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

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004

COMMISSION FILE NO. 0-22531

PANAMSAT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)		   95-4607698
(I.R.S. EMPLOYER IDENTIFICATION NO.)

20 WESTPORT ROAD, WILTON, CT 06897
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

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

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    ý        No    o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes    o        No    ý

As of November 11, 2004, an aggregate of 109,677,413 shares of our common stock were outstanding.

        Unless the context otherwise requires, in this Quarterly Report on Form 10-Q, 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 Quarterly Report on Form 10-Q contains certain forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain forward-looking statements 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 Quarterly Report on Form 10-Q, 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 any results which might be projected, forecasted, estimated or budgeted due to certain risks and uncertainties, including without limitation: (i) risks associated with operating our in-orbit satellites, (ii) risks of satellite launch failures, satellite launch and construction delays and in-orbit failures or reduced performance, (iii) risk that we may not be able to obtain new or renewal satellite insurance policies on commercially reasonable terms or at all, (iv) risks related to possible future losses on satellites that are not adequately covered by insurance, (v) risks related to domestic and international government regulation, (vi) risks related to our contracted backlog or expected contracted backlog for future services, (vii) risks related to pricing pressure and overcapacity in markets in which we operate, (viii) risks of inadequate access to capital markets, (ix) risks related to competition, (x) risks related to customer defaults on their obligations owed to us, (xi) risks of doing business internationally, (xii) risks associated with our high level of indebtedness, (xiii) risks related to control by our controlling stockholders and (xiv) litigation. PanAmSat cautions that the foregoing list of important factors is not exclusive, and PanAmSat undertakes no obligation to publicly update any forward-looking statement. Such risks are more fully described under the caption "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2003. Reference is also made to such other risks and uncertainties detailed from time to time in our filings with the United States Securities and Exchange Commission.


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.

i


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

PANAMSAT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(IN THOUSANDS, EXCEPT SHARE DATA)

 
   September 30,
2004
   September 30,
2003
REVENUES:            
  Operating leases, satellite services and other   $ 203,268   $ 206,033
  Outright sales and sales-type leases     3,827     4,047
   
 
    Total revenues     207,095     210,080
   
 

OPERATING COSTS AND EXPENSES:
 
 
 
 
 
 
  Cost of outright sales and sales-type leases     2,224     —
  Depreciation and amortization     74,322     85,018
  Direct operating costs (exclusive of depreciation and amortization)     38,649     38,563
  Selling, general and administrative expenses     21,509     19,323
  Facilities restructuring and severance costs     2,080     727
  Transaction-related costs     154,535     —
   
 
    Total operating costs and expenses     293,319     143,631
   
 

INCOME (LOSS) FROM OPERATIONS
 
 
(86,224
)
 
66,449
INTEREST EXPENSE—NET     57,794     38,904
   
 
INCOME (LOSS) BEFORE INCOME TAXES     (144,018 )   27,545
INCOME TAX EXPENSE (BENEFIT)     (67,363 )   6,549
   
 
NET INCOME (LOSS)   $ (76,655 ) $ 20,996
   
 
NET INCOME (LOSS) PER COMMON SHARE—basic and diluted   $ (0.16 ) $ 0.03
   
 
Weighted average common shares outstanding     470,248,000     655,686,000
   
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

1


PANAMSAT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(IN THOUSANDS, EXCEPT SHARE DATA)

 
   September 30,
2004
   September 30,
2003
REVENUES:            
  Operating leases, satellite services and other   $ 607,165   $ 600,853
  Outright sales and sales-type leases     12,185     12,576
   
 
    Total revenues     619,350     613,429
   
 

OPERATING COSTS AND EXPENSES:
 
 
 
 
 
 
  Cost of outright sales and sales-type leases     2,224     —
  Depreciation and amortization     220,969     232,194
  Direct operating costs (exclusive of depreciation and amortization)     118,484     103,983
  Selling, general and administrative expenses     88,814     58,687
  Satellite impairment loss     99,946     —
  Facilities restructuring and severance costs     4,508     1,390
  Transaction-related costs     155,035     —
   
 
    Total operating costs and expenses     689,980     396,254
   
 

INCOME (LOSS) FROM OPERATIONS
 
 
(70,630
)
 
