PanAmSat Reports Third Quarter 2003 Financial Results
Company Delivers Strong Financial Results, Establishes First American High Definition Cable
Neighborhood, Continues Building Government Services Unit
PanAmSat Corporation
today reported financial results for the third quarter and nine
months ended September 30, 2003. In the third quarter, the company generated
revenues of $210.1 million compared to $199.1 million in the third quarter of
2002 and earnings per share (EPS) of $0.14 equaling the same period last year.
For the first nine months of 2003, total revenues were $613.4 million compared
to $615.5 million in 2002 and EPS was $0.55 per share compared to $0.41 per
share for the same period in 2002.
“It continues to be a tough environment for our industry, which has
unfortunately launched more capacity than the markets demand. We saw this
coming, focused on the fundamentals of our business and managed for
profitability and free cash flow. Our strategy has worked,” said Joe Wright,
president and CEO of PanAmSat. “But we haven’t stopped there. We determined
early this year that two growth markets for the FSS business were going to be
North American high-definition video and the U.S. Government. So, we are
building our capacity to service those opportunities. We have acquired Esatel
to add to our earlier acquisition of HGS and now have a full range of
communication capabilities, in the air and on the ground, to meet the rapidly
growing government demand. And, by launching Galaxy XIII/Horizons-1, we now
have established the initial satellite of the first High-Definition television
neighborhood in the U.S. Each of these events has expanded the reach of
PanAmSat in the marketplace and prepared us for future growth.”
Among the business highlights for the third quarter of 2003:
* Solid financial results for the ninth consecutive quarter with revenues
of $210.1 million in the third quarter versus $199.1 million for the
same period in 2002; EPS of $0.14 per share equal to a year earlier
after absorbing a non-cash accelerated depreciation charge which reduced
EPS by $0.04 per share.
* Strengthening of the Company’s Government unit – G2 Satellite Solutions
— with the acquisition of Esatel. Through the combination of Esatel
and G2, PanAmSat offers one of the widest portfolios of end-to-end
services for Defense, domestic and Homeland Security applications in the
market.
* Increased activity in G2 Satellite Solutions from the US Government
sales resulting in operating lease revenues for the third quarter of
2003 of $21.2 million versus $6.3 million for the same period last year.
* Continued modernization of the fleet with the successful launch of
Galaxy XIII. As the first of three satellites optimized for HDTV
performance to be deployed through 2005, Galaxy XIII is home to some of
the biggest names in cable television including HBO, HDNet, Turner and
Starz Encore. The satellite will support VSAT and video applications as
well as emerging technologies.
“PanAmSat is also convinced that FSS operators in the future will have to
provide full communication services through hybrid satellite/fiber networks
and we are developing that service model as we speak,” continued Wright. “The
way for us to compete in this industry is to provide full services with a low,
lean-to-the-muscle cost structure. We are doing exactly that.”
Financial Results for Three Months Ended September 30, 2003
Total revenues for the third quarter of 2003 were $210.1 million, compared
to revenues of $199.1 million for the third quarter of 2002. Operating lease
revenues were $206.0 million for the third quarter of 2003, compared to $194.4
million for the same period in 2002. The increase in operating lease revenues
was primarily attributable to additional government revenues related to the
Company’s new G2 Satellite Solutions division and an increase in network
services revenues. These increases were partially offset by lower video
revenues recorded as a result of customer credit related issues. Total sales
and sales-type lease revenues were $4.0 million for the quarter ended
September 30, 2003, compared to $4.7 million for the same period in 2002.
Operating lease revenues from video services were $119.0 million during
the third quarter of 2003, compared to $124.9 million for the third quarter of
2002. This decrease was primarily due to customer credit related issues and
lower occasional services revenues. Overall video services revenues were
$123.1 million in the third quarter of 2003, compared to $129.6 million in the
third quarter of 2002.
Operating lease revenues from network services increased to $54.5 million
for the third quarter of 2003, compared to $49.4 million for the third quarter
of 2002. This increase in network services revenues is primarily a result of
net new business recorded during the third quarter of 2003 from network
resellers.
