six U.S. locations, each of which provides
transmission, monitoring and control services for operating our fleet. We lease
such services outside of the United States to support the remainder of our
worldwide satellite fleet.

PanAmSat was formed on May 16, 1997 by the merger and consolidation (the
"Merger") of PanAmSat Corporation and the Galaxy satellite service operations
("Galaxy") of Hughes Communications, Inc. (a subsidiary of Hughes Electronics
Corporation ("Hughes Electronics")). Both PanAmSat and Hughes Electronics,
through Galaxy, were pioneers in the satellite-based distribution of video.
Prior to the formation of PanAmSat and Galaxy, communications satellites were
used primarily by governments and telephone companies for voice communications
and international telephony services. PanAmSat and Galaxy pursued similar
missions to leverage the broadcasting capabilities of GEO satellites to serve
the needs of video broadcasters. In 1983, the first Galaxy satellite, Galaxy I,
was launched, becoming the basis for the first United States satellite cable
neighborhood. In the following year, Rene Anselmo founded PanAmSat International
Systems, Inc. ("PanAmSat International") which, in 1988, launched the world's
first privately owned international satellite, PAS-1, which serviced the Latin
American market. In the years that followed, Hughes Electronics became a leading
provider of U.S. video services, and PanAmSat International became a leading
provider of international video services, making the 1997 combination of the two
a global leader in the fixed satellite services ("FSS") industry.

On October 28, 2001, General Motors Corporation ("GM"), Hughes Electronics
and EchoStar Communications Corporation ("EchoStar") announced the signing of
definitive agreements that provided for the split-off of Hughes Electronics from
GM and the subsequent merger of the Hughes Electronics business with EchoStar
(the "EchoStar Transaction"). On December 10, 2002, the parties announced the
termination of the agreements stating that the EchoStar Transaction could not be
completed within the time allowed due to regulatory opposition. Under terms of
the settlement, EchoStar was released from its contingent obligation to purchase
the PanAmSat business and Hughes Electronics retained its 81% ownership position
in PanAmSat Corporation.

RECENT EVENTS

Effective February 27, 2003, Roxanne S. Austin resigned from the Board of
Directors of the Company. Pursuant to the by-laws of the Company, the Board of
Directors designated Lawrence N. Chapman as her replacement, effective as of
February 28, 2003.

2

OUR SERVICES

We derive our revenue primarily from our video and network services. For
the years ended December 31, 2002, 2001 and 2000, we derived our revenues from
the following service areas:

Revenues derived from Hughes Electronics, the Company's majority
stockholder, and its affiliates (including Hughes Network Systems, Inc., Hughes
Global Services, Inc. ("HGS"), DIRECTV Latin America LLC and DIRECTV, Inc.)
comprised approximately 20%, 19% and 14% of PanAmSat's revenues in 2002, 2001
and 2000, respectively, making Hughes Electronics and its affiliates the
Company's largest customer in each of these years. See Note 2 to the Company's
Consolidated Financial Statements, "Business Segments and Geographic
Information."

VIDEO SERVICES

We provide satellite services for the transmission of entertainment, news,
sports and educational programming for over 300 content providers worldwide. Our
video services are comprised of four categories:

- Video distribution services -- the full-time transmission of television
programming to cable systems, network affiliates and other redistribution
systems;

- DTH television services -- the transmission of multiple television
channels for household reception;

- Full-time contribution services -- satellite transmission services for
the full-time transmission of news, sports and entertainment segments to
network affiliates or broadcast centers around the world; and

- Special events services -- short-term satellite services that we provide
to broadcasters when they need on-the-scene coverage of sporting events
and breaking news.

Video Distribution Services. Our primary video distribution service is the
full-time transmission of television programming to cable systems, network
affiliates and other redistribution systems. Our satellites contain broad C-band
beams that collectively deliver hundreds of television channels to these
redistribution systems. The Ku-band beams on several of our satellites are also
used for video distribution to cable systems and network affiliates. We
generally provide video distribution services under long-term contracts for full
or partial transponder usage. We also offer bundled, value-added services that
include satellite capacity, digital encoding of video channels and, if required,
uplinking and downlinking services to and from our satellites and from our
teleport facilities.

Our video distribution services are characterized by long-term contracts
with premier media companies and content providers. These companies lease
dedicated transponder capacity from us both on our satellites in orbit and those
planned for launch in the future.

We operate satellites for the distribution of television programming to
cable and other redistribution systems in the United States, Latin America,
Africa, Australia and the Asia Pacific and Indian Ocean regions. Five of our
Galaxy satellites deliver television programming to substantially all of the
United States' cable systems. To attract and retain high quality customers, we
have created "cable neighborhoods" in which popular television channels act as
the "anchor tenants" on our satellites. Cable and other redistribution systems
then install antennas to access these popular channels for their subscribers.
Because most cable head-ends already have their antennas pointed toward these
"cable neighborhoods," our experience has been that other programmers will also
want to distribute their programming through our satellites. The formation of
cable neighborhoods has been an important driver of capacity utilization and
revenue. Of our 21 satellites in

3

orbit, 11 are part of cable neighborhoods around the world, with six serving the
U.S., two serving Latin America, two serving the Asia Pacific region and one
serving the Indian Ocean region.

To further capitalize on our Galaxy cable neighborhood concept, we
introduced in November 2000 our "Power of Five" program. Under this program,
over 7,000 qualified cable head-ends in the United States are eligible to
receive or have received free equipment that enables access to our five Galaxy
satellites in the U.S. cable neighborhood through two antennas, one of which
receives programming from our Galaxy XR, Galaxy V and Galaxy IX satellites, and
the other from our Galaxy XI and Galaxy IIIC satellites. We are providing
participating cable operators with the required antennas free of charge, which
they are required to use exclusively to receive our satellite signals. Partly as
a result of this program, as of December 31, 2002, cable operators representing
over 70% of the cable subscribers in the U.S. were able to access all of these
five satellites.

DTH Services. Most of our satellites are capable of providing DTH services
through the use of high-powered, Ku-band spot beams that focus high power
transmissions over specific geographic areas. DTH service providers lease
transponder capacity from us, and our satellites provide the platform for their
services. These services deliver a package of television programming channels
directly to a consumer's home from our satellites. DTH technology employs a
small antenna, which is usually mounted on a home's rooftop, and a set-top
decoding box connected to the antenna by hard wire. Each of these satellites can
deliver dozens of television channels to subscriber households that have
installed the 60-90 centimeter antennas and related equipment. Digital
transmissions over DTH platforms offer television viewers superior picture and
sound quality and increased channel capacity for programming and pay-per-view
options. Our global system transmits more than 750 DTH television and audio
channels worldwide for eight DTH service providers through long-term contracts.
Because their installed base of subscribers have their receiving equipment
pointed at our satellites, the cost for a DTH service provider to switch to a
different satellite would be significant.

Full-Time Contribution Services. We provide broadcasters with satellite
transmission services for the full-time and part-time transmission of news,
sports and entertainment segments to their network affiliates or broadcast
centers within the United States or around the world. Broadcasters use our
contribution capacity to consolidate programming from various locations and
assemble it in one central location for the final programming product. This
service provides broadcasters with a dedicated transmission pipeline for the
full-time retrieval of programming segments.

The contribution services segment supplements our video distribution
services, as we provide contribution services to many of our video distribution
customers and to video programmers who need point-to-point connectivity.

Special Events Services. We provide 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. We
conducted approximately 100,000 hours of total special events transmissions in
2001 and approximately 130,000 hours in 2002. For example, we delivered over
23,500 hours of live coverage for the 2002 FIFA World Cup soccer games for over
400 customers. In addition to short-term services for special events coverage,
we have long-term transponder service agreements with certain satellite services
resellers in the United States, who package domestic U.S. transponder capacity
for their broadcast, business, educational and government customers.

Our special events services help us take advantage of unutilized capacity
on our satellites and is complementary to other services we offer. As these
services are not typically long-term in nature, the revenue we derive from them
is not typically reflected in our contracted backlog.

4

Customers. The following table lists some of the customers under contract
for our video distribution, DTH and full-time contribution services:

NETWORK SERVICES

Through our network services, we provide satellite services for relaying
voice, video and data communications throughout regions and around the world. We
currently provide network services to telecommunications carriers, multinational
corporations, network service providers, and governments in over 80 countries.
Our network services fall into four categories:

- Private business network services -- satellite capacity provided for
secure, high speed corporate data networks used in a variety of business
functions;

- Internet services -- satellite capacity provided to ISPs for improved
high data rate Internet connections and point-to-multipoint content
distribution;

- Carrier services -- satellite capacity provided to telecommunications
carriers for voice, video or data communications networks for businesses
and other users; and

- Government services -- satellite capacity provided to the United States
and foreign governments for secure voice, video or data communications.