217,175
INTEREST EXPENSE—NET     122,503     106,311
   
 
INCOME (LOSS) BEFORE INCOME TAXES     (193,133 )   110,864
INCOME TAX EXPENSE (BENEFIT)     (95,215 )   28,712
   
 
NET INCOME (LOSS)   $ (97,918 ) $ 82,152
   
 
NET INCOME (LOSS) PER COMMON SHARE—basic and diluted   $ (0.16 ) $ 0.13
   
 
Weighted average common shares outstanding     593,809,000     655,528,000
   
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

2


PANAMSAT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

 
   September 30,
2004
   December 31,
2003
  
 
   (unaudited)

    
  
ASSETS              
CURRENT ASSETS:              
  Cash and cash equivalents   $ 48,204   $ 511,248  
  Short-term investments     —     38,936  
  Accounts receivable—net     62,549     77,006  
  Net investment in sales-type leases     25,634     23,068  
  Prepaid expenses and other current assets     29,191     20,428  
  Insurance claim receivable     —     260,000  
  Deferred income taxes     7,048     7,688  
  Assets held for sale     3,257     —  
   
 
 
    Total current assets     175,883     938,374  
   
 
 

SATELLITES AND OTHER PROPERTY AND EQUIPMENT—Net
 
 
2,036,651
 
 
2,306,705
 
NET INVESTMENT IN SALES-TYPE LEASES     90,165     116,653  
GOODWILL     2,246,122     2,243,611  
DEFERRED CHARGES AND OTHER ASSETS—Net     333,761     129,534  
   
 
 
TOTAL ASSETS   $ 4,882,582   $ 5,734,877  
   
 
 

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
CURRENT LIABILITIES:              
  Accounts payable and accrued liabilities   $ 75,037   $ 71,794  
  Current portion of long-term debt     95,416     3,500  
  Current portion of satellite incentive obligations     13,218     12,654  
  Accrued interest payable     17,694     45,462  
  Deferred gains and revenues     23,645     22,436  
   
 
 
    Total current liabilities     225,010     155,846  
   
 
 

LONG-TERM DEBT
 
 
3,673,740
 
 
1,696,500
 
DEFERRED INCOME TAXES     31,459     430,512  
DEFERRED CREDITS AND OTHER (principally customer deposits, satellite incentive obligations and deferred revenue)     278,954     273,261  
   
 
 
TOTAL LIABILITIES     4,209,163     2,556,119  
   
 
 

COMMITMENTS AND CONTINGENCIES
 
 
 
 
 
 
 

STOCKHOLDERS' EQUITY:
 
 
 
 
 
 
 
  Common stock $0.01 par value; 1,329,271,891 shares authorized; 238,380,931 and 655,864,175 shares issued; and 109,677,413 and 655,864,175 shares outstanding at September 30, 2004 and December 31, 2003, respectively)     2,384     6,559  
  Additional paid-in-capital     818,260     2,536,275  
  Treasury stock, at cost (128,703,518 and 0 shares outstanding at September 30, 2004 and December 31, 2003, respectively)     (692,286 )   —  
  Accumulated other comprehensive income (loss)     772     (1,567 )
  Retained earnings     547,707     645,625  
  Other stockholders' equity     (3,418 )   (8,134 )
   
 
 
TOTAL STOCKHOLDERS' EQUITY     673,419     3,178,758  
   
 
 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 4,882,582   $ 5,734,877  
   
 
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

PANAMSAT CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004
(IN THOUSANDS, EXCEPT SHARE DATA)

 
   Common Stock
    
   Treasury Stock, at Cost
   Accumulated
Other
Comprehensive
Income (Loss)
    
    
    
    
  
 
   Additional
Paid-In
Capital
   Retained
Earnings
   Other
Stockholders'
Equity
    
   Comprehensive
Income (Loss)
  