Operating lease revenues from government services (previously included
within network services revenues) increased to $21.2 million for the third
quarter of 2003, compared to $6.3 million for the third quarter of 2002. The
$21.2 million for the third quarter of 2003 primarily represents revenues from
the Company’s G2 Satellite Solutions division, which was formed in 2003 after
the acquisition of Hughes Global Services (“HGS”).
Total direct operating costs and selling, general & administrative costs
for the three months ended September 30, 2003 increased by $5.4 million or 10
percent to $57.9 million as compared to $52.5 million for the same period in
2002. This increase is primarily attributable to additional costs related to
the Company’s G2 Satellite Services division, partially offset by lower bad
debt expense and the Company’s continued focus on operational efficiencies
including lower insurance costs.
For the three months ended September 30, 2003, EBITDA(1) was $151.5
million, or 72 percent of total revenues, as compared to $145.4 million or 73
percent of total revenues for the same period in 2002.
For the three months ended September 30, 2003, net income was $21.0
million, compared to $20.7 million for the same period in 2002. EPS was $0.14
per share in both the third quarter of 2003 and the third quarter of 2002.
The change in net income was due to higher EBITDA of $6.1 million offset by an
increase in depreciation expense which was primarily attributable to the
acceleration of depreciation on the Company’s Galaxy IVR and PAS-6B
satellites.
Financial Results for the Nine Months Ended September 30, 2003
Total revenues for the nine months ended September 30, 2003 were
$613.4 million, compared to revenues of $615.5 million for the nine months
ended September 30, 2002. Operating lease revenues were relatively flat at
$600.9 million for the nine months ended September 30, 2003, compared to
$600.4 million for the same period in 2002. Total sales and sales-type lease
revenues were $12.6 million for the nine months ended September 30, 2003,
compared to $15.1 million for the same period in 2002.
Operating lease revenues from video services were $362.0 million for the
nine months ended September 30, 2003 as compared to $392.2 million for the
nine months ended September 30, 2002. This decrease was primarily due to the
2002 FIFA World Cup, lower termination fee revenues and lower video revenues
recorded as a result of customer credit related issues. Overall video
services revenues were $374.6 million in the nine months ended September 30,
2003 compared to $407.3 million in the nine months ended September 30, 2002.
Operating lease revenues from network services were $157.7 million for the
nine months ended September 30, 2003, compared to $146.4 million for the same
period in 2002. This increase in network services revenues is primarily a
result of net new business recorded during the third quarter of 2003 from
network resellers.
Operating lease revenues from government services (previously included
within network services revenues) increased to $46.2 million for the nine
months ended September 30, 2003, compared to $18.6 million for the same period
of 2002. The $46.2 million recorded in 2003 primarily represents revenues
from the Company’s G2 Satellite Solutions division.
Total direct operating costs and selling, general & administrative costs
for the nine months ended September 30, 2003 decreased $13.2 million or 8
percent to $162.7 million as compared to $175.9 million for the same period in
2002. This decrease is primarily attributable to lower bad debt expense,
lower broadcast services related costs as a result of the 2002 World Cup, and
the Company’s continued focus on operational efficiencies including lower
insurance costs. These decreases were partially offset by additional costs
related to the Company’s new G2 Satellite Solutions division.
For the nine months ended September 30, 2003, EBITDA was $449.4 million,
or 73 percent of total revenues, as compared to $447.2 million or 73 percent
of total revenues for the same period in 2002. The increase in EBITDA is
primarily a result of the items discussed above and several significant
transactions recorded during the nine months ended September 30, 2002
including the recording of: a $40.1 million gain in relation to the settlement
of the PAS-7 insurance claim; net facilities restructuring and severance
charges of $13.7 million and an $18.7 million loss on the conversion of sales-
type leases to operating leases.
For the nine months ended September 30, 2003, net income was $82.2
million, compared to $61.5 million for the same period in 2002. Earnings per
share was $0.55 per share for the nine months ended September 30, 2003,
compared to $0.41 per share for the comparable period of 2002. These increases
in net income and EPS were primarily due to lower depreciation expense of
$30.5 million and higher EBITDA of $2.2 million. These increases were
partially offset by higher interest expense of $3.8 million and higher income
tax expense of $8.2 million.