Private Business Networks. We provide satellite services directly to
network suppliers for the development and operation of private business networks
in the United States, Latin America, Europe, Africa and Asia. These
rooftop-to-rooftop VSAT (very small aperture terminal) networks provide
dedicated, proprietary one-way and two-way communications links among multiple
business sites. VSAT network end users include retail chains 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.

A VSAT network consists of many VSAT remote sites with small antennas, a
large central earth station with a large antenna which enables the connection of
all VSATs in the network (our teleports can serve this function) and satellite
transponder capacity. We expect growth in the use of VSATs to continue as more
businesses realize the benefits of communicating by a VSAT network, principally
due to the following benefits of VSATs:

- High quality and dedicated transmission availability;

- The capability of transmitting extremely large data flows;

5

- Fixed transmission costs, insensitive to distance or the number of
receiving stations; and

- The ability to rapidly and cost-effectively deploy VSAT networks in
geographically isolated regions.

Internet Services. We provide satellite services for the full-time
delivery of Internet traffic around the world. Our satellite Internet services
enable our customers to improve the quality of their Internet packet delivery,
including audio and video, by bypassing shared and congested terrestrial links
and Internet congestion points and to reduce expenses, especially for
international ISPs, by enabling simultaneous delivery of content to wide
geographic areas without requiring additional terrestrial infrastructure. Our
Internet customers deliver content for direct-to-consumer Internet applications,
entertainment content providers, ISPs, educational organizations and
telecommunications companies. We see growth opportunities for our Internet
services, particularly in markets without sufficient fiber connectivity.

As part of our Internet services, we offer a bundled satellite Internet
connection package to ISP and corporate enterprise customers that we call
SPOTbytes. The complete SPOTbytes service includes satellite capacity, teleport
transmission, and direct connectivity to tier one Internet backbone providers.
SPOTbytes is available as a two-way (duplex) platform or a one way (simplex)
platform that utilizes a terrestrial link to provide return path connectivity.

Carrier Services. We provide satellite services to eight
telecommunications carriers in seven countries to provide voice, video and data
communications networks for businesses, governments and other users. Our
satellites, which facilitate high volume information transmission and the
ability to use VSATs on the ground, have enabled carriers in emerging countries
to introduce competitive new telecommunications services in Latin America,
Africa and Asia. In addition, we offer value-added satellite services for
telecommunications customers that include satellite capacity and teleport
services that connect customers to U.S. terrestrial networks. We currently do
not expect carrier services to be a material part of our business, but we will
continue to provide quality service to existing and potential customers.

Government Services. We offer satellite space segment, ground-based
teleport and terrestrial services and related value added services for use in
both domestic and international government applications. Our services are
provided indirectly through a channel of specialized government contractors.

The following table lists some of the customers for and users of our
network services:

TT&C AND OTHER SERVICES

In addition to the TT&C (telemetry, tracking and control) services we
provide for 17 of our satellites, we also provide TT&C services for seven
satellites owned by other satellite operators. Our personnel maintain the proper
orbital location and attitude of the satellite, monitor on-board housekeeping
systems, adjust transponder levels and remotely bring backup systems on-line in
the event of a subsystem failure. The necessary TT&C satellite commands are
initiated from our operations control center in Long Beach, California and are

6

transmitted to the satellites from our teleport facilities located in New York,
Florida, Georgia, Colorado and California.

Our other services include in-orbit backup service, which is backup
transponder capacity that we make available to certain customers based upon
agreed terms.

OUR STRENGTHS

Our business is characterized by the following key strengths:

MARKET LEADING NETWORK INFRASTRUCTURE

With 21 satellites currently in orbit and approximately 913 36 MHz
equivalent transponders, we have one of the world's largest commercial GEO
satellite networks. We are one of only a few companies worldwide capable of
servicing a global footprint through an owned fleet of satellites, capable of
reaching over 98% of the world's population. Our global reach and our ability to
offer bundled services allow us to provide one-stop-shopping to our customers
seeking to deliver video, data or voice around the world, without relying on a
combination of different distribution networks, which can cause data loss and/or
service interruption and may involve logistical difficulties. In the recent
past, we have dedicated considerable time and resources to updating our
satellite fleet. We now have a modern satellite fleet in terms of both proven
technology and remaining useful life.

To complement our space assets, we have one of the most sophisticated
ground infrastructure networks available to support the needs of our customers.
Our ground infrastructure includes a technically advanced customer service
center and teleport located in Ellenwood, Georgia, which provides customers
around the world with a single point of contact for technical support. This
90,000 square foot facility houses approximately 200 professionals with staffing
24 hours a day, seven days a week. In addition, we own and operate five other
teleports in the United States, which provide transmission, monitoring and
control services, and a satellite operations control center in Long Beach,
California, which is responsible for monitoring and maintaining the health and
safety of our satellites. Outside the United States, we lease TT&C services from
third-party providers. Our U.S.-based customer service center and satellite
operations center communicate with these providers with respect to customer
service and satellite health and monitoring issues.

SUBSTANTIAL REVENUE BACKLOG RESULTING FROM LONG-TERM CONTRACTS

At December 31, 2002, we had a contracted backlog for future services of
approximately $5.55 billion, of which we expect to realize approximately $717
million as revenue in 2003. Contracts for our video distribution services are
typically long-term and can range up to the life of the satellite, which can be
up to 15 years. The terms of the contracts generally provide for significant
penalties in the case of cancellation. As a result of the long-term contracts we
have entered into with many of our significant customers, particularly in video
services, we have relatively predictable revenues and cash flows. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Contracted Backlog for Future Services" and "-- Risks Relating to
Our Business -- Our customers' industry and regional market risks could
materially and adversly affect us."

In addition, our customers enter into long-term contracts with us for
satellite capacity on satellites that are still under construction. For example,
in 2002 we entered into a new 15 year contract with Starz Encore and a new ten
year contract with USA Cable for continued delivery of their programming from
2005 through 2015 and beyond using our next generation satellites.

PREMIER CUSTOMER BASE AND LONG-STANDING RELATIONSHIPS

From the time we began offering commercial services in 1984, through
superior and consistent customer service, we have built a premier customer base
for our video and network services. Some of the customers for our video services
with whom we have long-standing relationships include AOL Time Warner (which
includes HBO and Turner Broadcasting System), Viacom, News Corp. (Fox family of
channels) and The Walt Disney

7

Company (which includes ABC and ESPN). In addition, our direct-to-home
television customers include DIRECTV-Latin America, MultiChoice (South Africa),
Sky Brazil, Sky Mexico, Sky Multicountry, South African Broadcasting Corp.,
Television Broadcasting Limited (Australia) and Television and Radio
Broadcasting Services (Asia, Australia and the United States). Representative
customers for our network services include Hughes Network Systems, Telstra and
WorldCom.

WELL POSITIONED TO CAPTURE REVENUES IN NEW MARKETS AND SERVICES

While the fixed satellite services industry had historically been built on
video and telecommunications services, the growth of the Internet has created a
need for bandwidth to service data traffic for backbone connectivity for ISPs or
streaming media applications for content providers. With our satellite network
and ground infrastructure in place today, we can provide high quality services
to these markets.

Through our global satellite footprint, we are able to connect Internet
service providers anywhere in the world to the U.S. Internet backbone, or
directly with content providers. Our end-to-end network ensures reliable, secure
transmissions regardless of location, because connectivity is not dependent on
peering arrangements with other regional networks.

HIGH BARRIERS TO ENTRY

There are a number of regulatory, economic and other barriers to entry in
our industry that help to preserve our position as one of the leading satellite
service providers. One of the most significant barriers to entry is the need to
obtain operating rights to an orbital slot, a costly and time consuming process.
We operate our 21 satellites in 16 orbital slots. Orbital slots are points on
the geostationary arc where satellites are permitted to operate, designated by
both location and frequency band. The number of orbital slots is limited. The
right to use an orbital slot must be authorized by different international
regulatory regimes for each frequency band in which a satellite operates and the
satellites must be sufficiently far apart to avoid interference with other
satellites operating in the same band. Orbital slots are generally separated by
two or more degrees, and geographic, regulatory, technical, market and business
limitations reduce the effective number to far fewer than 180 orbital slots.
Most of the orbital slots in geostationary orbit are either currently in use or
already subject to filings for use. Once the use of particular frequencies at an
orbital slot has been licensed and coordinated, the use is protected against
interference from other operations at the same or adjacent slots.