 
   Shares
   Amount
   Shares
   Amount
   Total
  
BALANCE, JANUARY 1, 2004   655,864,175   $ 6,559   $ 2,536,275   —   $ —   $ (1,567 ) $ 645,625   $ (8,134 ) $ 3,178,758   $ —  
Additional Issuances of common stock   807,882     8     3,766   —     —     —     —     —     3,774     —  
Purchase of Treasury shares   —     —     (57 ) (546,994,644 )   (2,783,742 )   —     —     —     (2,783,799 )   —  
Retirement of Treasury shares   (418,291,126 )   (4,183 )   (2,087,273 ) 418,291,126     2,091,456     —     —     —     —     —  
Realized and unrealized net gain on cash flow hedge   —     —     —   —     —     2,002     —     —     2,002     791  
Unrealized gain on short- term investments   —     —     —   —     —     1     —     —     1     1  
Foreign currency translation adjustment   —     —     —   —     —     336     —     —     336     336  
Deferred compensation   —     —     —   —     —     —     —     (197 )   (197 )   —  
Amortization of deferred compensation   —     —     201   —     —     —     —     1,929     2,130     —  
Net customer guarantee received pursuant to the Transactions   —     —     2,723   —     —     —     —     —     2,723     —  
Transaction costs capitalized to equity   —     —     (9,157 ) —     —     —     —     —     (9,157 )   —  
Modification of options   —     —     1,237   —     —     —     —     —     1,237     —  
Tax basis step-up and tax indemnification   —     —     377,068   —     —     —     —     —     377,068     —  
Cashing out of restricted stock units   —     —     (6,523 ) —     —     —     —     2,984     (3,539 )   —  
Net loss   —     —     —   —     —     —     (97,918 )   —     (97,918 )   (97,918 )
   
 
 
 
 
 
 
 
 
 
 
BALANCE, SEPTEMBER 30, 2004   238,380,931   $ 2,384   $ 818,260   (128,703,518 ) $ (692,286 ) $ 772   $ 547,707   $ (3,418 ) $ 673,419   $ (96,790 )
   
 
 
 
 
 
 
 
 
 
 

Other Stockholders' Equity:

 
   September 30,
2004
   January 1,
2004
  
Excess of purchase price over historical cost basis of net assets acquired   $ (3,418 ) $ (3,418 )
Deferred compensation, net     —     (4,716 )
   
 
 
TOTAL OTHER STOCKHOLDERS' EQUITY   $ (3,418 ) $ (8,134 )
   
 
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


PANAMSAT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(IN THOUSANDS)

 
   September 30, 2004
   September 30, 2003
  
CASH FLOWS FROM OPERATING ACTIVITIES:              
Net income (loss)   $ (97,918 ) $ 82,152  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:              
  Depreciation and amortization     220,969     232,194  
  Deferred income taxes     (98,457 )   27,683  
  Amortization of debt issuance costs and other deferred charges     7,698     7,435  
  Provision for uncollectible receivables     31,982     1,168  
  Loss on early extinguishment of debt     20,589     5,660  
  Satellite impairment loss     99,946     —  
  Loss on Galaxy 10R XIPS anomaly     9,090     —  
  Facilities restructuring and severance costs     4,309     1,390  
  Reversal of sales-type lease liabilities     (3,727 )   —  
  Gain on disposal of fixed assets     (1,332 )   —  
  Other non-cash items     (3,950 )   (593 )
  Changes in assets and liabilities:              
    Collections on investments in sales-type leases     19,035     16,921  
    Operating leases and other receivables     6,166     (15,515 )
    Prepaid expenses and other assets     (4,222 )   21,847  
    Accounts payable and accrued liabilities     (44,336 )   (56,785 )
    Deferred gains and revenues     1,209     (1,454 )
   
 
 
    NET CASH PROVIDED BY OPERATING ACTIVITIES     167,051     322,103  
   
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:              
  Capital expenditures (including capitalized interest)     (108,308 )   (87,161 )
  Insurance proceeds from satellite recoveries     286,915     —  
  Net sales of short-term investments     38,936     44,393  
  Acquisitions, net of cash acquired     (522 )   (15,695 )
   
 
 
    NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES     217,021     (58,463 )
   
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:              
  Repayments of long-term debt     (1,443,459 )   (550,000 )
  Issuance of new long-term debt     3,512,615     —  
  Capitalized transaction costs     (152,064 )   —  
  New incentive obligations     16,250     5,642  
  Repayments of incentive obligations     (9,571 )   (8,726 )
  Repurchase of Common Stock     (2,784,556 )   —  
  Re-issuance of Treasury Stock     757     —  
  Capital contributed by affiliate     9,200     —  
  Other equity related transactions     3,384     1,852  
   