As of September 30, 2003, PanAmSat had contracts for satellite services
representing future payments (backlog) of approximately $4.8 billion, compared
to approximately $5.3 billion as of June 30, 2003. During the third quarter
of 2003, the Company reduced its backlog on its PAS-6B satellite by
approximately $360 million due to the XIPS related anomaly discussed in the
Company’s June 30, 2003 Form 10-Q filing.
Financial Guidance for Fourth Quarter and Full-Year 2003
The company projects its consolidated financial results for the fourth
quarter and full-year 2003 will be as follows:
Q4'03 Guidance Full Year 2003 Guidance
Operating
Lease
Revenues $196 million to $210 million $797 million to $811 million
Sales/
sales-type
leases Approximately $4 - 5 million Approximately $16 - $17
of period revenue; No new million of period revenue; No
sales or sales-type leases new sales or sales-type
expected leases expected
Total
Revenues $200 million to $215 million $813 million to $828 million
EBITDA(1) $140 million to $150 million $589 million to $599 million
Depreciation $75 million to $85 million $307 million to $317 million
Net income $14 million to $21 million $96 million to $103 million
Earnings
per share $0.09 to $0.14 per share $0.64 to $0.69 per share
Capital
expenditures $20 million to $35 million $105 million to $120 million
NON-GAAP FINANCIAL RECONCILIATION SCHEDULE
Nine Nine
Third Third Months Months Fourth Full
Quarter Quarter Ended Ended Quarter Year
2003 2002 Sept. 30, Sept. 30, 2003 2003
Actual Actual 2003 2002 Guidance Guidance
Net Income $21.0M $20.7M $82.2M $61.5M $14-21M $96-103M
Plus: Income
tax expense 6.6M 6.9M 28.7M 20.5M 5-8M 34-37M
Plus: Interest
expense, net 38.9M 38.9M 106.3M 102.5M 30-40M 136-146M
Plus:
Depreciation
expense 85.0M 78.9M 232.2M 262.7M 75-85M 307-317M
EBITDA(1) $151.5M $145.4M $449.4M $447.2M $140-150M $589-599M
Net cash
flow
provided
by
operating
activities: $92.9M $129.2M $327.7M $395.4M N/A N/A
Net cash
flow (used
in) provided
by investing
activities: (39.1)M (172.2)M (58.5)M (140.8)M
Plus:
Purchase/
(Sale) of
short-term
investments: (0.7)M 95.7M (44.4)M 95.7M
Free Cash
Flow(2) $53.1M $52.7M $224.8M $350.3M
Operating
Profit
Margin (3) 32% 33% 35% 30% N/A N/A
EBITDA
margin (1) 72% 73% 73% 73%
(1) EBITDA (Earnings Before Interest, Taxes, Depreciation and
Amortization), which is a non-GAAP financial measure, is the sum of
net income, income tax expense, interest expense, net and
depreciation and amortization as presented in the attached Summaries
of Operating Results. EBITDA margin is calculated by dividing EBITDA
by total revenues. This measure should be used in conjunction with
other GAAP financial measures and is not presented as an alternative
measure of operating results or cash flow from operations, as
determined in accordance with accounting principles generally
accepted in the United States of America. PanAmSat's management uses
EBITDA to evaluate the operating performance of its business, and as
a measure of performance for incentive compensation purposes.
PanAmSat believes EBITDA is a measure of performance used by some
investors, equity analysts and others to make informed investment
decisions. PanAmSat's management also uses this metric to measure
income generated from operations that could be used to service debt,
fund future capital expenditures or pay taxes. In addition,
multiples of current or projected EBITDA are used to estimate
current or prospective enterprise value. EBITDA does not give effect
to cash used for debt service requirements, and thus does not
reflect funds available for investment or other discretionary uses.
EBITDA as presented herein may not be comparable to similarly titled
measures reported by other companies.
(2) Free Cash Flow, which is a non-GAAP financial measure, equals net
cash provided by operating activities less net cash used in
investing activities (excluding purchases of short-term investments)
as presented in the attached Summarized Statements of Cash Flows.
This measure should be used in conjunction with other GAAP financial
measures and is not presented as an alternative measure of cash flow
as determined in accordance with accounting principles generally
accepted in the United States of America. PanAmSat's management
uses Free Cash Flow to evaluate the operating performance of its
business, and as a measure of performance for incentive compensation
purposes. PanAmSat believes Free Cash Flow is a measure of
performance used by some investors, equity analysts and others to
make informed investment decisions. PanAmSat's management also uses
this metric to measure cash flows generated from operations that
could be used to service debt, fund future capital expenditures or
pay taxes. Free Cash Flow does not give effect to cash used for
debt service requirements, and thus does not reflect funds available
for investment or other discretionary uses. Free Cash Flow as
presented herein may not be comparable to similarly titled measures
reported by other companies.
(3) Operating Profit Margin is calculated by dividing income from
operations by total revenues.
For more detailed information about our financial guidance and trends,
please visit the “Financial Guidance/Recent Presentations” page of the
Investor Relations section of our website located at http://www.panamsat.com.
PanAmSat will hold a conference call at 11:00 a.m. ET on October 13, 2003 to
discuss its third quarter 2003 financial results, as well as its financial
outlook for 2003. The dial-in number is 1-800-289-0485 (domestic) or
1-913-981-5518 (international). To listen to the call live via web cast,
please visit www.panamsat.com.
About PanAmSat
PanAmSat Corporation is one of the world’s top three
satellite operators managing a global fleet of 31 satellites, 26 of which are
wholly-owned by the Company, for the delivery of news, sports and other
television programming. In total, this fleet is capable of reaching more than
98 percent of the world’s population through cable television systems,
broadcast affiliates, direct-to-home operators, Internet service providers and
telecommunications companies. In addition, PanAmSat supports the largest
concentration of satellite-based business networks in the US, as well as
specialized communications services in remote areas throughout the world.
PanAmSat is 81 percent owned by HUGHES Electronics Corporation. For more
information, visit the company’s web site at www.panamsat.com.
About HUGHES
HUGHES is a world-leading provider of digital television entertainment,
broadband services, satellite-based private business networks, and global
video and data broadcasting. HUGHES is a unit of General Motors Corporation.
The earnings of HUGHES are used to calculate the earnings attributable to the
General Motors Class H common stock .
NOTE: 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 press release, the words “estimate,” “plan,” “project,”
“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, which are more specifically set forth in
the “Financial Guidance/Recent Presentations” page of the Investor Relations
section of our website and the company’s annual report on Form 10-K for the
year ended December 31, 2002 on file with the Securities and Exchange
Commission. These risks and uncertainties include but are not limited to (i)
risks of launch failures, launch and construction delays and in-orbit failures
or reduced performance, (ii) risk 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.
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.
FOUR PAGES OF FINANCIAL INFORMATION TO FOLLOW
Summary of Operating Results
For the Three Months Ended September 30, 2003 and 2002
Amounts in thousands (except share data)
PanAmSat PanAmSat
9/30/03 9/30/02
Revenues
Operating leases, satellite services and other $206,033 $194,410
Outright sales and sales-type leases 4,047 4,714
Total Revenues 210,080 199,124
Costs and Expenses
Direct operating costs
(exclusive of depreciation) 38,563 29,176
Selling, general & administrative costs 19,323 23,336
Facilities restructuring and severance costs 727 1,189
Total 58,613 53,701
EBITDA 151,467 145,423
Depreciation expense 85,018 78,966
Income from operations 66,449 66,457
Interest expense, net 38,904 38,857
Income before income taxes 27,545 27,600
Income tax expense 6,549 6,900
Net Income $20,996 $20,700
Earnings per share $0.14 $0.14
Weighted average common shares outstanding 150.1 149.9
Summary of Operating Results
For the Nine Months Ended September 30, 2003 and 2002
Amounts in thousands (except share data)
PanAmSat PanAmSat
9/30/03 9/30/02
Revenues
Operating leases, satellite services and other $600,853 $600,371
Outright sales and sales-type leases 12,576 15,125
Total Revenues 613,429 615,496
Costs and Expenses
Direct operating costs
(exclusive of depreciation) 103,983 96,347
Selling, general & administrative costs 58,687 79,585
Facilities restructuring and severance costs 1,390 13,708
Gain on PAS-7 insurance claim -- (40,063)
Loss on conversion of sales-type leases -- 18,690
Total 164,060 168,267
EBITDA 449,369 447,229
Depreciation expense 232,194 262,689
Income from operations 217,175 184,540
Interest expense, net (a) 106,311 102,557
Income before income taxes 110,864 81,983
Income tax expense 28,712 20,496
Net Income $82,152 $61,487
Earnings per share $0.55 $0.41
Weighted average common shares outstanding 150.0 149.9
(a) As a result of the company's adoption of Statement of Financial
Accounting Standards No. 145 in January 2003, the company was
required to reclassify the $3.3 million pre-tax loss on early
extinguishment of debt recorded during the first quarter of 2002 from
an extraordinary item to interest expense within the company's
statement of income for the three months ended March 31, 2002. This
reclassification did not have any effect on net income previously
reported by the company during that period.
Summarized Balance Sheets
As of September 30, 2003 and December 31, 2002
(Amounts in thousands)
9/30/03 12/31/02
ASSETS
CURRENT ASSETS
Cash and cash equivalents $496,768 $783,998
Short-term investments 55,394 99,785
Accounts receivable, net 69,614 34,276
Net investment in sales-type leases 22,467 22,858
Prepaid expenses and other 32,194 43,170
Receivable - satellite manufacturer 69,500 72,007
Insurance claim receivable 102,649 --
Deferred income taxes 9,368 7,889
Total current assets 857,954 1,063,983
SATELLITES AND OTHER PROPERTY AND
EQUIPMENT, Net 2,621,288 2,865,279
NET INVESTMENT IN SALES-TYPE
LEASES 120,858 161,869
GOODWILL 2,240,323 2,238,659
DEFERRED CHARGES 141,432 157,948
TOTAL ASSETS $ 5,981,855 $ 6,487,738
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $75,666 $77,309
Current portion of long-term debt 32,663 200,000
Accrued interest payable 19,653 50,961
Deferred revenues 21,115 18,923
Total current liabilities 149,097 347,193
LONG-TERM DEBT 1,967,338 2,350,000
DEFERRED INCOME TAXES 445,156 417,843
DEFERRED CREDITS AND OTHER 260,148 295,160
TOTAL LIABILITIES 2,821,739 3,410,196
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY 3,160,116 3,077,542
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY $ 5,981,855 $ 6,487,738
Summarized Statements of Cash Flows
For the Nine Months Ended September 30, 2003 and 2002
(Amounts in thousands)
9/30/03 9/30/02
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES
Net Income $82,152 $61,487
Depreciation 232,194 262,689
Gain on PAS-7 insurance claim -- (40,063)
Loss on conversion of sales-type leases -- 18,690
Facilities restructuring and severance costs 1,390 13,708
Changes in working capital and other accounts 12,009 78,920
NET CASH PROVIDED BY OPERATING ACTIVITIES 327,745 395,431
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures
(including capitalized interest) (b) (87,161) (260,037)
Sale (purchases) of short-term investments 44,393 (95,738)
Insurance proceeds from satellite recoveries -- 215,000
Acquisitions, net of cash acquired (15,695) --
NET CASH USED IN INVESTING ACTIVITIES (58,463) (140,775)
CASH FLOWS FROM FINANCING ACTIVITIES
New borrowings -- 1,800,000
Repayments (550,000) (1,771,542)
Debt issuance costs -- (41,012)
Other (6,874) (5,899)
NET CASH USED IN FINANCING ACTIVITIES (556,874) (18,453)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 362 --
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (287,230) 236,203
CASH AND CASH EQUIVALENTS, beginning of period 783,998 443,266
CASH AND CASH EQUIVALENTS, end of period $496,768 $679,469
(b) Includes Capitalized Interest of $11.3 million and $23.6 million for
the nine months ended September 30, 2003 and 2002, respectively.