Even with access to orbital slots, significant expenditures are necessary
to build, launch and insure satellites, and it takes considerable time to design
and build satellites. Total satellite construction and launch costs can amount
to hundreds of millions of dollars, and it can take up to two years or more to
prepare a satellite for launch. We have invested approximately $4.3 billion in
our existing satellite fleet and ground infrastructure through December 31,
2002. Potential competitors may be required to invest similar amounts of time
and money to build a comparable satellite network and compete effectively with
us.

We have established ourselves over time as one of the main transmission
platforms to distribute video programming to cable systems, network affiliates,
direct-to-home distribution platforms and other redistribution systems. We have
been successful in creating "cable neighborhoods," which are collections of
popular channels that are transmitted on our satellites. These cable
neighborhoods are powerful in maintaining customers and create high barriers to
entry for new entrants because most of our customers' ground infrastructure are
specifically designed to receive information from our satellites, making their
switching costs significant.

OUR BUSINESS STRATEGY

Our goal is to maintain and strengthen our position as a global leader in
the fixed satellite services industry, operating the highest quality and most
reliable satellite-based network and offering value added services that deliver
entertainment, data and communications for businesses around the world, while
positioning PanAmSat to achieve strong financial results including operating
margins, free cash flow and

8

incremental growth based on our strengths, whether through internal development
or strategic alternatives. Our strategy to achieve this mission is based on the
following initiatives:

STRENGTHENING OUR LEADERSHIP POSITION IN VIDEO SERVICES

Our satellites were the first commercial satellites dedicated to video
distribution in the U.S. and international markets. As a result of this history
and our success, we have long-standing relationships with premier video
programmers and broadcasters. These relationships, in addition to the direct
benefits they provide, also give us a powerful marketing tool to use for
obtaining new business. Because our premier customers, such as AOL Time Warner
(which includes HBO and Turner Broadcasting System), The Walt Disney Company
(which includes ABC and ESPN) and Viacom (which includes MTV and Nickelodeon)
are under long-term agreements for capacity on particular satellites, we have
been able to attract additional programmers onto those satellites. Using our
satellites, our premier customers have built their distribution channels with
major cable companies. In turn, these cable companies have installed the ground
infrastructure needed to receive programming from our satellites. The result is
a large installed base of viewers capable of viewing content distributed over
our satellites. Other content providers have been willing to pay higher rates to
use the same satellites and take advantage of the existing ground infrastructure
to reach the same audience as our premier customers. For example, in the United
States, we estimate that approximately 10,000 cable head-ends have antennas that
are capable of receiving signals from our satellites, representing access to
approximately 69 million cable households.

To further strengthen our leadership position in fixed satellite services
to the video distribution market, we implemented a marketing program called
"Power of Five." Under this program, over 7,000 qualified cable head-ends in the
United States are eligible to receive or have received free equipment that
enables access to our five Galaxy satellites in the U.S. cable neighborhood
through two antennas, one of which receives programming from our Galaxy XR,
Galaxy V and Galaxy IX satellites, and the other from our Galaxy XI and Galaxy
IIIC satellites, thereby creating a super-neighborhood across those satellites
and adding Galaxy IX and Galaxy IIIC to our U.S. cable fleet. These five
satellites deliver more than 100 of the leading cable television channels. We
are providing participating cable operators with the required antennas free of
charge, which they are required to use exclusively to receive our satellite
signals. Partly as a result of this program, as of December 31, 2002, cable
operators representing over 70% of the cable subscribers in the U.S. were able
to access these five satellites.

PanAmSat intends to pursue opportunities where our relationships with the
world's largest media companies coupled with our existing satellite fleet and
the installed base of ground infrastructure may allow us to develop services for
increased sales to existing and new video customers. These new services may be
developed internally, through our engineering and new service development
efforts, or acquired externally, through joint ventures, strategic relationships
and acquisitions.

In 2002, in consultation with our largest video programming customers, we
introduced two new digital services designed to improve the way video content is
delivered to customers. Our new Video on Demand service is expected to provide
programmers, film production houses and other media outlets a quick and secure
means for transmitting video content from one source to multiple cable operators
throughout North America for distribution to viewers through the cable system's
video on demand service. Our new Digital Store & Forward service will enable the
digital storing and rapid and reliable delivery of film and television video
content from North America to production facilities around the globe for
applications such as news and sports. This service replaces the traditional
method of shipping analog tapes by overnight courier.

LEVERAGE INVESTMENT IN OUR NETWORK AND GROUND INFRASTRUCTURE

Increased utilization of our transponders by existing or new customers will
add to our revenue with minimal incremental costs. As the majority of our costs
associated with deploying new satellites are fixed, once a satellite is launched
and operational, profitability improves significantly as more on-board
transponders are used. Incremental revenues from increasing utilization rates on
existing satellites will significantly improve operating cash flows and margins.

9

We can achieve higher transponder utilization without additional capital
expenditures. At December 31, 2002, we were utilizing approximately 71% of our
useable and available transponders, which excludes transponders dedicated to
backup for our customers and those unavailable for regulatory or technical
reasons. We have a higher utilization rate in the United States than in the
other regions we serve. With this excess capacity, a significant portion of
which is suitable for our network services, we can pursue additional revenue
opportunities by cross selling incremental services to our existing customers or
by pursuing new customers in new markets.

We continue to offer and implement compressed digital video services for
the distribution of television programming. By using digital compression
technologies, we are able to transmit many channels of programming over a single
transponder, rather than using one transponder per channel. By leveraging this
technology, we are able to maximize usage of existing satellite resources as
opposed to spending millions of dollars on new satellites. This also allows us
to better service new high bandwidth applications, such as HDTV, for our
existing customers and to sell transponder capacity to a broader range of
broadcasters.

PanAmSat was one of the first satellite operators to offer teleport
services and other terrestrially based value added services to its customers,
such as digital encoding and compression, uplinking, downlinking, and fiber
connectivity. The Company operates six teleports in the United States. Five of
these teleports are owned by the Company and the sixth is leased. These
teleports are located in Napa, California; Fillmore, California; Castle Rock,
Colorado; Spring Creek, New York; Ellenwood, Georgia and Homestead, Florida.
Historically, each of these teleports has been operated separately from the
others. The Company believes that the development of hybrid fiber-satellite
networks and related services will represent an opportunity to grow its business
with its existing customers and to create new business with new customers. The
Company plans to implement an upgrade of its teleport network which will involve
the interconnection of its Napa, California and Ellenwood, Georgia teleports
into a fiber network that will allow customer connectivity to its satellites
through the two teleports from virtually any city in the United States. The
upgrade, which is called the "Virtual Teleport Network," will allow the two
principal teleports to back up one another and will eliminate the need for the
Spring Creek and Homestead teleports, which we expect will be closed during 2003
and 2004. By focusing all customer services through Ellenwood and Napa, the
Company will obtain efficiency and will be able to provide a higher quality of
service to its customers. PanAmSat expects to continue to pursue projects that
will build on the hybrid fiber-satellite approach of the Virtual Teleport.

EXPANDING INTO NEW MARKETS AND MARKET SEGMENTS

Our fleet has a footprint capable of reaching over 98% of the world's
population. Although we have customers throughout the world and distribute
content on a global basis, we believe that certain regions in which we have only
a limited presence represent opportunities for growth. In addition, we believe
that there are certain markets and customers in which, traditionally, commercial
satellite service providers have not had a significant presence. These too
represent opportunities for growth.

In general, as part of our growth strategy in regions in which we have had
a limited presence, we have positioned certain satellites to cover markets that
have a poor telecommunications infrastructure and where regulations may have
prevented penetration by satellite communications companies. In that way, upon
gaining access to these markets through liberalized regulations, joint ventures
or a combination of the two, we will have the ability to begin servicing new
customers and growing our business. In addition, we intend to selectively
acquire assets in order to expand into new markets if opportunities arise on
favorable terms.