 
 
    NET CASH USED IN FINANCING ACTIVITIES     (847,444 )   (551,232 )
   
 
 
EFFECT OF EXCHANGE RATE CHANGES ON CASH     328     362  
   
 
 
NET DECREASE IN CASH AND CASH EQUIVALENTS     (463,044 )   (287,230 )
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD     511,248     783,998  
   
 
 
CASH AND CASH EQUIVALENTS, END OF PERIOD   $ 48,204   $ 496,768  
   
 
 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
 
 
 
 
 
 
Cash received for interest
 
$
6,955
 
$
11,756
 
   
 
 
  Cash paid for interest   $ 134,453   $ 149,248  
   
 
 
  Cash received for taxes   $ 122   $ 4,498  
   
 
 
  Cash paid for taxes   $ 3,422   $ 2,734  
   
 
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


PANAMSAT CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1)    Basis of Presentation

        These unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The condensed consolidated financial statements include all normal and recurring adjustments that management considers necessary to present fairly the financial position as of September 30, 2004, results of operations for the three and nine month periods ended September 30, 2004 and 2003 and cash flows for the nine months ended September 30, 2004 and 2003. Certain prior period amounts have been reclassified to conform to the current period's presentation. Operating results for the three and nine months ended September 30, 2004 and 2003 are not necessarily indicative of the operating results for the full year. For further information, refer to the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2003 filed with the Securities and Exchange Commission ("SEC") on March 15, 2004, all amendments thereto, and all of our other filings filed with the SEC from March 15, 2004 through the date of this report.

(2)    PanAmSat Merger, Subsequent Sale and Related Transactions

        On April 20, 2004, we entered into a definitive transaction agreement with The DIRECTV Group, Inc. ("The DIRECTV Group"), PAS Merger Sub, Inc. ("Merger Sub"), a wholly-owned subsidiary of The DIRECTV Group, and Constellation, LLC ("Constellation"), an affiliate of Kohlberg Kravis Roberts & Co. L.P. ("KKR"), for the merger of our company with Merger Sub (the "Merger") and subsequent sale to Constellation. On May 17, 2004, Constellation assigned the right to purchase a portion of the shares of our common stock to limited liability companies affiliated with The Carlyle Group ("Carlyle") and Providence Equity Partners, Inc. ("Providence," and Providence, together with KKR and Carlyle, the "Sponsors"). On August 12, 2004, The DIRECTV Group entered into a letter agreement with the Sponsors which amended certain terms of the transactions, including the purchase price paid to The DIRECTV Group. The Merger, the purchase transactions, the related financing transactions and the related contractual arrangements entered into with The DIRECTV Group described below are referred to collectively as the "Transactions."

        Pursuant to the terms of the transaction agreement, on August 18, 2004, Merger Sub merged with and into us, with PanAmSat as the surviving entity. As of the effective time of the Merger, holders of shares of our common stock (other than The DIRECTV Group and members of management who agreed not to have certain of their equity interests cashed out in the Merger) had no further ownership interest in us. Instead, such holders of our common stock received $23.50 in cash per share of our common stock.

        On August 20, 2004, as part of the Transactions, a portion of the shares of our common stock beneficially owned by The DIRECTV Group was repurchased by us at a purchase price of $21.84 in cash per share. Following the repurchase, The DIRECTV Group sold all of its remaining shares of our common stock to the Sponsors at a purchase price of $21.84 in cash per share. Following that sale, The DIRECTV Group and The News Corporation Limited ("News Corporation") were no longer related parties of ours.

6


        As a result of and immediately following the Transactions, entities affiliated with KKR owned approximately 44% of our common stock, entities affiliated with Carlyle and Providence each owned approximately 27% of our common stock and certain executive officers and directors had beneficial ownership of the remainder of our common stock.

        Immediately following the Transactions, each stock option issued and outstanding under our 1997 Long-Term Incentive Plan, whether or not then vested, was canceled and converted into the right to receive a payment from us (subject to any applicable withholding taxes) equal to the product of (a) the total number of shares of our common stock subject to such stock option and (b) the excess of $23.50 over the option exerc