As part of effecting this growth strategy, in 2001 we announced the
creation of a new company, PanAmSat de Mexico, a joint venture with a Grupo
Pegaso affiliate, that will provide video, data and Internet services to the
Mexican telecommunications market. As part of this effort, we will be providing
satellite capacity for e-Mexico, the Mexican communications ministry's national
IT network that will connect over 90% of Mexico's population with electronic
services for distance learning, Internet access, government health and commerce.
We look to pursue similar arrangements with local partners in Brazil. In 2001,
the Brazilian government gave its approval for us to provide the full range of
our services in Brazil from our PAS-1R satellite, representing the first time we
received such comprehensive authority from the Brazilian government. In 2002, we
received authorization from the Brazilian government to provide satellite
services on additional
10

satellites. We are also taking advantage of liberalized regulations in India,
where the government recently granted us approval to provide certain satellite
services. Recently, the Pakistani authorities have begun to permit the provision
of international satellite services by foreign providers. Previously, only
licensed domestic services providers were permitted to provide such services in
Pakistan.

We plan to pursue certain service markets that would otherwise require new
satellites or infrastructure through alliances and shared-risk joint ventures.
As an example, in August of 2002, we entered into a strategic alliance with BT
Broadcast Services, a British Telecom subsidiary providing terrestrial and
satellite based broadcast services, to distribute video programming throughout
Europe via BT's teleports and fiber network. In addition, in October 2002, we
entered into a strategic alliance with JSAT International Inc. ("JSAT"), a
Japanese satellite services provider, to jointly market and sell satellite
capacity in the Asia-Pacific region. This alliance builds on the existing joint
venture with JSAT to build and develop a new satellite, scheduled for launch in
2003.

We have also identified government services as an important market segment
that we should pursue. As part of our strategy to increase our government
service offerings, in January 2003, the Company announced that an agreement in
principle had been reached with Hughes Electronics for the purchase of
substantially all of the assets of HGS for approximately $8 million in cash and
the assumption of certain liabilities, subject to certain adjustments. The
revenues of HGS in 2002, less intercompany revenues recorded by PanAmSat, were
approximately $38 million. HGS provides end-to-end satellite communications
services to government entities, both domestically and internationally, as well
as to certain private sector customers and is also a value-added reseller of
satellite bandwidth and related services and equipment. They provide fixed and
mobile satellite services with worldwide coverage using a wide range of
satellites and satellite operators and equipment from a variety of suppliers.
The acquisition of the HGS business will give the Company immediate access to a
mature sales channel to the U.S. Government and government contractors through
HGS' General Services Administration (GSA) contract vehicle and will create
opportunities to sell satellite capacity and related services into U.S.,
Mexican, South African, Indian and other government initiatives. The acquisition
will provide incremental preexisting revenues to our business and support our
strategic initiative to expand our government service offerings. While the
Company and Hughes Electronics have agreed in principle on the material terms of
the purchase of the HGS business by PanAmSat, and we expect this transaction to
close in March 2003, definitive documentation of the transaction is still under
negotiation and we cannot assure you that we will be able to consummate the
transaction or do so on the terms described above.

REALIZE BENEFITS OF OPERATIONAL EFFICIENCIES

We are committed to reducing our operating cost structure and retaining
those reductions in the future for continued improvement in our operating
efficiency. Since July 2001, we have streamlined our operations, rationalized
headcount and reduced general operating expenses. For the year ended December
31, 2002, our direct operating costs and selling, general and administrative
expenses decreased a combined $40.6 million to $228.4 million as compared to
$269.0 million in 2001. This decrease was primarily due to our continued focus
on operational efficiencies.

PROVIDING SUPERIOR NETWORK RELIABILITY

We recognize the value of our customers and place a strong emphasis on
offering high quality services and are taking extra steps to ensure reliability.
Our strategy is to use modern yet proven satellites and related technology,
mitigating the risks of in-orbit failure before the satellites are placed in
commercial service. As part of our strategy, we replace certain satellites as
they approach the end of their useful lives. We have both in-orbit and
ground-based redundancies built into many of our most critical network elements
so that we can provide backup services to our customers in the event of failure.

In response to the satellite performance issues that we and other operators
in the industry have experienced, we have implemented a comprehensive satellite
procurement and launch quality control process that is overseen by a dedicated
and experienced team of engineering personnel. Since 1998, we have actively
monitored and supervised manufacturers and suppliers in launch vehicle design
and engineering, space

11

systems design and engineering, space operations engineering, testing and
operational procedures. Our focus has been to develop a fault tolerant, robust
and flexible spacecraft design that is not dependent on new or different
technologies. In 2002, we completed a 30 month, $2.0 billion, seven satellite
fleet modernization program. As a result, we placed approximately 400 36 MHz
equivalent transponders in service, improved reliability and can now provide
better service for our customers.

In addition, our satellites and our network are designed with operational
redundancies to minimize or eliminate service disruptions in the event of
failure of a critical system. On a satellite, these redundancies may include
backup and separate on-board propulsion systems, backup transponders and
conservative system margins (for example, fuel and power). In certain
circumstances, we can quickly utilize a backup, in-orbit satellite to provide
replacement capacity.

On the ground, our system redundancies include a primary and a backup
satellite operations control center and redundant TT&C sites and teleports for
each satellite, each in a different location to avoid a risk of natural
catastrophe such as an earthquake. Our ground infrastructure also has dedicated
antennas at each site for each satellite, ground spare amplifiers, baseband
equipment and other equipment and dedicated and redundant fiber optic lines with
diverse routing between the operations control center and TT&C sites.

Although we, like other satellite operators, have experienced anomalies
over the last several years, our customer service has been interrupted only once
for a catastrophic in-orbit failure, and service was restored to almost all of
our video customers served by that satellite within hours. We believe that this
record is due to our ability to utilize our robust network of satellites to
provide our customers with uninterrupted video and data broadcasting services,
whether through the use of an on-board or ground-based backup system, temporary
use of a spare satellite or another satellite in the region that is less than
fully utilized.

OUR SATELLITE NETWORK AND GROUND INFRASTRUCTURE

Our fleet currently consists of 21 satellites. We have invested
approximately $4.3 billion in our existing satellite fleet and ground
infrastructure through December 31, 2002, and we had approximately $116.8
million of expenditures remaining to be made under existing satellite
construction and launch contracts at December 31, 2002.

Our ground facilities also play a critical role in providing quality
service to our customers. We own and operate six teleports, a satellite
operations control center and a customer service center, all of which are
staffed 24 hours a day, seven days a week. Through our ground facilities, we
constantly monitor signal quality, protect bandwidth from piracy or other
interference and maintain customer installed equipment. Our teleports operate
nearly 100 antennas and are equipped to provide analog and digital transmission
services, tape play-out and time delay services, monitoring, downlinking of
Internet services, connectivity to terrestrial links and network operations
services, among other things.

Our 21 satellites in orbit contain approximately 913 36 MHz equivalent
transponders. At December 31, 2002, we were utilizing approximately 71% of our
useable and available transponders, which excludes transponders dedicated to
backup for our customers and those unavailable for regulatory or technical
reasons.

Once a satellite is placed at its orbital location, ground stations control
it until the end of its in-orbit lifetime. We generally provide TT&C services
for our own satellites, as well as for seven satellites owned by other satellite
operators. Third parties provide TT&C services for four of our satellites
currently in orbit that cannot be viewed by our existing teleport networks.

At the end of a satellite's useful life, the satellite is de-orbited in
accordance with standard industry practice by using the on-board propulsion
system to move it to a higher location above its normal orbiting position. We
have deorbited five satellites since 1997.

Set forth below is a table containing certain basic information about our
21 satellites currently in orbit and Galaxy VI which was deorbited in January
2003. Under Spacecraft Model, "B" indicates a Boeing model and "SS/L" indicates
a Space Systems/Loral model. The estimated end of useful life shown below is
determined using the lower of the satellite's design life and the estimated life
of the satellite as determined by

12

an engineering analysis. Estimated end of useful life is used to determine the
depreciation of a satellite for those satellites which have a book value. Under
Position, "EL" indicates east longitude and "WL" indicates west longitude.

- ---------------

(1) We have three C-band satellites under construction by Orbital Sciences
Corporation, two of which will replace Galaxy IR and Galaxy V prior to the
end of their useful lives. The Company expects to launch the first of these
three satellites, Galaxy XII, in the second quarter of 2003 to 74 degrees
west longitude.

(2) Galaxy IIIR is an in-orbit spare for the C-band capacity to serve our U.S.
cable customers until May 2003. Galaxy IIIR will be complemented by Galaxy
XII upon its deployment. Galaxy XII will subsequently be replaced as the
in-orbit spare by Galaxy IX upon deployment of Galaxy XIII at 127 degrees
west longitude when available.

(3) In September 1999, in connection with anomalies on Galaxy VIII-i, PAS-5 and
PAS-8, we agreed with our insurance carriers to settle all of our claims
for net cash of approximately $304 million. Galaxy VIII-i and PAS-5 were
fully depreciated as of December 31, 2002.

13

(4) Galaxy VIII-i is operated in an inclined orbit and serves as a supplement
to Galaxy IIIC.

(5) Galaxy IX, currently located at 127 degrees west longitude is expected to
become the U.S. Galaxy fleet backup satellite upon deployment of Galaxy
XIII/Horizons I at 127 degrees west longitude scheduled for launch in mid
2003.

(6) On February 19, 2003, the Company filed proofs of loss under the insurance
policies for two of its Boeing model 702 spacecraft, Galaxy XI and PAS-1R,
for constructive total losses based on degradation of the solar panels.
Service to existing customers has not been affected, and we expect that
both of these satellites will continue to serve these existing customers.
At this time, based upon all information currently available to the
Company, as well as planned modifications to the operation of the
satellites in order to maximize revenue generation, the Company currently
expects to operate these satellites through their expected economic ends of
life, although a portion of the transponder capacity on these satellites
will not be useable during such time. The Company does not expect a
material impact on 2003 revenues as a result of the difficulties on these
two satellites.

(7) In addition to providing customer services, PAS-4 also provides back-up
services for PAS-10.

(8) PAS-6 provides backup capacity for the Sky Latin America direct-to-home
service on PAS-6B. During 1998, an anomaly on PAS-6 caused it to be
declared a partial loss, and we received an insurance payment of $29.1
million.

(9) In October 2001, we filed a proof of loss under the insurance policy on
PAS-7 related to circuit failures which occurred in September 2001 and
resulted in a reduction of 28.9% of the satellite's total power available
for communications. Service to existing customers was not affected, and we
expect that PAS-7 will continue to serve these customers. In the first
quarter of 2002, we settled the claim for $215 million. PAS-7 was fully
depreciated as of December 31, 2002.

(10) The estimated end of useful life of each of Galaxy VIII-i and SBS-6 was
increased using an engineering analysis prepared by the Company. Although
operating and generating revenues, these satellites do not operate at the
capacity originally designed by the manufacturer.

(11) Galaxy VI, which served as an in-orbit spare until deployment of Galaxy
IIIR at 74 degrees west longitude, was deorbited in January 2003.

SATELLITE OPERATIONS RISK MANAGEMENT

We manage certain of the business risks inherent in the operation of a
satellite fleet by insuring satellite launches, maintaining backup satellites
and transponders, or insuring in-orbit satellites.

LAUNCH INSURANCE

We have obtained launch insurance on all of our satellites that have been
launched into orbit. Launch insurance is typically in an amount equal to the
fully capitalized cost of the satellite, which includes the satellite's net book
value, the portion of the insurance premium related to launch, the cost of the
launch services and capitalized interest (such amount, the "Fully Capitalized
Cost"). Launch insurance has historically covered claims arising after a launch
for a period of up to three to five years, providing for payment of the full
insured amount if, for example, the satellite is lost during launch or the
satellite fails to achieve the proper orbital location, or if other failures
occur during the in-orbit coverage period. Currently, as a result of recent
changes in the satellite insurance industry, insurers are offering launch
policies that extend for no more than one year after launch.

The premium on a launch insurance policy can vary considerably based on the
type of satellite and the success rate of the launch vehicle. Currently, launch
insurance rates in the industry generally range from 15% to 30% of the Fully
Capitalized Cost for a policy covering the launch and initial operations for one
year thereafter, although the rates on the types of satellites that we launch
generally range from 18% to 25%. As the result of several launch and in-orbit
failures in the industry over the last few years, a launch and initial
operations insurance premium can equate to $40 million or more, assuming a
typical $200 million satellite

14

with a 20% launch premium. We capitalize the cost of the launch insurance
premium and amortize it over the satellite's operational life.

BACKUP SATELLITES AND TRANSPONDERS

For certain of our satellites, we have and can maintain in-orbit spare
satellites, ground-based spare satellites and designated reserve transponders as
backups. While these approaches do not provide a cash payment in the event of a
loss or an anomaly, they do offer certain protections against loss of business
due to satellite failure. A reduction in the number of satellites under
insurance or a reduction in the level of insurance coverage on satellites will
also help control insurance costs. Any savings can be applied towards the
construction and launch of a new satellite, which new satellite or the satellite
it replaces may be available as an in-orbit spare. The cost of an in-orbit spare
that can provide backup support for multiple satellites may be comparable to the
lifetime cost of in-orbit insurance for those satellites. We believe that using
in-orbit backup satellites rather than having to build replacement satellites
from proceeds received under typical insurance policies may help us better serve
our customers, plan and control our replacement costs, protect our revenue
streams and protect our rights to orbital slots. In addition, availability of
in-orbit transponders and satellites as backup may also give us a competitive
advantage, as it can take two years or more to replace a satellite with
insurance proceeds.

IN-ORBIT INSURANCE

In-orbit insurance is typically for an amount comparable to launch
insurance levels and generally decreases over time, based on the declining book
value of the satellite. Historically in-orbit policies have covered a period
ranging from one to three years. As with launch insurance, insurers today are
offering in-orbit policies that last for no more than one year. The terms of
in-orbit policies generally provide for payment of the full insured amount if
the satellite fails to maintain orbit, the satellite fails to perform in
accordance with certain design specifications or 75% or more (formerly 50%) of a
satellite's communications capacity is lost. In addition, the in-orbit policies
generally provide for partial payment for losses of less than 75% of the
satellite's communications capacity, in each case subject to applicable
deductibles and exclusions. Accordingly, payments for loss under these policies
may not coincide with the actual impairment of the satellite. Satellites for
which total payments have been received may continue to operate in full or
partial service for extended periods of time and satellites for which service is
impaired may not result in an insurance payment. In-orbit insurance policies
typically provide for a revenue share payment to the insurer, generally around
25%, for any revenues generated from satellites that continue to operate after a
total loss benefit has been paid.

Currently, the premium on an in-orbit policy is typically 2% to 3% per year
of the insured amount, which equates to an annual premium of between $4 million
and $6 million on a typical $200 million satellite that is fully insured. Under
the master in-orbit insurance policy that covers 12 of our satellites until May
2003, the average premium rate is 2.05% per satellite per year, and the total
annual premium for the policy is $30.7 million. We record the in-orbit insurance
premiums as direct operating costs as they are incurred.

STRATEGY

As a result of the relatively high number of satellite anomalies in the
industry in the last few years, the cost of satellite insurance has increased,
while the level of available coverage has decreased. In the last several years,
the cost of obtaining launch and in-orbit policies on satellites reached
historic lows but has now begun to return to the higher levels for such policies
that were common in the early 1990s. In addition to higher premiums, there is a
trend toward higher deductibles, shorter coverage periods (for no more than one
year, as discussed above) and additional satellite health-related policy
exclusions. Accordingly, as our existing satellite insurance policies expire,
and in response to changes in the satellite insurance market, we will continue
to consider, evaluate and implement the use of backup satellites and
transponders and the purchase of in-orbit insurance with lower coverage amounts,
more exclusions and greater deductibles so that we can better protect our
business and control our costs.

15

CURRENT INSURANCE

On February 19, 2003, the Company filed proofs of loss under the insurance
policies for two of its Boeing model 702 spacecraft, Galaxy XI and PAS-1R, for
constructive total losses based on degradation of the solar panels. Service to
existing customers has not been affected, and we expect that both of these
satellites will continue to serve these existing customers. The insurance
policies for Galaxy XI and PAS-1R are in the amounts of approximately $289
million and $345 million, respectively, and both include a salvage provision for
the Company to share 10% of future revenues from these satellites with their
respective insurers if the proof of loss is accepted. The availability and use
of any proceeds from these insurance claims are restricted by the agreements
governing our debt obligations. We cannot assure you that the proof of loss with
respect to these two satellites will be accepted by the insurers. The Company is
working with the satellite manufacturer to determine the long-term implications
to the satellites and will continue to assess the operational impact these
losses may have. At this time, based upon all information currently available to
the Company, as well as planned modifications to the operation of the satellites
in order to maximize revenue generation, the Company currently expects to
operate these satellites through their expected economic ends of life, although
a portion of the transponder capacity on these satellites will not be useable
during such time. The Company also currently believes that the net book values
of these satellites are fully recoverable and does not expect a material impact
on 2003 revenues as a result of the difficulties on these two satellites.

As of December 31, 2002, we had in effect launch and in-orbit insurance
policies covering 16 satellites in the aggregate amount of $1.9 billion,
including Galaxy VI, which was deorbited in January 2003. We have six uninsured
satellites in orbit: PAS-4 and PAS-6, which are used as backup satellites; PAS-5
and PAS-7 for which we received insurance proceeds for constructive total
losses; Galaxy VIII-i, which continues to operate in an inclined orbit as a
supplement to Galaxy IIIC; and Galaxy XI. The Galaxy XI launch insurance policy
lapsed in December 2002. The Company elected not to purchase additional in-orbit
insurance for this satellite as the available terms were not commercially
reasonable. The claim for constructive total loss made under the launch policy
was for losses experienced prior to the expiration of the policy.

Of the insured satellites, five were covered by policies with substantial
exclusions or exceptions to coverage for failures of specific components
identified by the insurer as the most likely to fail and which have a lower
coverage amount than the carrying value of the satellite's insurable costs
("Significant Exclusion Policies"). These exclusions, we believe, substantially
reduce the likelihood of a recovery in the event of a loss. Three of these
satellites, PAS-2, PAS-3R and PAS-6B, have redundancies available for the
systems as to which exclusions have been imposed. We believe that these
redundancies allow for uninterrupted operation of the satellite in the event of
a failure of the component subject to the insurance exclusion. The fourth such
satellite, PAS-8, has an excluded component that we believe is unlikely to fail
in the near future. The fifth satellite, Galaxy IIIR, was replaced in September
2002 by Galaxy IIIC and will serve as a fleet backup.

At December 31, 2002, the uninsured satellites and the satellites insured
by Significant Exclusion Policies had a total net book value and other insurable
costs of approximately $1.0 billion. Of this amount, $498.8 million related to
uninsured satellites and $536.1 million related to satellites insured by
Significant Exclusion Policies.

A supplemental policy on Galaxy IVR for coverage of $22 million related to
sales-type leases does have a component exclusion. The primary policy on that
satellite has no component exclusion.

See "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Risks Relating to Our Business -- Our financial
condition could be materially and adversely affected if we were to suffer a loss
that is not adequately covered by insurance."

SALES AND MARKETING

For the majority of our services, including our video services, our sales
and marketing efforts focus on developing long-term relationships with our
customers. We assign a dedicated account representative to each

16

customer. That account representative is responsible for understanding the
customer's business and structure, as well as the vertical markets that they may
serve. We present comprehensive sales solutions to our customers that include
multiple and diverse service offerings to address each customer's unique market
and technical needs. In addition, several of our larger customers have been
assigned to a member of our senior executive team who is responsible for
maintaining parallel management relationships to help work through issues that
may arise and to provide continuity. As part of our selling efforts, we have a
dedicated sales application engineering team that provides both pre-sale and
post-sale technical advice and consultation to our customers to help them better
utilize their contracted satellite capacity, integrate into our network and
develop an efficient ground infrastructure.

Most of our sales are conducted through direct sales channels to a limited
group of customers. Several of our customers resell our capacity for private
business networks and broadcast services.

Our sales and marketing group is comprised of four distinct groups: global
sales, global marketing and sales operations, broadcast services and government
services.

GLOBAL SALES

The global sales group includes salespeople located in California,
Connecticut, Florida, Georgia, New York, Washington DC, Australia, Brazil,
China, England, Hong Kong PRC, India, Japan, Korea, Mexico and South Africa.
Each of our regional offices is located in the major local market where it sells
services. Our global sales group is made up of sales teams distributed
regionally. Each sales team is led by a vice president or regional director and
supported by staff consisting of account executives and technical and
administrative personnel.

Our sales group also includes technical sales engineers who are dedicated
to supporting current and potential customers' technical needs. This team is
distributed regionally to provide same time-zone coverage for sales
opportunities. These individuals define the technical specifications of our
service offerings and customize those offerings to the customer's needs. They
also provide the necessary link to the engineering staff within the customer's
organization. In addition, we have dedicated product sales specialists to
provide tailored solutions for each customer's unique requirements.

GLOBAL MARKETING AND SALES OPERATIONS

The global marketing and sales operations group, which is based in our
principal executive offices, establishes our marketing plan and ensures that
there is a consistent approach to our sales and customer relationships
worldwide. This group is also responsible for developing sales tools and sales
training, marketing communications (including trade advertising, direct
marketing and marketing materials), tradeshows and events and branding.

BROADCAST SERVICES

This group manages sales for our ad hoc, occasional use and special events
services targeted to our core broadcast customers.

GOVERNMENT SERVICES

This group develops, sells and supports satellite communications services
for the U.S. government's civil and defense needs domestically and
internationally, both directly, and through contractor/subcontractor, vendor and
strategic relationships.

THE FIXED SATELLITE SERVICES INDUSTRY

We are a market leader in the fixed satellite services ("FSS") industry.
The FSS industry is the most mature segment of the overall satellite
communications market. Since the formation of the International
Telecommunications Satellite Organization ("Intelsat") in 1964, many countries
have established satellite systems for domestic or regional communications
services. In 1988, with the launch of PAS-1, we became the
17

first international privately owned fixed satellite services company. In 1997,
with our merger with the Galaxy business of Hughes Communications, Inc., we
became a leading provider of commercial satellite services in the United States.
Companies that operate in the FSS industry generally have predictable revenue
streams and strong cash flows from operations.

FSS operators use satellites that are located in designated orbital slots
22,300 miles above the equatorial belt in geostationary orbits that revolve with
the earth. The position of these satellites makes them appear to be at a fixed
point above the earth. Receiving antennas, once pointed at a fixed satellite,
need not be moved. This allows for simplified receiver technology, lower
operational costs and improved signal reliability.

Orbital slots are points on the geostationary arc where satellites are
permitted to operate, designated by both location and frequency band. The number
of orbital slots is limited. The right to use an orbital slot must be authorized
under national and international regulatory regimes for the frequency bands in
which a satellite will operate, and satellites operating in the same frequency
bands must be sufficiently far apart to avoid interference with one another. In
addition, certain slots may not provide coverage over an entire market. Other
slots may not be available for all of the frequency bands needed to make the
slot commercially viable. Satellites operating at adjacent orbital slots are
generally separated by two or more degrees, and regulatory, technical, market
and business limitations reduce the effective number of slots to far fewer than
180. Most of the orbital slots in fixed orbit are either currently in use or
already subject to filings for use. Once the use of particular frequencies at an
orbital slot has been licensed and coordinated, the use is protected against
interference from other operations at the same or adjacent slots.

Once a satellite is in commercial service at a geostationary orbital slot,
the operator generally leases capacity, or transponders, on the satellite to
customers, including video programmers, telecommunications companies and
Internet service providers. The most common frequency bands available for lease
on GEO satellites are as follows:

- C-band. These frequencies have traditionally been used for video
broadcasting and data and voice communications. C-band frequencies have
longer wavelengths and therefore are less susceptible to terrestrial and
atmospheric interference but require larger antennas to transmit and
receive signals.

- Ku-band. These frequencies have shorter wavelengths and require more
powerful transponders, thereby allowing customers to use smaller
antennas. Ku-band has been used for such services as direct-to-home
broadcasting and VSATs.

- Ka-band. These frequencies have the shortest wavelength of the three
principal fixed satellite bands. Ka-band frequencies are not currently
widely utilized. While the Ka-band allows for small antennas, it requires
high-power beams to be concentrated on smaller geographical areas. New
applications, such as certain types of two-way communications, are being
developed for these frequencies.

The most important aspect of a GEO satellite is its ability to provide
equally accessible coverage of a very large geographic area at once, in certain
circumstances up to an entire hemisphere. Any antenna on the ground inside the
satellite footprint, or coverage area, can receive the same transmission, and
can be installed for the same incremental cost. GEO satellites receive radio
communications from one or more origination points and distribute them to a
single point or multiple receivers within the transmission range of the
satellites' beams, which is also known as the footprint.

GEO satellites are well suited for connecting a number of locations that
cannot be connected efficiently or cost effectively by terrestrial
transmissions, because the cost of satellite services does not increase with
distance or the number of receivers. With broad coverage capabilities, GEO
satellites are used for:

- The distribution of television and radio signals to cable operators,
television network affiliates, local radio stations and other
redistribution systems;

- Direct-to-home transmissions of video and audio programming which allows
video and audio transmissions to be received directly from the satellite
to homes and communal residences using small satellite antennas;

18

- Data networking services, which include voice, data and video
transmissions within private networks using VSATs;

- Internet access and content distribution, including connecting
international ISPs to the U.S. Internet backbone where there is a lack of
terrestrial fiber, and distributing IP content in a point-to-multipoint
manner; and

- International and domestic telecommunications services, such as trunk
telephony complementing fiber optic and coaxial cable backbone networks.

Although the FSS industry is considered an established segment within
satellite communications, significant changes continue to affect the industry.
Over the last several years, the FSS industry has been reshaped as a result of
consolidation, deregulation and privatization. Many of these changes have
important implications for FSS operators seeking to grow their core businesses.

Until recently, the FSS industry was fragmented, with many national and
regional providers. Our 1997 merger represented one of the first significant
consolidations in the industry. That merger brought together Galaxy, which
pioneered the cable neighborhood strategy, and PanAmSat International, the first
privately held international satellite operator. Since then, there has been a
continued trend towards consolidation in the FSS industry, driven by customers'
demand for more robust distribution platforms with network redundancies and
worldwide reach and by FSS operators' desire to secure and improve their market
access in key regions. In 2001, SES Global was formed through the acquisition of
GE American Communications, Inc. by SES Astra. SES Global reports a fleet of 28
wholly-owned GEO satellites and an additional 13 GEO satellites owned through
joint ventures and partnerships.

In recent years, many of the regulatory agencies governing satellite
transmissions into their countries have liberalized regulations, opening up new
markets for commercial FSS operators to penetrate. An example of how we benefit
from local market deregulation occurred in July 2001 when we were granted
approval to provide a full range of satellite services from our PAS-1R satellite
in Brazil, a market that previously had been closed to foreign competition.
Similarly, Mexico had been closed to foreign competition, but through our
February 2001 joint venture with a Grupo Pegaso affiliate, we have gained access
to the Mexican market through PanAmSat de Mexico, which will provide video, data
and Internet services to the Mexican telecommunications market. Other Latin
American countries have also begun to deregulate their markets, increasing
competition for the national satellite incumbents. Deregulation is also
occurring in India, where local telecommunications infrastructure is inadequate
to support the expansion plans of television networks and communications
providers. We were granted approval by the government of India to sell certain
satellite services, and we opened an office there in December 2001. Recently,
the Pakistani authorities have begun to permit the provision of international
satellite services by foreign providers. Previously, only licensed domestic
services providers were permitted to provide such services in Pakistan.

Privatization took a significant step forward in 1998 when the
intergovernmental organization Intelsat Ltd. spun-off part of its business with
the formation of New Skies Satellites N.V., which subsequently went public. In
July 2001, Intelsat and Eutelsat S.A., another intergovernmental organization,
privatized, and both have a mandate to go public. Due to current market
conditions, the timing of these actions is uncertain. Both Intelsat and Eutelsat
are large satellite operators with extensive satellite fleets and a wide range
of services. The privatization of these companies enables them to become more
commercially focused.

For example, in the past two years, Eutelsat has expanded its operations
into other territories by acquiring a 21% stake in the Spanish regional FSS
operator Hispasat and acquiring the French regional FSS operator, Stellat.

While the FSS industry has historically serviced video, telephony and
private network data traffic, the growth of the Internet has created a greater
need for satellite bandwidth. Satellites are increasingly used in

19

numerous Internet-related applications, owing primarily to key inherent
characteristics, including their ability to:

- Establish high speed connections of 45 Mbps or higher between two points
or among multiple points within their broad footprints;

- Multicast streaming media from a single source to multiple sites; and

- Provide an alternative "bypass" network that does not rely on the
limitations of the terrestrial Internet infrastructure.

Some of the new applications that FSS operators have been providing
include:

- Connecting international ISPs to the U.S. Internet backbone;

- Providing a platform for Internet content providers to distribute their
data to ISPs for local storage or caching; and

- Providing a platform for streaming media content providers to deliver
their streams real-time to broadband ISPs or directly to end users.

As an FSS industry leader, we are well positioned to benefit from the
recent changes in the FSS industry due to our size, scale, reach and diversity
of services. We are able to address these changes and continue to serve our
existing customers, while looking to gain new customers in new markets and
applications.

COMPETITION

FIXED SATELLITE SERVICES

Our principal global competitors in the fixed satellite services industry
are:

- Intelsat Ltd., a former intergovernmental agency privatized in 2001 that
primarily provides telecommunications services to common carriers and
other services providers; Intelsat reports a fleet of 24 GEO satellites;

- SES Global, the entity formed by the November 2001 acquisition of GE
American Communications, Inc. by SES Astra, has a strong presence in
European DTH services and U.S. video distribution services; SES Global
reports a GEO fleet of 28 wholly-owned satellites and 13 additional
satellites through joint ventures and partnerships; and

- New Skies Satellites N.V., a 1998 spin-off from Intelsat, has a fleet of
five GEO satellites.

Our principal regional competitors in the fixed satellite services industry
are:

- Asia Satellite Telecommunications Company Limited (AsiaSat), provides
network services and video distribution in the Asia-Pacific region;
AsiaSat reports a fleet of 3 GEO satellites.

- Satmex S.A. de C.V. provides video distribution and network services in
the Latin America region; Satmex reports a fleet of 3 GEO satellites.

- Loral Space & Communications Ltd., through its Loral Global Alliance
business, primarily provides video distribution and DTH services to the
U.S. market; Loral reports a fleet of 10 GEO satellites.

- Eutelsat S.A., a former intergovernmental agency privatized in 2001 that
primarily provides video distribution services to the European market;
Eutelsat reports a fleet of 23 GEO satellites, of which it owns and
operates 20 of the 23 satellites; and

We compete with these and other satellite service providers primarily on
coverage, access, reliability and price.

Notwithstanding the significant barriers to entry in the FSS industry,
competition is intensifying among the major FSS providers. Privatized Intelsat
and Eutelsat have the freedom to charge market-based prices, as opposed to the
uniform prices they previously charged as intergovernmental agencies. Many of
the owners of
20

Intelsat are government-owned monopolies or privatized entities that are the
dominant telecommunications companies in their home territories. By virtue of
their substantial investment in the Intelsat system and their ties to government
regulators, Intelsat's owners have the incentive to, and may be able to, block
us from entering certain non-U.S. markets. In addition, the combined SES Global
is now capable of providing services in many of the markets we serve. These and
other factors are intensifying competition in our industry.

We also compete with numerous companies and 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. Internationally, in
addition to Eutelsat, other important regional competitors include Satelites
Mexicanos, S.A. de C.V., an affiliate of Loral, in Latin America, and AsiaSat, a
partially owned subsidiary of SES Global, in Asia. These regional operators
compete with us primarily on price because many are subsidized by local
governments. In addition, some countries limit our access to their markets in
order to protect their national satellite systems. As regulations in various
foreign markets are liberalized, we believe that we will be better able to
compete in those markets.

FIBER OPTICS

Our satellite services also compete with certain of the services and
products offered by providers of terrestrial fiber optic cables. Although we
compete with land-based service providers for the transmission of video, voice
and data, we believe that satellites have distinct advantages over fiber optic
cables in both developed and underdeveloped areas of the world. In developed
areas, FSS providers like us enjoy a significant competitive advantage over
fiber optic cables because satellites provide point-to-multipoint broadcasting
services and the ability to bypass shared and congested terrestrial links,
thereby enhancing network performance. In underdeveloped areas, the population
density is often not substantial enough to warrant the investment required to
build fiber optic networks. For example, for a cable company to cost-effectively
offer cable television services and Internet services in an underdeveloped
region, it requires a critical mass of serviceable homes to connect to the local
cable headend. Satellite service providers are not similarly constrained in
underdeveloped regions.

GOVERNMENT REGULATION

As an operator of a privately owned global satellite system, we are subject
to:

- the regulatory authority of the U.S. government;

- the regulatory authority of other countries in which we operate; and

- the frequency coordination process of the International Telecommunication
Union ("ITU").

U.S. REGULATION

The Federal Communications Commission, or "FCC," regulates the ownership
and operation of our satellite system. We are subject to the FCC's jurisdiction
primarily for:

- the licensing of satellites and U.S.-based earth stations in the United
States;

- avoidance of interference with radio stations; and

- 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. We are not regulated as a
common carrier and, therefore, are not subject to rate regulation or the
obligation not to discriminate among customers, and we operate with minimal
governmental scrutiny of our business decisions. We must pay FCC filing fees in
connection with our space station and earth station applications; annual
regulatory fees that are intended to defray the FCC's regulatory expenses; and,
to the extent we are deemed to be providing interstate or international
telecommunications, universal service contributions.

21

FCC 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 currently issued for an initial fifteen-year term and the FCC gives
licensees a "replacement expectancy" with respect to the replacement of their
satellites. Most of our satellites were licensed for ten-year terms before the
FCC changed to a fifteen-year policy. At the end of a 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 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.

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 we may proceed with the construction of planned satellites
without prior FCC approval, we 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.

We have final FCC authorization for all but one of our operating satellites
in the C-band, the Ku-band or both bands. One of these final authorizations does
not cover certain design changes that are the subject of a pending modification
application. We have special temporary authority to operate the satellite as
modified on an interim basis.

Some of the satellites for which we had final FCC authorization are
operating pursuant to special temporary authority because they are continuing to
operate beyond the end of their license terms. In addition, we occasionally seek
and sometimes receive temporary grants of authority to relocate satellites.

We have filed applications for additional or replacement satellites in the
C-band and/or the Ku-band for 8 satellites and in the broadcasting satellite
services ("BSS") frequency band for 11 satellites. The BSS frequency band is
dedicated to transmitting directly to the public and is used principally for DTH
services. The frequencies are within the Ku-band, but for regulatory purposes
are considered a separate band and have a different ITU allocation scheme.

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") two of our wholly-owned subsidiaries, Section 214 authority to provide
international private line and public switched services. As common carriers,
PCSI and PCCS are subject to nondiscrimination requirements.

Coordination Requirements. The FCC requires applicants to demonstrate that
their proposed satellites would be compatible with the operations of adjacent
U.S.-licensed 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, 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 us are not clear, and it is possible that these regulations could
adversely affect or delay our ability to launch and insure our satellites and to
sell capacity to non-U.S. customers.

22

REGULATION BY FOREIGN NATIONAL TELECOMMUNICATIONS AUTHORITIES

Even though the United States is the licensing jurisdiction for all of our
operating satellites, we are nevertheless subject to regulation in many foreign
countries in which we operate. Foreign laws and regulatory practices governing
the provision of satellite services to licensed entities and directly to end
users vary substantially. Among other things, we may be subject to national
communications or broadcasting laws with respect to our 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:

- provide voice, data or video services for their own use or for
third-party use;

- own and operate private earth station equipment; and

- choose a provider of satellite capacity.

This trend should accelerate with the commitments by many World Trade
Organization 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 these countries, customer
access to our 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
and the pre-privatization Intelsat signatory, 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 us and other companies to provide
services on U.S.-licensed satellites.

Most countries permit satellite operators to provide space segment capacity
without any prior licensing or authorization. In others, however, a license is
required to provide space segment capacity or authorization is required for
specific satellites. We have obtained such licenses in Argentina, Colombia,
Ecuador, Guatemala, Honduras, Pakistan, Paraguay and Peru. Additionally, we have
sought service-type licenses in order to provide certain space segment capacity
directly to end users. We have obtained such licenses in Australia and Japan. In
addition, PanAmSat de Mexico has been awarded a concession in Mexico that will
permit the joint venture to serve as the reseller of our services in Mexico.

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 enters the proposed use in its
master frequency register 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
specific regions 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. Our proposed use of BSS frequencies on 11
satellites is subject to issues concerning the ITU's BSS band plan.

All of the registrations for our 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 our registered

23

orbital slots for PAS-2, PAS-4, PAS-7, PAS-8, PAS-10 and Galaxy XI, and our
proposed Ku-band operations at 127 degrees west longitude. In some cases, 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 -- Risks Relating to
Our Industry -- The fixed satellite services industry is heavily regulated, both
in the United States and elsewhere, and such regulation could impede us from
executing our business plan."

RECENT DEVELOPMENTS IN SATELLITE AUTHORIZATIONS

Galaxy XIII/Horizons I. In 2002, the Japanese telecommunications ministry
authorized the operation of the Ku-band payload on the Galaxy XIII/Horizons I
satellite by Horizons LLC, which is jointly owned by JSAT and the Company and
which owns and will operate the Ku-band payload of this satellite. Our use of
the Ku-band payload to provide services in the United States is subject to FCC
approval. The C-band payload will be separately owned by the Company and
requires an FCC license which has not yet been granted but which we expect will
be granted. This satellite is scheduled for launch in mid 2003.

Ka-band Authorizations. In December 2002, the Company filed for nine
Ka-band licenses through the Australian Communications Authority (ACA). In
January 2003, the Company returned to the FCC for cancellation all but one of
our authorizations to launch and operate Ka-band satellites. This filing and
return of authorizations allows the Company more time to place Ka-band
satellites in service and is consistent with the Company's long-term Ka-band
strategy.

EMPLOYEES

At December 31, 2002, we had approximately 714 full-time employees. We
believe that our employee relations are good.

ITEM 2. PROPERTIES

Our principal executive offices are located in Wilton, Connecticut, where
we commenced a ten-year lease in July 2001.

We currently operate six teleports and a satellite operations control
center in conjunction with our global satellite network. We operate our primary
teleport in Ellenwood, Georgia and operate regional teleports in Castle Rock,
Colorado; Fillmore, California; Homestead, Florida; Napa, California; and Spring
Creek, New York. We own our teleports in Ellenwood, Homestead, Spring Creek,
Napa, and Fillmore. We own the facilities in Ellenwood, Georgia and Long Beach,
California. We lease our teleport in Castle Rock, Colorado. As part of an
updating and restructuring of the Company's terrestrial infrastructure, the
Company plans to permanently close the Homestead, Florida and Spring Creek, New
York teleports during 2003 and 2004.

We also lease office space in New York, New York; Ellenwood, Georgia;
Manhattan Beach, California; Washington, D.C.; Coral Gables, Florida; Sydney,
Australia; Johannesburg, South Africa; London, England; Tokyo, Japan; Seoul,
South Korea; Hong Kong; Sao Paulo; Brazil and Mumbai, India. Our leases have
been entered into upon terms that we believe to be reasonable and customary.

ITEM 3. LEGAL PROCEEDINGS

On December 19, 2002, a class action complaint on behalf of certain holders
of the Company's common stock was filed in the Court of Chancery in the State of
Delaware against Hughes Electronics and each of the members of the Board of
Directors of the Company. The complaint alleged that Hughes Electronics and the
Company's directors breached their fiduciary duty to the stockholders of the
Company in connection with the settlement between Hughes Electronics, GM and
EchoStar terminating the EchoStar Transaction in which Hughes Electronics
received $600 million and EchoStar's contingent obligation to purchase the
Company's common stock terminated. The class of plaintiffs on whose behalf the
lawsuit has been asserted is alleged to consist of all holders of the Company's
common stock excluding any who are related to or affiliated with any of the
defendants. On January 31, 2003, the defendants filed a motion to dismiss for
failure to state a claim upon

24

which relief can be granted. Pursuant to Delaware law and the Company's
organizational documents, the Company has an indemnification obligation to the
members of its Board of Directors from liability for certain matters. Any
liability of the Company's directors for this matter may also be covered under a
directors' and officers' liability insurance policy maintained by GM for itself
and its subsidiaries, including PanAmSat. The Company has appointed counsel for
its directors and has notified the insurance carrier of this claim.

We periodically become involved in various claims and lawsuits that are
incidental to our business. Other than the matters described above, we believe
that no matters currently pending would, in the event of an adverse outcome, be
material to the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the fourth quarter of 2002, no matters were submitted to a vote of
stockholders through the solicitation of proxies or otherwise.

25

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.

As of February 27, 2003, there were approximately 120 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. In addition, the indenture and other documents
governing our February 2002 Refinancing limit our ability to pay dividends on
our common stock. 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.

Information regarding compensation plans under which the Company's equity
securities may be issued is included in Item 12 by incorporation by reference to
the Proxy Statement for the Annual Meeting of Stockholders of PanAmSat
Corporation scheduled to be held on May 30, 2003.

26

ITEM 6. SELECTED FINANCIAL DATA

The selected consolidated financial data as of December 31, 2002 and 2001
and for each of the three years in the period ended December 31, 2002 presented
in this table has been derived from our audited consolidated financial
statements and notes thereto appearing elsewhere in this Annual Report. The
selected consolidated financial data as of December 31, 2000, 1999 and 1998 and
for the years ended December 31, 1999 and 1998 presented in this table is
derived from our audited consolidated financial statements and notes thereto
which are not included in this Annual Report. You should read the selected
financial data below in conjunction with our consolidated financial statements
and notes thereto and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations."