PANAMSAT CORP /NEW/ - 10-K Annual Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K

ANNUAL REPORT ON FORM 10-K PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

COMMISSION FILE NO. 0-22531
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PANAMSAT CORPORATION
(Exact name of registrant as specified in its charter)
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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)

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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
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark 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.
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DOCUMENTS INCORPORATED BY REFERENCE

Certain information contained in the Proxy Statement for the Annual Meeting
of Stockholders of PanAmSat Corporation, a Delaware corporation 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.

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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

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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.

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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;

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- 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

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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

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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

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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.

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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
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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.

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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.

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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."

27

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

(1) Under an outright sales contract, we sell all rights and title to a
transponder to a customer, which in turn pays us the full amount of the sale
price in cash at the commencement of the contract. At that time, we
recognize the sale amount as revenue and record the cost of the transponder
to cost of outright sales. Under sales-type leases, we recognize as revenue
at the inception of the lease the net present value of the future minimum
lease payments, but we continue to receive cash payments from the lessee
throughout the term of the lease. In addition, during the life of the lease,
we recognize as revenue the portion of each periodic lease payment deemed to
be attributable to interest income. The principal difference between a
sales-type lease and an operating lease is when we recognize the revenue and
related costs, but not when we receive the cash.

(2) Net of capitalized interest of $27.3 million, $23.3 million, $56.1 million,
$60.7 million and $59.9 million for the years ended December 31, 2002, 2001,
2000, 1999, and 1998, respectively, and net of interest income of $15.2
million, $13.5 million, $6.8 million, $3.2 million and $10.4 million in
2002, 2001, 2000, 1999 and 1998, respectively.

(3) On February 25, 2002, the Company completed its Refinancing and repaid the
$1.725 billion of indebtedness owed under the term loan to Hughes
Electronics (See Note 6 to the Company's Consolidated Financial Statements,
"Long-term Debt"). In conjunction with this repayment, the Company was
required to write-off the remaining unamortized debt issuance costs of
approximately $3.3 million related to the Hughes Electronics term loan, net
of related income taxes of $0.8 million. This $2.5 million charge was
recorded within the Company's consolidated income statement as an
extraordinary loss on early extinguishment of debt. Upon adoption of the
provisions of Statement of Financial Accounting Standards No. 145 ("SFAS
145") on January 1, 2003, the Company will be required to reclassify this
loss on extinguishment of debt to other expense, as it does not meet the new
requirements for classification as an extraordinary item in accordance with
SFAS 145 (See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Recent Accounting Pronouncements").

(4) EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is
the sum of operating profit (loss) and depreciation and amortization. EBITDA
in 2002 excludes the extraordinary item that is applicable for 2002 only.
EBITDA 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.
EBITDA is used as an analytical indicator of income generated to service
debt and fund capital expenditures. 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.

(5) EBITDA margin is EBITDA divided by revenues and is expressed as a
percentage.

(6) Contracted backlog represents expected future cash payments to be received
from customers under executed operating leases or sales-type leases.
Contracted backlog is attributable to both satellites currently in orbit and
those planned for future launch (See Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- Contracted Backlog for Future Services").

(7) Includes debt of $2.550 billion, $796.5 million, $817.8 million, $874.2
million and $750.0 million as of December 31, 2002, 2001, 2000, 1999, and
1998, respectively and due to affiliates of $0, $1.725 billion, $1.725
billion, $1.797 billion and $1.788 billion as of December 31, 2002, 2001,
2000, 1999, and 1998, respectively.

28

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion and analysis should be read in conjunction with
the Company's consolidated financial statements and the notes thereto appearing
elsewhere in this Annual Report.

OVERVIEW

We are the product of the May 1997 merger of PanAmSat International and the
Galaxy business of Hughes Communications, Inc., a subsidiary of Hughes
Electronics, into a new publicly held company, which retained the PanAmSat name.
Hughes Electronics, a wholly-owned subsidiary of General Motors Corporation
("GM"), indirectly owns approximately 81% of our outstanding common stock.

On October 28, 2001, 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.

CRITICAL ACCOUNTING POLICIES

We prepare the consolidated financial statements of PanAmSat in conformity
with accounting principles generally accepted in the United States of America.
As such, we are required to make certain estimates, judgments and assumptions
that we believe are reasonable based upon the information available. These
estimates and assumptions affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of revenues and
expenses during the periods presented. Management bases its estimates and
judgments on historical experience and on various other factors. Due to the
inherent uncertainty involved in making estimates, actual results reported in
future periods may be affected by changes in those estimates. The following
represent what PanAmSat believes are the critical accounting policies that
require the most significant management estimates and judgments:

RECEIVABLES (INCLUDING NET INVESTMENT IN SALES-TYPE LEASES):

A significant amount of management estimate and judgment is required in
determining the amount of reserves required for the potential non-collectability
of receivables. We perform ongoing credit evaluations of our customers and
adjust credit limits based upon payment history and the customer's current
credit worthiness, as determined by our review of their current credit
information. We continuously monitor collections and payments from our customers
and maintain a provision for estimated credit losses based upon our historical
experience and any specific customer collection issues that we have identified.
If collectability of the receivable is not reasonably assured at the time
services are performed, the Company does not initially record the revenue, but
rather records an allowance for customer credits to offset the receivable. If
there is a change in the customer's financial status or the receivable is
collected, revenue is recorded at that time.

While such credit losses described above have historically been within our
expectations and the provisions established, we cannot guarantee that we will
experience the same credit loss rates that we have estimated or historically
experienced. As such, additional charges could be incurred in the future to
reflect differences between estimated and actual collections.

Since our long-term receivables and net investment in sales-type leases
relate to significant long-term contracts which are concentrated in a relatively
few number of customers, a significant change in the liquidity or financial
position of any one of these customers could have a material adverse impact on
the collectability of our long-term receivables or net investment in sales-type
leases and our future operating results. Additionally, if a satellite's useful
life is shortened, and a sales-type lease is recorded on that satellite, we
would write off the portion of the sales-type lease receivable which is
uncollectable as a result.
29

As of December 31, 2002 and 2001, we had aggregate gross receivables of
$303.9 million and $350.2 million, respectively, related to sales-type lease,
operating lease and other long-term receivables. With respect to these amounts,
we maintained an aggregate allowance for doubtful accounts of approximately
$36.0 million and $22.1 million in 2002 and 2001, respectively, including
allowances for customer credits (See "Deferred Charges and Other Assets" and
"Accounts Receivable" within Note 2 to the Company's Consolidated Financial
Statements and Note 3 "Operating Leases and Net Investment in Sales-Type Leases"
to the Company's Consolidated Financial Statements).

EVALUATION OF SATELLITES AND OTHER LONG-LIVED ASSETS FOR IMPAIRMENT AND
SATELLITE INSURANCE COVERAGE:

The Company periodically evaluates potential impairment loss relating to
its satellites and other long-lived assets, when a change in circumstances
occurs, by assessing whether the carrying amount of these assets can be
recovered over their remaining lives through undiscounted future expected cash
flows generated by those assets (excluding interest charges). If the
undiscounted future cash flows were less than the carrying value of the
long-lived asset, an impairment charge would be recorded. The impairment charge
would be measured as the excess of the carrying value of the long-lived asset
over the present value of estimated expected future cash flows using a discount
rate commensurate with the risks involved. Losses on long-lived assets to be
disposed of are determined in a similar manner except that fair values are
reduced for the cost of disposal. Changes in estimates of future cash flows
could result in a write-down of the asset in a future period.

In the event a portion of a satellite was rendered inoperative and/or
incapable of performing its intended function, the Company would apply the
concepts of FASB Statement No. 144, "Accounting for the impairment or Disposal
of Long-Lived Assets" ("SFAS 144").This supersedes FASB Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," in the determination of whether an impairment loss had
occurred. If an impairment loss was indicated, such amount would be recognized
in the period of occurrence, net of any insurance proceeds to be received so
long as such amounts are determinable and receipt is probable. If no impairment
loss was indicated in accordance with SFAS 144 and the Company received
insurance proceeds, the proceeds would offset the carrying value of the
satellite. In the event that the insurance proceeds received exceeded the
carrying value of the satellite, the excess of the proceeds over the carrying
value of the satellite would be recognized in the income statement.

In the event a portion of a satellite was rendered inoperative and/or
incapable of performing its intended function and the satellite was not insured,
the Company would apply the concepts of SFAS 144 in the determination of whether
an impairment loss had occurred. In the event an impairment loss had occurred,
such amount would be recognized in the period of occurrence. If no impairment
loss was required as calculated under SFAS 144, the Company would make a
determination, based on the facts and circumstances at the time of occurrence,
if disclosure of the event in the accompanying notes is required.

Certain losses of a satellite may not be covered by launch or in-orbit
insurance policies. Some of our satellites are covered by insurance policies
that are subject to significant health-related exclusions and deductibles
related to specific components identified by the insurers as the most likely to
fail and some of our satellites are uninsured (see "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").

VALUATION OF GOODWILL:

PanAmSat evaluates the carrying value of goodwill on an annual basis, and
when events and circumstances warrant such a review in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other
Intangible Assets," which is described in Note 2 and Note 5 to the Company's
Consolidated Financial Statements. SFAS No. 142 requires the use of fair value
in determining the amount of impairment, if any, for recorded goodwill. In
conjunction with the Company's goodwill impairment assessments, the Company
utilized an independent valuation expert to assist the Company in assessing the
fair value of its reporting unit using a discounted cash flow approach. No
charge was required as a result of these impairment assessments. Changes in
estimates of future cash flows could result in a write-down of the asset in

30

a future period. If such an impairment loss results from future impairment
tests, the loss will be recorded as a pre-tax charge to operating income. The
amount of any loss resulting from future impairment tests could be material to
PanAmSat's results of operations.

RESTRUCTURING RESERVES:

Upon approval of a restructuring plan by management, the Company may be
required to record certain restructuring reserves. Prior to the adoption of SFAS
146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS
146") on January 1, 2003, the Company accounted for its restructuring charges in
accordance with Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)" ("EITF 94-3").
SFAS 146 requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred, whereas, under
EITF Issue No. 94-3, a liability for an exit cost was recognized at the date of
an entity's commitment to an exit plan. The Company's restructuring reserves as
of December 31, 2002 were all recorded pursuant to EITF 94-3. These reserves
relate primarily to future lease costs for unused leased facilities and
severance related costs, including employee compensation and employee benefits,
outplacement services and legal and consulting expenses associated with
reductions in workforce. The liabilities recorded related to the severance costs
are primarily short-term, as these liabilities will be paid within one year. The
liabilities related to future lease costs are primarily long-term as the related
lease payments will be made over the remaining lease terms, a majority of which
are greater than one year. Additionally, in conjunction with the Company's
teleport consolidation plan, which was approved in January 2003, certain
additional restructuring charges will be recorded during 2003 and 2004, as the
related liabilities are incurred.

Inherent in the estimation of these restructuring costs are assessments
related to the most likely expected outcome of the significant actions to
accomplish the restructuring. Changing business conditions may affect the
assumptions related to the timing and extent of facility closure activities. We
review the status of restructuring activities on a quarterly basis and, if
appropriate, record changes based on updated estimates.

DEPRECIABLE SATELLITE LIVES:

The estimated useful lives of the Company's satellites are based upon the
lower of the satellite's design life or the estimated life of the satellite as
determined by an engineering analysis performed during initial in-orbit testing.
As the telecommunications industry is subject to rapid technological change and
the Company's satellites have been subject to certain health related anomalies,
the Company may be required to revise the estimated useful lives of its
satellites and communications equipment or to adjust their carrying amounts.
Accordingly, the estimated useful lives of the Company's satellites are
periodically reviewed using current engineering data. If a significant change in
the estimated useful lives of our satellites is identified, the Company accounts
for the effects of such changes on depreciation expense on a prospective basis.
Reductions in the estimated useful lives of our satellites would result in
additional depreciation expense in future periods. If the reduction in the
estimated useful life of a satellite results in undiscounted future cash flows
for the satellite which are less than the carrying value of the satellite, an
impairment charge would be recorded.

DEFERRED TAXES:

We recognize deferred tax assets and liabilities based on the differences
between the financial statement carrying amounts and the tax bases of assets and
liabilities. PanAmSat regularly reviews its deferred tax assets for
recoverability and establishes a valuation allowance in order to reduce the
Company's deferred tax assets based on an evaluation of the amount of deferred
tax assets that management believes are more likely than not to be ultimately
realized in the foreseeable future. Management establishes this valuation
allowance based upon historical taxable income, projected future taxable income,
and the expected timing of the reversals of existing temporary differences. If
we continue to operate at a loss for tax purposes or are unable to generate
sufficient future taxable income, or if there is a material change in the actual
effective tax rates or time period within which the underlying temporary
differences become taxable or deductible, we could be required to

31

establish a valuation allowance against all or a significant portion of our
deferred tax assets resulting in a substantial increase in our effective tax
rate and a material adverse impact on our operating results.

We currently operate under a federal income tax sharing arrangement with
Hughes Electronics, our parent corporation. In accordance with such arrangement,
we provide for current and deferred income taxes as if we were the common parent
of an affiliated group that is not included in the consolidated federal income
tax return that includes Hughes Electronics. At December 31, 2002, our balance
sheet reflected a deferred tax asset in the amount of $192.6 million
attributable to the future benefit from the utilization of certain net operating
tax loss carryforwards, alternative minimum tax credits and foreign tax credits.
Such tax sharing arrangement with Hughes Electronics does not provide for the
payment by Hughes Electronics for any benefit relating to any of our
then-remaining net operating loss carryforwards or other tax attributes once we
are no longer included in the same affiliated group with Hughes Electronics (see
"Certain Relationships and Related Transactions -- Transactions with Hughes
Electronics and Its Affiliates -- Tax Sharing Arrangement").

RESULTS OF OPERATIONS

32

CONSOLIDATED RESULTS

2002 COMPARED TO 2001

Revenues. Total revenues for the year ended December 31, 2002 were $812.3
million, a decrease of $57.8 million, or 6%, from $870.1 million for the same
period in 2001. This decrease is primarily the result of $45.5 million of new
sales-type lease revenue recorded during the year ended December 31, 2001, for
which there was no comparable revenue during the year ended December 31, 2002.
Virtually all of the revenues from sales-type lease agreements are recognized at
service commencement, whereas revenues from operating lease agreements are
recognized monthly over the term of the agreement. Operating lease revenues from
video services, decreased by 2% to $515.3 million for the year ended December
31, 2002 compared to $525.7 million for the same period in 2001. This decrease
was primarily due to lower net new business related to program distribution and
DTH video revenues of $15.7 million, as well as lower revenues recorded in 2002
as a result of customer credit issues of $4.0 million. These decreases were
partially offset by an increase in occasional video services revenues of $6.0
million, which primarily related to the 2002 FIFA World Cup, and higher
termination fee revenues of $4.9 million recorded during the year ended December
31, 2002. Operating lease revenues from network services were $219.1 million for
the year ended December 31, 2002, as compared to $219.5 million recorded for the
year ended December 31, 2001. This decrease is primarily attributable to reduced
revenues recorded as a result of customer credit issues of $8.4 million and
lower Internet related revenues of $2.3 million, partially offset by $9.6
million of additional network services revenues recorded during the year ended
December 31, 2002.

Revenues from operating leases of transponders, satellite services and
other decreased $9.5 million, or 1%, to $792.7 million, or 98% of total
revenues, for the year ended December 31, 2002, from $802.2 million, or 92%, of
total revenues, for the same period in 2001. This decrease was primarily due to
lower program distribution and DTH video revenues, partially offset by an
increase in occasional video services revenue which was largely attributable to
the 2002 FIFA World Cup. Revenues from outright sales and sales-type leases were
$19.6 million for the year ended December 31, 2002, a decrease of $48.3 million,
compared to $67.9 million for the year ended December 31, 2001. This decrease is
primarily the result of the $45.5 million of new sales-type lease revenue
recorded during the year ended December 31, 2001 which was discussed above.
Included within total sales and sales-type lease revenue for the years ended
December 31, 2002 and 2001 was interest income related to sales-type leases of
$19.6 million and $22.4 million, respectively.

Cost of Outright Sales and Sales-Type Leases of Transponders. The Company
recorded $12.8 million of costs of sales-type leases of transponders for the
year ended December 31, 2001 for which there was no comparable transaction in
2002.

Direct Operating Costs. Direct operating costs decreased $23.7 million, or
15%, to $129.2 million for the year ended December 31, 2002, from $152.9 million
during the same period in 2001. The decrease in direct operating costs was
primarily related to the operational streamlining that has occurred over the
last year including lower webcast services (previously called NET-36) costs of
$10.2 million and lower consulting and professional fees of $5.3 million. In
addition, the Company recorded additional costs of $4.4 million in 2001 as
compared to 2002 as a result of the Company's revenue share with the Galaxy
VIII-i insurers.

Selling, General and Administrative Expenses. Selling, general and
administrative costs decreased $16.9 million, or 15%, to $99.2 million for the
year ended December 31, 2002, from $116.1 million during the same period in
2001. The decrease was primarily due to decreased expenses related to webcast
services of $8.9 million, reduced advertising and promotional costs of $3.0
million, decreased bad debt expense of $2.7 million, and lower legal and
professional costs of $2.5 million.

Facilities Restructuring and Severance Costs. Facilities restructuring and
severance costs increased $5.5 million, or 67%, to $13.7 million for the year
ended December 31, 2002, from $8.2 million in 2001. The 2002 costs are primarily
attributable to the restructuring of certain of the Company's facilities. The
2001 costs represent severance charges related to the Company's expense
reduction and webcast services restructuring plan which commenced in the third
quarter of 2001 (See Note 10 to the Company's Consolidated Financial Statements,
"Facilities Restructuring and Severance Costs").
33

Gain on Insurance Claims. During the year ended December 31, 2002, the
Company recorded a gain of approximately $40.1 million related to the PAS-7
insurance claim, which reflects the net proceeds agreed to by the insurers of
$215 million less the net book value of the PAS-7 satellite, including incentive
obligations. (See "Liquidity and Capital Resources -- Insurance Settlements"
below). There was no comparable transaction during 2001.

Loss on Conversion of Sales-Type Leases. On March 29, 2002, the Company
entered into an agreement with one of its customers regarding the revision of
the customer's sales-type lease agreements as well as certain other trade
receivables. This agreement resulted in the termination of the customer's
sales-type leases and the establishment of new operating leases in their place.
As a result, the Company recorded a non-cash charge in the year ended December
31, 2002 of $18.7 million. There was no comparable transaction in 2001.

Depreciation and Amortization. Depreciation and amortization decreased
$79.0 million, or 19%, to $335.7 million for the year ended December 31, 2002,
from $414.7 million during the same period in 2001. This decrease is primarily
due to the elimination of goodwill amortization as a result of the adoption of
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142") during 2002 of approximately $65 million, lower
depreciation related to Galaxy VIII-i of $31.0 million which was fully
depreciated in July of 2002, and lower depreciation expense recorded in 2002 of
$12.3 million as a result of the write-off of our PAS-7 satellite during the
first quarter of 2002 (See "Gain on Insurance Claims" above). These decreases
were partially offset by an increase in non-satellite depreciation of $16.7
million and additional depreciation expense of $13.5 million related to three
satellites placed in-service during 2001 and 2002.

Income from Operations. Income from operations increased $90.5 million, or
55%, to $255.9 million for year ended December 31, 2002 from $165.3 million
during the same period in 2001. Excluding $32.7 million related to the
sales-type lease recorded during the year ended December 31, 2001 the increase
was primarily due to the Company's operational streamlining that has occurred
over the last year, the elimination of goodwill amortization as a result of the
adoption of SFAS 142 (See "Recent Accounting Pronouncements" below) during the
first quarter of 2002, and several significant transactions, which were recorded
during the year ended December 31, 2002. These significant transactions included
the recording of a $40.1 million gain in relation to the settlement of the PAS-7
insurance claim; the recording of additional net facilities restructuring and
severance charges of $5.5 million related to several of the Company's U.S.
locations; and the recording of a $18.7 million loss on the conversion of
several sales-type leases to operating leases by one of the company's customers.

Interest Expense, Net. Interest expense, net increased $28.0 million, or
25%, to $139.2 million for the year ended December 31, 2002 compared to $111.2
million during the same period in 2001. Interest expense, net was recorded net
of capitalized interest of $27.3 million and $23.3 million during 2002 and 2001,
respectively, and net of interest income of $15.2 million and $13.5 million
during 2002 and 2001, respectively. The increase in interest expense, net was
primarily attributable to higher interest expense related to the new debt
acquired as a result of the Refinancing partially offset by higher capitalized
interest of $4.0 million.

Income Tax Expense. Income tax expense increased $5.6 million, or 24%, to
$29.2 million for the year ended December 31, 2002, compared to $23.6 million
during the same period in 2001. The increase in income tax expense for the
twelve months ended December 31, 2002, was primarily due to an increase of $62.5
million in income before income taxes and extraordinary item. The reduction in
the Company's effective income tax rate from 43.5% in 2001 to 25% in 2002 was
primarily a result of the elimination of goodwill amortization due to the
adoption of SFAS 142.

Extraordinary Loss on Early Extinguishment of Debt. On February 25, 2002,
the Company completed its Refinancing and repaid the $1.725 billion indebtedness
owed under the term loan to Hughes Electronics (See "Liquidity and Capital
Resources -- Long-term Debt" below). In conjunction with this repayment, the
Company was required to write-off the remaining unamortized debt issuance costs
of approximately $3.3 million related to the Hughes Electronics term loan, net
of related income taxes of $0.8 million. This $2.5 million charge was recorded
within the Company's consolidated income statement for the twelve months ended
December 31, 2002 as an extraordinary loss on early extinguishment of debt.
There was no comparable
34

transaction in 2001. Upon adoption of the provisions of Statement of Financial
Accounting Standards No. 145 ("SFAS 145") on January 1, 2003, the Company will
be required to reclassify this loss on extinguishment of debt to other expense,
as it does not meet the new requirements for classification as an extraordinary
item in accordance with SFAS 145 (See "Recent Accounting Pronouncements" below).

2001 COMPARED TO 2000

Revenues. Total revenues for the year ended December 31, 2001 were $870.1
million, a decrease of $153.5 million, or 15%, from $1,023.6 million for the
same period in 2000. This decrease was primarily due to $219.2 million of new
outright sales and sales-type lease revenues recorded during the year ended
December 31, 2000 compared to $45.5 million of new sales-type lease revenues
recorded during the same period in 2001. Virtually all of the revenues from
outright sales and sales-type lease agreements are recognized at service
commencement, whereas revenues from operating lease agreements are recognized
monthly over the term of the agreement. Video services revenues, excluding
revenues from new sales-type lease activity, increased by 1% to $548.1 million
for the year ended December 31, 2001 compared to $541.4 million for the same
period in 2000. This increase was primarily due to new DTH services that
commenced late in the third quarter of 2000 and generated a full year of revenue
in 2001. Network services revenues, excluding new outright sales, increased 6%
to $219.5 million for the year ended December 31, 2001 compared to $207.9
million for the same period in 2000, primarily due to growth in Internet-related
services.

Revenues from operating leases of transponders, satellite services and
other increased $21.9 million, or 3%, to $802.2 million, or 92% of total
revenues, for the year ended December 31, 2001, from $780.3 million, or 76%, of
total revenues, for the same period in 2000. The increase was primarily due to
increased DTH and Internet related services during 2001. Revenues for the year
ended December 31, 2001, excluding new sales and sales-type leases, increased by
$20.2 million, or 3%, to $824.6 million compared to $804.4 million during the
same period in 2000. Revenues from outright sales and sales-type leases were
$67.9 million for the year ended December 31, 2001, a decrease of $175.4
million, compared to $243.3 million for the year ended December 31, 2000. This
decrease is attributable to the decrease in new outright sales and sales-type
lease transactions in 2001 as compared to 2000 which was discussed above.
Included within total sales and sales-type lease revenue for the years ended
December 31, 2001 and 2000 was interest income related to sales-type leases of
$22.4 million and $24.1 million, respectively.

Cost of Outright Sales and Sales-Type Leases of Transponders. The Company
recorded $12.8 million of costs of sales-type leases of transponders for the
year ended December 31, 2001 compared to $85.8 million during the same period in
2000. The decrease in 2001 was primarily due to the greater number of outright
sale and sales-type lease agreements recorded in 2000 than in 2001.

Direct Operating Costs. Direct operating costs increased $3.2 million, or
2%, to $152.9 million for the year ended December 31, 2001, from $149.7 million
during the same period in 2000. The increase in direct operating costs was
primarily related to increased costs related to additional headcount to support
the company's services of $6.3 million, increased costs related to continued
fleet expansion of $8.5 million and increased costs related to the development
of the Company's NET-36 initiative (now called webcast services) of $3.0
million, offset partially by lower insurance costs of $9.1 million resulting
from additional self-insured satellites and lower consulting and third party
costs during 2001 as compared to 2000.

Selling, General and Administrative Expenses. Selling, general and
administrative costs increased $18.6 million, or 19%, to $116.1 million for the
year ended December 31, 2001, from $97.5 million during the same period in 2000.
The increase was primarily due to increased bad debt expense of $10.0 million,
increased expenses related to the development of the webcast services initiative
of $8.5 million and increased costs related to additional headcount to support
the Company's services of $11.9 million, offset partially by reduced advertising
and promotions costs of $3.3 million and lower legal and consulting costs of
$6.6 million.

Facilities Restructuring and Severance Costs. The Company recorded
severance costs of $8.2 million for the year ended December 31, 2001 for which
there were no comparable costs during the same period in 2000. These costs were
related to the Company's expense reduction and NET-36 restructuring plan that
began in the third quarter of 2001 and were primarily comprised of employee
compensation and employee benefits,
35

outplacement services and legal and consulting expenses associated with the
reduction in workforce of 147 employees. Also included in these costs was
approximately $3.3 million that relates to costs associated with the resignation
of the former Chief Executive Officer of PanAmSat in August 2001. These
severance costs were primarily related to employee compensation and employee
benefits. Approximately $5.3 million of the $8.2 million of total severance
costs were paid during 2001 and approximately $2.9 million were recorded within
accrued liabilities on the consolidated balance sheet at December 31, 2001.
Substantially all of the remaining accrued severance costs at December 31, 2001
are expected to be paid during 2002.

Depreciation and Amortization. Depreciation and amortization increased
$77.2 million, or 23%, to $414.7 million for the year ended December 31, 2001,
from $337.5 million during the same period in 2000, due primarily to accelerated
depreciation on the Galaxy VIII-i satellite, depreciation expense associated
with two new satellites placed into service in 2001, and 2001 being the first
full year of depreciation expense associated with four new satellites that were
placed into service in 2000.

Income from Operations. Income from operations decreased $191.3 million,
or 54%, to $165.3 million for year ended December 31, 2001 from $356.6 million
during the same period in 2000. The decrease was primarily due to the gross
profit associated with $219.2 million of new outright sales and sales-type lease
agreements that were recorded in 2000 compared to the gross profit associated
with $45.5 million related to a new sales-type lease agreement that was recorded
in 2001. Also contributing to the decrease in income from operations were
increased direct operating and selling, general and administrative costs and
increased depreciation expense for the year ended December 31, 2001 compared to
the same period in 2000.

Interest Expense, Net. Interest expense, net decreased $17.0 million, or
13%, to $111.2 million for the year ended December 31, 2001 compared to $128.2
million during the same period in 2000. Interest expense, net was recorded net
of capitalized interest of $23.3 million and $56.1 million during 2001 and 2000,
respectively and net of interest income of $13.5 million and $6.8 million during
2001 and 2000, respectively. The decrease was due primarily to decreased
interest expense as a result of lower interest rates associated with the
Company's variable rate borrowings and higher interest income as a result of a
higher cash balance in 2001 than in 2000. These items were partially offset by a
reduction in capitalized interest as a result of a lower amount of satellite
construction in progress during 2001 than in 2000.

Income Tax Expense. Income tax expense decreased $79.2 million, or 77%, to
$23.6 million for the year ended December 31, 2001 compared to $102.8 million
during the same period in 2000. The decrease in income tax expense for the
twelve months ended December 31, 2001, was due to decreased income from
operations which resulted in a decrease in taxable income of $174.2 million for
the year ended December 31, 2001, as well as a decrease in the Company's
effective tax rate from 45% in 2000 to 43.5% in 2001 as a result of the greater
beneficial effects of the Foreign Sales Corporation replacement legislation
known as the Exclusion for Extraterritorial Income.

GOODWILL

On January 1, 2002, the Company adopted SFAS 142. Among other things, SFAS
142 provides that intangible assets with finite useful lives be amortized and
that goodwill and intangible assets with indefinite lives not be amortized, but
rather be tested for impairment annually or when a change in circumstances
occurs. PanAmSat has determined that, for such impairment testing, the Company
has only one reporting unit, which is at the enterprise level.

In the quarter ended June 30, 2002, the Company completed its transitional
assessment of the recoverability of its goodwill and determined that no
impairment charge was required. In the third quarter of 2002, PanAmSat disclosed
that it will perform its annual impairment test for its reporting unit during
the fourth quarter of each year, beginning with the fourth quarter of 2002. In
conjunction with this annual impairment test, the Company utilized an
independent valuation expert to assist the Company in assessing the fair value
of the reporting unit. This independent valuation, which was prepared utilizing
a discounted cash flow approach, resulted in a fair value for the reporting unit
which exceeded the carrying value of the Company's goodwill and, as such, no
impairment charge was required. If an impairment loss results from

36

future impairment tests, the loss will be recorded as a pre-tax charge to
operating income. The amount of any loss resulting from future impairment tests
could be material to PanAmSat's results of operations.

The adoption of SFAS 142 resulted in the elimination of goodwill
amortization beginning January 1, 2002. As of December 31, 2002, the Company had
goodwill of approximately $2.24 billion and no other intangible assets. Prior to
the adoption of SFAS 142, our annual goodwill amortization was approximately $65
million. Net income and earnings per share for the years ended December 31,
2002, 2001, and 2000 adjusted to exclude amortization expense related to
goodwill which is no longer amortized, are as follows:

SIGNIFICANT ACCOUNTING POLICIES -- RESULTS OF OPERATIONS

The significant accounting policies which we believe are the most critical
to aid in fully understanding and evaluating our reported financial results
include the following:

REVENUE RECOGNITION:

As a leading global facilities-based provider of video, broadcasting and
network services through satellites, we derive our revenue primarily from our
video and network services. Our video services generate the majority of our
revenues. We expect video services to continue to generate the majority of our
revenues.

37

For 2002, 2001 and 2000 we derived our revenues from the following service
areas:

We generally enter into operating lease contracts with customers to provide
satellite transponders and transponder capacity and, in certain cases, earth
station and teleport facility services. On occasion, we have also entered into
outright sales and sales-type lease contracts with our customers. The length of
these contracts typically ranges from one year to the useful life of the
satellite which can be up to 15 years. Almost all of our contracts are
denominated in U.S. dollars.

Operating Leases and Short-Term Agreements

Operating leases are contracts to provide satellite capacity and related
services typically for periods of one to 15 years. Long-term operating leases
provide us with a stable and predictable source of revenue. Short-term leases
and occasional services fill spot market demand. We generally recognize revenues
from operating leases on a straight-line basis over the lease term, unless
collectability is not reasonably assured. Differences between operating lease
payments received and revenues recognized are deferred as, or amortized from,
operating lease receivables. Revenues for occasional services are recognized as
services are performed and billed. Except for certain deposits, the Company is
not obligated to refund operating lease payments previously made. Operating
lease, satellite services and other revenues for the years ended December 31,
2002, 2001, and 2000 represented 97.6%, 92.2% and 76.2%, respectively, of our
consolidated revenues for those periods. The lower percentage of consolidated
revenue in 2000 was due primarily to the large amount of sales-type leases and
outright sales that we recorded during 2000.

Sales-Type Leases

Lease contracts qualifying for capital lease treatment (typically based,
among other factors, on the term of the lease) are accounted for as sales-type
leases. Sales-type leases are similar to operating leases except that under
sales-type leases, we recognize as revenue at the inception of the lease the net
present value of the future minimum lease payments, but we continue to receive
cash payments from the lessee throughout the term of the lease. In addition,
during the life of the lease, we recognize as revenue the portion of each
periodic lease payment deemed to be attributable to interest income. The
principal difference between a sales-type lease and an operating lease is when
we recognize the revenue, but not when we receive the cash.

We have entered into sales-type leases at the request of customers seeking
to obtain capital lease treatment of the lease agreement. As of December 31,
2002 we had sales-type lease arrangements covering 20 transponders, in 36 MHz
equivalents, on our 21 satellites currently in orbit. Typically, our long-term
leases qualify as sales-type leases under the relevant accounting standards
because the terms of the leases are equal to 75% or more of the estimated
economic life of the related satellite. During the years ended December 31,
2002, 2001, and 2000, we recorded revenue of $0, $45.5 million and $165.8
million, respectively, related to new sales-type leases. We do not expect to
enter into a significant amount of sales-type leases in the future, although
this result may change in response to future customer requests.

Outright Sales Contracts

Under an outright sales contract, we sell all rights and title to a
transponder to a customer, which in turn pays us the full amount of the sale
price in cash at the commencement of the contract. At that time, we recognize
the sale amount as revenue. We have sold the rights to 41 transponders, in 36
MHz equivalents, on our 21 satellites currently in orbit. In 2000, outright
sales were $53.4 million, or approximately 5% of our

38

revenues. We did not enter into any outright sales during the years ended
December 31, 2002 or 2001, and we expect outright sales of transponder capacity
to occur infrequently in the future, as requested by our customers.

TT&C Services and Other Services

We provide TT&C services for satellites owned by other satellite operators
and also in connection with outright sales contracts. Revenues from TT&C service
agreements represented approximately 3.5%, 3.0% and 2.7% of our revenues for the
years ended December 31, 2002, 2001 and 2000, respectively. TT&C agreements
entered into in connection with our lease contracts are typically for the period
of the related lease agreement. TT&C services provided in connection with
outright sales contracts are typically for the term of the sale contract and
require the customer to pay a monthly service fee. For a significant portion of
our customer lease agreements, we perform TT&C services for the customer but the
fees for such services are included in the customer's monthly lease payment.

Our other services include in-orbit backup service, which is backup
transponder capacity that we reserve for certain customers on agreed terms. We
recognize revenues for in-orbit protection services over the term of the related
agreement. Revenues from in-orbit protection for 2002, 2001 and 2000 were
approximately 3.2%, 3.3% and 2.5%, respectively, of our revenues.

Contracted Backlog

Contracted backlog represents expected future cash payments to be received
from customers under executed operating leases or sales-type leases (See Note 3
to the Company's Consolidated Financial Statements, "Operating Leases and Net
Investment in Sales-type Leases"). Contracted backlog is attributable to both
satellites currently in orbit and those planned for future launch. Our
contracted backlog for future services at December 31, 2002, 2001, and 2000 was
$5.55 billion, $5.84 billion and $6.0 billion, respectively. Of the $5.55
billion of contracted backlog at December 31, 2002, we expect to realize
approximately $717 million as revenue in 2003. Included in contracted backlog at
December 31, 2002 was approximately $0.79 billion related to satellites to be
launched. See "Liquidity and Capital Resources -- Contracted Backlog for Future
Services." At December 31, 2002, our contracted backlog was comprised of the
following:

CONTRACTED BACKLOG AT
CATEGORY DECEMBER 31, 2002
- -------- ---------------------
(IN BILLIONS)
Video services.................................... $4.69
Network services.................................. 0.83
Other............................................. 0.03
-----
Total........................................... $5.55
=====

Geographic Distribution of Revenues

Almost all of our contracts are denominated in U.S. dollars. For the years
ended December 31, 2002, 2001 and 2000 we derived our revenues from operations
in the following regions, shown in percentages:

39

COSTS AND EXPENSES:

In general, our costs and expenses are largely fixed in nature, providing
us with the ability to recognize significant incremental revenues without
significant incremental costs once we have launched a satellite. Our costs and
expenses include direct operating costs, selling, general and administrative
costs, depreciation and amortization, and costs associated with the outright
sale or sales-type lease.

Direct operating costs are primarily comprised of costs to operate and
maintain our satellites such as engineering and operations costs, in-orbit
insurance costs and third-party charges generally associated with the provision
of special events and occasional services. Selling, general and administrative
costs primarily consist of sales and marketing expenses, salaries and benefits,
and corporate general and administrative expenses. At the inception of an
outright sale or a sales-type lease, the cost basis of the transponder and
related insurance is charged to cost of the outright sale or sales-type lease.

We have reduced our operating cost structure in order to improve 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.

SATELLITE DEPLOYMENT PLAN AND PLANNED SATELLITES

SATELLITE DEPLOYMENT PLAN

Our construction and launch strategy is to replace existing satellites as
they approach the end of their useful lives or encounter other reductions or
risks to their useful lives with new satellites to meet customer needs. Since
the fourth quarter of 1999, we have launched seven satellites, in part to
replace existing satellites and in part to serve markets in which we believe
there is or will be a significant demand for additional transponders. All of
these seven satellites have significant contracted backlog. In addition, we
intend to selectively expand our global coverage, capacity and service offerings
by deploying satellites into new orbital locations where we perceive sufficient
customer demand and market opportunities. In many cases, a "retired" satellite
may be capable of continuing to offer services beyond the time that its
replacement is deployed. In these cases, we typically seek to co-locate the
older satellite with the new satellite or to move the older satellite to an
interim location, in each case subject to applicable U.S. and foreign regulatory
approvals.

We generally enter into launch contracts for the launch of both specified
and unspecified future satellites. For example, we may enter into a contract
with a launch provider for the launch of multiple satellites, though the
identity of all such satellites may not be determined at the time we enter into
the contract. We believe that entering into multi-launch contracts in this
manner gives us better terms and provides us with a hedge against the potential
of increasing launch prices. Each of our launch contracts provides that we may
terminate the contract at our option, subject to our payment of a specified
termination fee that increases in magnitude as the applicable launch date
approaches. In addition, in the event of the failure of any launch, we may
exercise the right to obtain a replacement launch within a specified period.

The normal delivery time for the construction of a satellite is
approximately 24 months. Purchase agreements generally require us to pay the
majority of the total contract price for each satellite during the period of the
satellite's construction, with the remainder of the contract price payable to
the manufacturer in the form of incentive payments based on orbital performance
over the design life of the satellite following launch. The contracts also
provide for price reductions or payments by the manufacturer in the event of
late delivery due to the manufacturer's fault. The contracts contain provisions
that would enable us to terminate them with or without cause. If terminated
without cause, we would be subject to substantial termination liabilities that
escalate with the passage of time. If terminated for cause (including if
delivery is late by a specified period of months), we would be entitled to
recover any payments we made under the contract and to certain additional
damages as specified in the contract.

40

We seek competitive bids from satellite manufacturers before entering into
construction contracts. Notwithstanding the fairly small number of satellite
manufacturers worldwide, we believe that the satellite production industry is
highly competitive, thereby providing us with favorable pricing and alternative
sources of supply.

PLANNED SATELLITES

We expect to launch up to four satellites by the end of 2005, including:

- Galaxy XII. This C-band satellite is being constructed by Orbital
Sciences Corporation ("Orbital Sciences") and is designed to cover the
United States. Scheduled to be launched in the second quarter of 2003, we
expect this satellite to be co-located with our SBS-6 satellite.

- Galaxy XIII/Horizons I Satellite. In August 2001, we entered into a
strategic relationship with JSAT International Inc. ("JSAT"), a Japanese
satellite services provider, to expand digital services in North America.
Through this relationship, called "Horizons," we and JSAT will jointly
develop and market Ku-band video, data and Internet satellite services
and will share revenues on a 50/50 basis for the Ku-band services. The
jointly owned Horizons LLC will own the Ku-band payload for a new Boeing
601 HP satellite referred to as Galaxy XIII/Horizons I that is scheduled
for launch in mid 2003. We will separately own, develop and market the
C-band capacity on this new satellite as part of our Galaxy cable
neighborhood. The C-band payload will replace the Galaxy IX satellite in
our domestic U.S. fleet. Galaxy IX will become the U.S. Galaxy fleet
backup satellite.

In addition to Galaxy XII, we have two C-band satellites under construction
by Orbital Sciences for United States coverage. These satellites were purchased
together, in volume, to take advantage of available discounts. We are currently
scheduled to launch the second Orbital Sciences satellite to replace Galaxy V
prior to the end of its useful life in 2005 and the third Orbital Sciences
satellite to replace Galaxy IR prior to the end of its useful life in 2006.

At December 31, 2002, we had spent approximately $272.6 million on the four
satellites that we plan to launch by the end of 2005, and we are under contract
to spend an additional $108.6 million on these satellites for construction and
launch, which is net of approximately $6.2 million of costs to be paid by JSAT
in conjunction with our Horizons strategic relationship. These amounts do not
include $65.8 million of satellite launch payments originally paid for the
Galaxy VIII-iR launch that have been deferred to an unspecified future launch,
$2.0 million of costs paid for another future launch, and approximately $8.2
million of contractual obligations for other unspecified launches. They also do
not include amounts paid to the manufacturer for the construction of Galaxy
VIII-iR, which contract was terminated (See "-- Liquidity and Capital
Resources -- Receivable from Satellite Manufacturer" above).

In December 2002, we terminated one of our noncontingent agreements with
Orbital Sciences Corporation for the construction of a Ka-band satellite. Such
termination was in accordance with the Company's Ka-band strategy which included
relinquishing all but one of our U.S. Ka-band orbital locations, which would
have required systems to be placed in service before 2005, and filing for new
authorizations in Australia. This filing and return of authorizations allows the
Company more time to place Ka-band satellites in service. We are exploring the
business case for use of the remaining Ka-band satellite under construction by
Orbital Sciences Corporation and may conclude that we will not pursue the
construction of this satellite to completion.

LIQUIDITY AND CAPITAL RESOURCES

CASH AND CASH EQUIVALENTS

At December 31, 2002, we had cash and cash equivalents of $784.0 million,
compared to $443.3 million at December 31, 2001. During the year ended December
31, 2002 the Company received $215 million as a result of the settlement of the
PAS-7 insurance claim (See "Insurance Settlements" below) and invested
approximately $100 million in commercial paper (See "Short-Term Investments"
below).

41

SHORT-TERM INVESTMENTS

At December 31, 2002, we had short-term investments of $99.8 million, for
which there was no comparable balance as of December 31, 2001. The short-term
investments primarily consist of commercial paper with original maturities of up
to nine months. All of the short-term investments held as of December 31, 2002
have remaining maturities of four months or less. In accordance with Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities", the Company has classified these short-term
investments as available-for-sale. These securities are carried at estimated
fair market value. The aggregate unrealized gains and losses related to these
investments, net of taxes, are reflected as a part of other comprehensive income
within stockholders' equity.

LONG-TERM DEBT

At December 31, 2002, the Company had total debt outstanding of $2.55
billion, including current maturities of $200 million related to the Company's
6.0% notes due in 2003. The $200 million 6.0% notes matured on January 15, 2003
and were repaid in full, plus accrued interest of $6.0 million, from available
cash.

In February 2002, the Company entered into a credit facility in an
aggregate principal amount of up to $1.25 billion (the "Senior Secured Credit
Facility") and completed an $800 million private placement debt offering
pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Senior
Notes"). We refer to these transactions as the "Refinancing." Our net proceeds
from the Senior Notes and borrowings of $1.0 billion under the Senior Secured
Credit Facility were approximately $1.759 billion in the aggregate, after
underwriting fees and other expenses of the transactions. We used $1.725 billion
of the proceeds from the Refinancing to repay in full the indebtedness owed
under the term loan to Hughes Electronics.

The Senior Secured Credit Facility is comprised of a $250.0 million
revolving credit facility, which is presently undrawn and will terminate on
December 31, 2007 (the "Revolving Facility"), a $300.0 million term loan A
facility, which matures on December 31, 2007 (the "Term A Facility"), and a
$700.0 million term loan B facility which matures on December 31, 2008 (the
"Term B Facility"). Principal payments under the Term A Facility and Term B
Facility are due in varying amounts (described below) commencing in 2004 until
their respective maturity dates. Currently, the Revolving Facility and the Term
A Facility bear interest at LIBOR plus 3.0%, although these interest rates are
subject to adjustment based on the Company's total leverage ratio. The Term B
Facility bears interest at LIBOR plus 3.5%. In addition, the Company is required
to pay to the lenders under the Revolving Facility a commitment fee in respect
of the unused commitments at a rate that is subject to adjustment based on the
Company's total leverage ratio. As of December 31, 2002, this commitment fee
rate was 0.50% per year, and the Company had outstanding letters of credit
totaling $1.1 million, which reduced our ability to borrow against the Revolving
Facility by such amount. At December 31, 2002, the applicable interest rate on
the Term A Facility was 4.42%, the applicable interest rate on the Term B
Facility was 4.92%, and the unused commitment fee for the period from February
25, 2002 through December 31, 2002 was approximately $1.1 million.

Obligations under the Senior Secured Credit Facility are, or will be, as
the case may be, unconditionally guaranteed by each of our existing and
subsequently acquired or organized domestic and, to the extent no adverse tax
consequences would result therefrom, foreign restricted subsidiaries. In
addition, such obligations are equally and ratably secured by perfected first
priority security interests in, and mortgages on, substantially all of the
tangible and intangible assets of the Company and its subsidiaries, including
its satellites.

In accordance with the agreement governing the Senior Secured Credit
Facility, the Company entered into an interest rate hedge agreement for 10% of
the outstanding borrowings under the Senior Secured Credit Facility during the
third quarter of 2002. This interest rate hedge is designated as a cash flow
hedge of the Company's variable rate Term B Facility. In relation to this hedge
agreement, the Company exchanged its floating-rate obligation on $100.0 million
of its Term B Facility for a fixed-rate payment obligation of 6.64% on $100.0
million through August 30, 2005. The notional amount of the interest rate hedge
agreement matches the repayment schedule of the Term B facility though the
maturity date of the interest rate hedge. During the year ended December 31,
2002, no ineffectiveness was recognized in the statement of operations on this
hedge. In the unlikely event that the counter party, Deutsche Bank, fails to
meet the terms of the interest rate hedge
42

agreement, the Company's exposure is limited to the interest rate differential
on the notional amount at each quarterly settlement period over the life of the
agreements. The Company does not anticipate nonperformance by the counter party.
Amounts accumulated in other comprehensive income ("OCI") related to this cash
flow hedge are reclassified into earnings as interest is accrued on the hedged
transaction. The amount accumulated in OCI will fluctuate based on the change in
the fair value of the derivative at each reporting period, net of applicable
deferred income taxes. The fair value of the interest rate hedge agreement is
the estimated amount that the Company would pay or receive to terminate the
agreement at the reporting date, taking into account current interest rates, the
market expectation for future interest rates and the current creditworthiness of
the Company. The fair value of the outstanding interest-rate hedge agreement as
of December 31, 2002, based upon quoted market prices from the counter party,
reflected a hedge liability of approximately $2.5 million.

The Revolving Facility will terminate on December 31, 2007. The Term A
Facility will mature on December 31, 2007 and amortizes in quarterly
installments during each year as follows:

The Term B Facility will mature on December 31, 2008 and amortizes in
quarterly installments in annual amounts equal to 1% of the Term B Facility
during each of the third through sixth years of such facility, with the balance
payable in quarterly installments during the seventh year of such facility.

The Senior Notes bear interest at an annual rate of 8.5%, subject to
increases pursuant to a registration rights agreement entered into in connection
with the issuance of the Senior Notes (the "Registration Rights Agreement"), as
described below. The Senior Notes require interest payments to be made
semi-annually, mature in 2012, are unsecured, and are guaranteed, on a full and
unconditional and joint and several basis, by all of the Company's domestic 100%
owned subsidiaries.

Pursuant to the Registration Rights Agreement, on April 26, 2002 the
Company initiated the filing of a registration statement on Form S-4 with the
SEC in relation to an exchange of the Senior Notes for an equal amount of new
notes registered under the Securities Act and otherwise with substantially
identical terms. Following the effectiveness of the Form S-4 registration
statement in November 2002 these registered notes were issued in exchange for
all of the Company's existing Senior Notes in an exchange offer.

Also, pursuant to the Registration Rights Agreement, the Company paid
additional interest on the Senior Notes for the period between August 1, 2002
and November 26, 2002. The obligation to pay additional interest ended on
November 26, 2002, the day before the SEC declared the Company's exchange offer
registration statement on Form S-4 effective. The SEC previously had delayed the
effectiveness of such registration statement until the review process for the
registration statement on Form S-4 of HEC Holdings, Inc., an affiliate of Hughes
Electronics was completed. The additional interest was 25 basis points for the
period from August 1, 2002 through October 29, 2002 and 50 basis points for the
period from October 30, 2002 through November 26, 2002. During the year ended
December 31, 2002, the Company paid additional interest of $0.8 million in
relation to the delayed effectiveness of this registration statement.

On July 29, 2002, the Company completed the transfer of certain assets and
liabilities from certain of its subsidiary guarantors to PanAmSat Corporation.
As a result of such transfers, the remaining subsidiary guarantors, individually
and in the aggregate, represent less than 1% of the Company's consolidated total
assets, total liabilities, revenues, stockholders' equity, income from
continuing operations before income taxes and cash flows from operating
activities, and such subsidiaries have no independent assets or operations
(determined in accordance with the criteria established for parent companies in
the SEC's Regulation S-X, Rule 3-10(h)). All subsidiary guarantors and all
subsidiaries of the Company, other than the subsidiary guarantors, are minor (as
defined in the SEC's Regulation S-X, Rule 3-10(h)). Accordingly, condensed

43

consolidating financial information for the Company and its subsidiaries within
the notes to the Company's consolidating financial statements is not presented.

The indenture governing the Senior Notes and the agreement governing the
Senior Secured Credit Facility contain various covenants which impose
significant restrictions on our business. These covenants limit our ability to,
among other things: incur or guarantee additional indebtedness; make restricted
payments, including dividends; create or permit to exist certain liens; enter
into business combinations and asset sale transactions; make investments and
enter into transactions with affiliates and enter into new businesses. The
Senior Secured Credit Facility also limits the Company's ability to sell certain
assets of the Company.

In conjunction with the Refinancing, the Company was required to write-off
the remaining unamortized debt issuance costs of approximately $3.3 million
related to the Hughes Electronics term loan, net of related income taxes of $0.8
million. This $2.5 million charge was recorded within the Company's consolidated
income statement for the three months ended March 31, 2002 as an extraordinary
loss on early extinguishment of debt. Upon adoption of the provisions of SFAS
145 on January 1, 2003, the Company will be required to reclassify this loss on
extinguishment of debt to other expense, as it does not meet the new
requirements for classification as an extraordinary item in accordance with SFAS
145 (See "Recent Accounting Pronouncements" below).

The Company issued five, seven, ten and thirty-year fixed rate notes
totaling $750 million in January 1998. The outstanding principal balances,
interest rates and maturity dates for these notes as of December 31, 2002 were
$200 million at 6.0% due 2003, $275 million at 6.125% due 2005, $150 million at
6.375% due 2008 and $125 million at 6.875% due 2028, respectively. Principal on
the notes is payable at maturity, while interest is payable semi-annually. In
connection with the Refinancing, these notes have been ratably secured by
substantially all of our assets on a pari-passu basis with the security
interests covering our obligations under the Senior Secured Credit Facility. The
$200 million 6% notes matured on January 15, 2003 and were repaid in full, plus
accrued interest of $6.0 million, from available cash.

We maintained a multi-year revolving credit facility (the "Pre-Existing
Revolver") and a commercial paper program (the "Commercial Paper Program") that
provided for aggregate short-term and long-term borrowings of $500.0 million. On
February 25, 2002, we obtained a new $250.0 million Revolving Credit Facility in
connection with the Refinancing (described above) and we terminated the
Pre-Existing Revolver. Borrowings under the Pre-Existing Revolver and the
Commercial Paper Program bore interest at a rate equal to LIBOR plus a spread
based on our credit rating. No amounts were outstanding under the Pre-Existing
Revolver or the Commercial Paper Program at the date of their termination in
February 2002.

The Company had $46.5 million principal amount outstanding under notes
assumed in connection with our exercise in July 1999 of an early buy-out
opportunity for certain transponders under a sale-leaseback transaction relating
to our Galaxy IIIR satellite (the "Galaxy IIIR Notes") as of December 31, 2001.
The Galaxy IIIR Notes, which bore interest at LIBOR plus 0.25%, matured on
January 2, 2002 and were repaid in full plus accrued interest on that date from
available cash.

CONTRACTED BACKLOG FOR FUTURE SERVICES

Due to events in the telecommunications industry and general economic
conditions in certain parts of the world, we have reviewed our backlog for our
top 25 customers to identify risks to our business related to these events and
conditions. Of our $5.55 billion backlog as of December 31, 2002, approximately
$4.13 billion, or 74.5% related to our top 25 customers. Having conducted both
quantitative and qualitative analyses, we concluded that six of our top 25
customers, including our largest customer, DIRECTV Latin America, have a risk of
future non-performance of their contractual obligations to us. These six
customers are meeting substantially all of their obligations at the present time
and are paying in a manner consistent with past experience. They represented
approximately $1.05 billion of our backlog as of December 31, 2002. DIRECTV
Latin America announced in January 2003 that it has initiated discussions with
certain programmers, suppliers, lenders, and business associates, including
PanAmSat, to reduce excessive fixed costs and a substantial debt burden. In that
announcement, DIRECTV Latin America indicated that if those discussions are not
successful in the near future, they may file for a restructuring under Chapter
11 of the U.S. bankruptcy
44

law. At December 31, 2002, DIRECTV Latin America represented approximately $572
million, or 10% of our total backlog, and $57.5 million, or 7.1% of our expected
2003 revenues. The smallest of these six customers represented approximately
$40.6 million, or 0.7% of our total backlog, and $4.0 million, or 0.5% of our
expected 2003 revenues. If DIRECTV Latin America, one of the other larger
affected customers, or a group of these customers becomes unable to perform some
or all of their obligations to us, it could have a material adverse effect on
our financial condition and results of operations.

RECEIVABLE FROM SATELLITE MANUFACTURER

Our customer for all of the capacity on the Galaxy VIII-iR satellite has
exercised its pre-launch right to terminate its lease agreement with us. We and
the manufacturer have agreed in principle to terminate the construction contract
by mutual agreement, subject to the execution of mutually acceptable
documentation, but we cannot assure you that this will occur. In connection with
the termination of the contract, as of December 31, 2002, we had a receivable
due from the satellite manufacturer of $72.0 million, which represents amounts
previously paid to the manufacturer (of approximately $58.8 million), liquidated
damages and interest owed to us under the construction agreement. The Company
expects that it will collect substantially all of this receivable and does not
anticipate recording a charge to earnings related to this receivable. In
addition, we have agreed with the Galaxy VIII-iR launch vehicle provider to
defer our use of the launch to a future satellite.

FACILITIES RESTRUCTURING AND SEVERANCE COSTS

On March 29, 2002, the Company's management approved a plan to restructure
several of its United States locations and close certain facilities, certain of
which are currently being leased through 2011. Upon approval of this plan, the
Company recorded a non-cash charge in its consolidated income statement in the
first quarter of 2002 of $11.2 million. This charge reflects future lease costs,
net of estimated future sublease revenue, of $8.9 million related to
approximately 98,000 square feet of unused facilities and the write-off of
approximately $2.3 million of leasehold improvements related to these
facilities. During the third quarter of 2002, the Company implemented a plan
focused on further streamlining its operations through the consolidation of
certain facilities. As a result, the Company recorded an additional non-cash
charge of $2.7 million in its consolidated income statement for the three months
ended September 30, 2002. This charge reflects future lease costs, net of
estimated future sublease revenue, of $0.9 million related to approximately
15,000 square feet of unused facilities and the write-off of approximately $1.8
million of leasehold improvements related to these facilities.

The Company recorded severance costs of $8.2 million for the year ended
December 31, 2001. An additional $1.3 million of severance costs was recorded
during the first quarter of 2002. These costs were related to the Company's
expense reduction and NET-36 (now webcast services) restructuring plan that
began in the third quarter of 2001 and were primarily comprised of employee
compensation and employee benefits, outplacement services and legal and
consulting expenses associated with the cumulative reduction in workforce of 164
employees. Included in the 2001 severance costs was approximately $3.3 million
that relates to costs associated with the resignation of the former Chief
Executive Officer of PanAmSat in August 2001. In the third quarter of 2002, the
Company recorded a restructuring credit of $1.5 million for the reversal of
prior period severance charges due to actual costs being lower than originally
estimated.

At December 31, 2002, the Company had $7.8 million of accruals remaining
from the facilities restructuring and severance charges recorded during 2002 and
2001. The remaining accruals primarily relate to long-term lease obligations.

TELEPORT CONSOLIDATION PLAN

In January 2003, the Company's management approved a plan to consolidate
certain of its teleports in order to improve customer service and reduce
operating costs. This teleport consolidation plan includes the closure of
certain teleports which are owned by the Company. Under this plan, we expect the
Company's Homestead and Spring Creek teleports will be permanently closed during
2003 and 2004 and the Fillmore and

45

Castle Rock teleports will provide reduced services. Our Napa teleport will
become the West Coast hub for communications, video, and data services, taking
on occasional-use and full-time services now provided by the Fillmore teleport.
In addition to the pre-existing services that it provides, the Ellenwood
teleport will serve as our East Coast hub, providing similar services that
migrate over from Homestead and Spring Creek.

The Company estimates that this consolidation plan will result in an
overall gain of approximately $2 million, of which a loss of approximately $4
million will be incurred in 2003 and a net gain of approximately $6 million will
result in 2004. These costs consist of approximately $3 million of severance
related costs for which the employees will be required to perform future
services, a $1 million charge related to the write-off of machinery and
equipment costs and a net gain on disposal of land, buildings and equipment
related to the teleports of approximately $6 million. Severance related costs
associated with this consolidation plan include compensation and benefits,
outplacement services and legal and consulting expenses related to the reduction
in workforce of approximately 45 employees.

INSURANCE SETTLEMENTS

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. The insurance policy was in
the amount of $253.4 million and included a provision for us to share 25% of
future revenues on PAS-7 with the insurers. In the first quarter of 2002, our
insurers confirmed to us their agreement to settle the PAS-7 insurance claim by
payment to the Company of $215 million. Pursuant to this agreement, no future
revenue share payments will be required to be made in relation to PAS-7. During
the first quarter of 2002, the Company recorded a gain of approximately $40.1
million related to the PAS-7 insurance claim, which reflected the net proceeds
agreed to by the insurers less the net book value of the PAS-7 satellite,
including incentive obligations. The Company received the $215 million of
insurance proceeds in 2002.

In January 2001, we received a payment of approximately $132.4 million
relating to an insurance claim we filed with respect to our Galaxy VII
satellite. The insurance settlement was recognized as an offset to the carrying
value of the satellite and resulted in a $3.4 million gain from proceeds in
excess of the carrying value in 2000.

In the third quarter of 2000, the Galaxy VIII-i satellite experienced
difficulties with its xenon ion propulsion system ("XIPS"), an electronic
propulsion system that is used to maintain the spacecraft's proper orbit and
position relative to earth. The satellite is operating normally on its backup
chemical propulsion system. Without the use of XIPS, the spacecraft was expected
to reach its end-of-life in late 2002. PanAmSat accelerated depreciation of the
spacecraft to reflect its revised operational life, resulting in an increase in
its depreciation expense beginning in the fourth quarter of 2000 of
approximately $15.0 million per quarter through July 2002. Galaxy VIII-i is now
fully depreciated and is being operated in an inclined orbit as a supplement to
Galaxy IIIC.

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, of which approximately $271 million was
collected as of December 31, 1999 and the remainder was collected during 2000.
The insurance settlements were recognized as offsets to the carrying values of
the related satellites, and no gain or loss has been recognized as a result of
these settlements.

CAPITAL EXPENDITURES

We have invested approximately $4.3 billion in our existing satellite fleet
and ground infrastructure through December 31, 2002. For the years ended
December 31, 2002, 2001 and 2000, our non-satellite capital expenditures were
$11.8 million, $98.0 million, and $85.1 million, respectively. As a result of
the expenditures made prior to 2002, we do not anticipate significant capital
expenditures on non-satellite infrastructure in the near future.

46

We made $294.3 million of capital expenditures in 2002 and $338.2 million
of capital expenditures in 2001. We have presently budgeted approximately $180
million for capital expenditures in 2003.

SUFFICIENCY OF FUNDS

We believe that amounts available under the Revolving Credit Facility,
future cash flows from operations and available cash and short-term investments,
will be sufficient to fund our operations, debt service requirements and our
remaining costs for the construction and launch of satellites currently under
development for at least the next 12 months. There can be no assurance, however,
that our assumptions with respect to costs for future construction and launch of
our satellites will be correct, or that funds available to us from the sources
discussed above will be sufficient to cover any shortfall in funding for
additional launches caused by launch failures, cost overruns, delays, capacity
shortages or other unanticipated expenses.

In addition, if we were to consummate any strategic transactions or
undertake any other projects requiring significant capital expenditures, we may
be required to seek additional financing. There can be no assurance that
additional funds will be available at all or that, if available, will be
obtained at terms favorable to us. Additional financing could also be dilutive.
If circumstances were to require us to incur additional indebtedness, our
ability to incur any such additional indebtedness would be subject to the terms
of our outstanding indebtedness. The failure to obtain such financing could have
a material adverse effect on our financial condition and results of operations.

CASH FLOW ITEMS

Net cash provided by operating activities increased $1.6 million to $542.0
million for the year ended December 31, 2002 from $540.4 million for the year
ended December 31, 2001. This increase is primarily attributable to an increase
in net income adjusted for non-cash items of $22.7 million and a decrease in the
cash used within prepaid expenses and other assets of $12.6 million. The
decrease in cash used within prepaid expenses and other assets is primarily a
result of: (1) an increase in the cash provided within prepaid satellite
insurance of $5.9 million; and (2) an increase in cash provided within prepaid
expenses and deferred charges for webcast services of $3.4 million. These
increases in cash provided by operating activities were partially offset by a
decrease in cash provided within accounts payable and accrued liabilities of
$36.3 million primarily resulting from the timing of payments to vendors,
including satellite insurance payments.

Net cash provided by operating activities increased to $540.4 million for
the year ended December 31, 2001 from $456.4 million for the year ended December
31, 2000. The increase of $84.0 million was primarily attributable to: (1) an
increase in net income adjusted for non-cash items of $40.3 million; (2) the
decrease in cash used within prepaid expenses and other of $40.2 million
primarily resulting from a decrease in prepaid in-orbit insurance related to
fewer satellites placed in-service in 2001 as compared to 2000; and (3) an
increase in cash provided within accounts payable and accrued expenses of $22.0
million primarily resulting from the timing of payments to vendors. These
increases in cash provided by operating activities were partially offset by a
decrease in cash provided within operating leases and other receivables of $19.2
million as a result of the effects on cash flows of the changes in accounts
receivable.

Net cash used in investing activities was $179.1 million for the year ended
December 31, 2002, compared to net cash used in investing activities of $203.8
million for the year ended December 31, 2001. The decrease of $24.7 million in
net cash used in investing activities was primarily due to the receipt of $82.6
million of additional proceeds from insurance claims during the year ended
December 31, 2002 as compared to the year ended December 31, 2001 and a
reduction in capital expenditures in 2002 of $43.9 million as compared to 2001.
These decreases were partially offset by an increase of $99.8 million in cash
used to purchase short-term investments during the year ended December 31, 2002
as compared to the year ended December 31, 2001.

Net cash used in investing activities was $203.8 million for the year ended
December 31, 2001, compared to net cash used in investing activities of $394.2
million for the year ended December 31, 2000. The decrease in net cash used in
investing activities of $190.3 million was primarily due to the receipt of $96.2
million of additional proceeds from insurance claims during the year ended
December 31, 2001 as compared to the year

47

ended December 31, 2000 and a reduction in capital expenditures for satellite
systems under development in 2001 of $111.4 million as compared to 2000. The
decrease in cash used in investing activities was partially offset by additional
proceeds received from the sale of equipment of $17.2 million in 2001 as
compared to 2000.

Net cash used in financing activities decreased $1.3 million to $21.3
million for the year ended December 31, 2002, from $22.6 million for the year
ended December 31, 2001. The decrease in net cash used in financing activities
in 2002 was primarily due to $1.8 billion of new borrowings obtained in the 2002
Refinancing as well as $21.2 million of repayments of long-term debt in 2001.
These decreases in net cash used in financing activities were partially offset
by repayments of long-term debt of $1.772 billion under the Hughes Electronics
term loan which was completed in February 2002 and the repayment of the Galaxy
IIIR Notes in January 2002, as well as debt issuance costs paid during 2002 of
$41.4 million related to the Refinancing.

Net cash used in financing activities decreased to $22.6 million for the
year ended December 31, 2001, from $50.1 million for the year ended December 31,
2000. The decrease of $27.5 million in net cash used in financing activities in
2001 was primarily attributable to lower scheduled repayments of long-term debt
of $35.2 million during 2001, partially offset by a reduction in stock issued in
connection with employee benefit plans in 2001 as compared to 2000.

For the year ended December 31, 2002 cash decreased by $0.8 million as a
result of foreign exchange rate changes, as compared to $0 for the years ended
December 31, 2001 and 2000. The decrease in 2002 was primarily attributable to
the devaluation of the Brazilian Real and increased activity in Brazil after the
Company opened its first Brazilian sales office in December 2001.

COMMITMENTS AND CONTINGENCIES

SATELLITE COMMITMENTS

We have invested approximately $4.3 billion in our existing satellite fleet
and ground infrastructure through December 31, 2002, and we have approximately
$116.8 million of expenditures remaining to be made under existing satellite
launch and construction contracts. Included in these future expenditures are
costs related to three C-band satellites under construction by Orbital Sciences
for United States coverage. These satellites were purchased together, in volume,
to take advantage of available discounts. (See "Satellite Deployment Plan and
Planned Satellites -- Planned Satellites").

SATELLITE 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.

48

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 "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."

PANAMSAT CORPORATION LONG-TERM INCENTIVE PLAN

Effective December 7, 2000, the Company amended the PanAmSat Corporation
Long-Term Incentive Plan (the "Stock Plan") to provide that, upon a "Change in
Control" of the Company, all unvested stock options and other awards granted
under the Stock Plan would immediately vest and become exercisable, and
restrictions on any awards such as restricted stock would immediately lapse. A
"Change in Control" is defined as (i) any transaction or series of transactions
pursuant to which Hughes Electronics and/or GM does not directly or indirectly
own more than 50% of the outstanding Common Stock, in value, of the Company or
any successor surviving entity; or (ii) the sale or distribution of all or
substantially all of the assets of the Company to an unrelated entity or
entities or to an entity in which Hughes Electronics and/or GM does not directly
or indirectly own more than 50% in value of the equity of such entity. The
Company currently estimates that upon a Change-In Control, the Company will be
required to record a charge of up to approximately $2.6 million within its
consolidated statement of income as a result of this amendment.

SATELLITE INCENTIVE OBLIGATIONS

Satellite contracts typically require the Company to make progress payments
during the period of the satellite's construction and orbital incentive payments
(plus interest) over the orbital life of the satellite. The incentive
obligations are subject to reduction or refund if the satellite fails to meet
specific technical operating standards. As of December 31, 2002 the Company had
$152.1 million recorded in relation to these satellite incentive obligations.

CUSTOMER AND VENDOR OBLIGATIONS

The Company has certain contracts with its customers which require the
Company to provide equipment, services and other support to these customers
during the course of the related contracts. As of December 31,

49

2002, the Company had commitments under these customer contracts which
aggregated approximately $42.0 million related to the provision of equipment,
services and other support.

The Company has certain long-term contractual obligations with service
providers primarily for the operation of certain of our satellites. As of
December 31, 2002, the Company had commitments under these vendor contracts
which aggregated approximately $59.3 million related to the provision of
equipment, services and other support.

OTHER

The Company has commitments for operating leases primarily relating to
equipment and its executive office facilities in Wilton, Connecticut and various
other facilities. As of December 31, 2002, the Company's future minimum lease
commitments under operating leases aggregated approximately $36.0 million.

Boeing Satellite Systems, Inc. ("Boeing"), formerly Hughes Space and
Communications Company Inc. ("HSC"), has security interests in certain
transponders on the Company's PAS-2, PAS-3, PAS-4 and PAS-5 satellites to secure
incentive obligations of $49.1 million owed by the Company to Boeing as of
December 31, 2002 pursuant to satellite construction contracts.

In conjunction with the sale-leaseback of certain office equipment, which
was entered into in the fourth quarter of 2001, the CIT Group, the purchaser and
lessor, has a security interest in the equipment, which has a total cost of
approximately $1.7 million.

The following schedule summarizes the Company's contractual obligations and
commercial commitments as of December 31, 2002 (in thousands):

The $200 million of debt shown above as due in less than one year matured
on January 15, 2003 and was repaid in full, plus accrued interest of $6.0
million, from available cash.

The total debt and satellite incentive obligations shown above exclude
interest payments due.

As of December 31, 2002, the Company did not have any commitments related
to existing launch insurance or in-orbit insurance contracts for satellites to
be launched.

MARKET RISKS

We manage our exposure to market risks through internally established
policies and procedures and, when deemed appropriate, through the use of
derivative financial instruments. We use derivative financial instruments,
including interest rate hedges to manage market risks. Additional information
regarding our interest rate hedge is contained within "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Long-Term Debt" above. The
objective of our policies is to mitigate potential income statement, cash flow
and fair value exposures resulting from possible future adverse fluctuations in
interest rates. We evaluate our exposure to market risk by assessing the
anticipated near-term and long-term fluctuations in interest rates on a daily
basis. This evaluation includes the

50

review of leading market indicators, discussions with financial analysts and
investment bankers regarding current and future economic conditions and the
review of market projections as to expected future interest rates. We utilize
this information to determine our own investment strategies as well as to
determine if the use of derivative financial instruments is appropriate to
mitigate any potential future interest rate exposure that we may face. Our
policy does not allow speculation in derivative instruments for profit or
execution of derivative instrument contracts for which there are no underlying
exposures. We do not use financial instruments for trading purposes and are not
a party to any leveraged derivatives.

We determine the impact of changes in interest rates on the fair value of
our financial instruments based on a hypothetical 10% adverse change in interest
rates from the rates in effect as of the end of the year for these financial
instruments. We use separate methodologies to determine the impact of these
hypothetical changes on our sales-type leases, fixed rate public debt and
variable rate debt as follows:

- For our sales-type leases, a discount rate based on a 30-year bond is
applied to future cash flows from sales-type leases to arrive at a base
rate present value for sales-type leases. This discount rate is then
adjusted for a negative 10% change and then applied to the same cash
flows from sales-type leases to arrive at a present value based on the
negative change. The base rate present value and the present value based
on the negative change are then compared to arrive at the potential
negative fair value change as a result of the hypothetical change in
interest rates.

- For our fixed rate public debt, the current market rate of each public
debt instrument is applied to each principal amount to arrive at a
current yield to maturity for each public debt instrument as of the end
of the year. The current market rate is then reduced by a factor of 10%
and this revised market rate is applied to the principal amount of each
public debt instrument to arrive at a yield to maturity based on the
adverse interest rate change. The two yields to maturity are then
compared to arrive at the potential negative fair value change as a
result of the hypothetical change in interest rates.

- For our variable rate debt, the effect in annual cash flows and net
income is calculated as a result of the potential effect of a
hypothetical 10% adverse fluctuation in interest rates. The current LIBOR
rate plus applicable margin as of the end of the year is applied to the
applicable principal outstanding at the end of the year to determine an
annual interest expense based on year-end rates and principal balances.
This calculation is then performed after increasing the LIBOR rate plus
applicable margin by a factor of 10%. The difference between the two
annual interest expenses calculated represents the reduction in annual
cash flows as a result of the potential effect of a hypothetical 10%
adverse fluctuation in interest rates. This amount is then tax effected
based on our effective tax rate to yield the reduction in net income as a
result of the potential effect of a hypothetical 10% adverse fluctuation
in interest rates.

The only potential limitations of the respective models are in the
assumptions utilized in the models such as the hypothetical adverse fluctuation
rate and the discount rate. We believe that these models and the assumptions
utilized are reasonable and sufficient to yield proper market risk disclosure.

We did not experience any material changes in interest rate exposures
during the year ended December 31, 2002. Based upon economic conditions and
leading market indicators at December 31, 2002, we do not foresee a significant
adverse change in interest rates in the near future. As a result, our strategies
and procedures to manage exposure to interest rates have not changed in
comparison to the prior year.

As of December 31, 2002, long-term debt consisted of fixed-rate borrowings
of $1.35 billion, $900 million of floating rate debt, and $100 million of
floating rate debt that has been exchanged for a fixed-rate obligation on $100
million through August 30, 2005 (refer to "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- Long-Term Debt" above). As of December 31, 2001, long-term
debt consisted of fixed-rate borrowings of $750 million, $1.725 billion of
floating rate Merger related borrowings due to Hughes Electronics and various
other fixed and floating rate borrowings. PanAmSat is subject to fluctuating
interest rates on its floating rate debt and any changes in interest rates would
impact results of operations and cash flows. The potential effect of a
hypothetical 10% adverse fluctuation in interest rates for one year on
PanAmSat's floating rate debt

51

outstanding at December 31, 2002 and 2001 would be a reduction in cash flows of
approximately $4.3 million and $4.2 million, respectively, and a reduction in
net income of approximately $2.4 million in each year.

Fluctuations in interest rates may also affect the fair values of
fixed-rate borrowings and fixed-rate net investments in sales-type lease
receivables. At December 31, 2002 and 2001, outstanding fixed-rate borrowings
bore interest at rates ranging from 6.0% to 8.5% and 6.0% to 6.875%,
respectively, and sales type lease receivables bore interest between 8.00% and
12.00%. The potential fair value change resulting from a hypothetical 10%
adverse fluctuation in interest rates related to PanAmSat's outstanding
fixed-rate debt and fixed-rate net investment in sales-type lease receivable
balances would be approximately $65.9 million and $3.4 million as of December
31, 2002 and $30.2 million and $7.5 million as of December 31, 2001,
respectively.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

TRANSACTIONS WITH HUGHES ELECTRONICS AND ITS AFFILIATES

Acquisition of Hughes Global Services

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 Hughes Global Services, Inc. ("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.

Satellite Procurement Agreements

We are a party to agreements with Boeing, formerly HSC, for the
construction of three satellites. Prior to the sale of HSC to Boeing on October
6, 2000, HSC was an affiliate of ours. We believe the agreements, which became
obligations of Boeing following the consummation of the sale by Hughes
Electronics of HSC to The Boeing Company, are on commercially reasonable terms,
as each was procured through a competitive bidding process. We entered into an
agreement in October 1998 for the construction of up to six satellites (Galaxy
XR, Galaxy IVR, PAS-9, PAS-10, Galaxy VIII-iR and Galaxy XIII), all of which
were ordered. Galaxy XR, Galaxy IVR, PAS-9 and PAS-10 were placed in-service
prior to 2002, and Galaxy XIII is currently under construction and is scheduled
to be launched in mid 2003. We and Boeing have an agreement in principle to
terminate the construction contract for Galaxy VIII-iR by mutual agreement. (See
"Liquidity and Capital Resources -- Receivable from Satellite Manufacturer"
above). Pursuant to such agreements and prior agreements with HSC for the
construction of PAS-2, PAS-3, PAS-4, PAS-5, PAS-6B, PAS-1R, Galaxy XI and Galaxy
IIIC, a portion of the contract price (between 15% and 20%) for each satellite
is paid in the form of incentive payments to be paid to HSC over a 12 to 15 year
period after the construction and launch of the applicable satellite, contingent
upon orbital performance over the design life of the satellite. Pursuant to our
agreements with HSC, we recorded approximately $65.5 million of satellite
purchases from

52

HSC during the year ended December 31, 2000. As HSC was sold to Boeing on
October 6, 2000, we did not record any satellite purchases from HSC during 2002
or 2001.

Satellite Services

We are a party to agreements with Hughes Electronics and certain of its
subsidiaries and affiliates (collectively, the "Hughes Entities") pursuant to
which we provide satellite capacity, TT&C and other related services and
facilities to the Hughes Entities, including Hughes Network Systems, Inc., HGS,
DIRECTV Latin America LLC and DIRECTV, Inc. Revenues derived from the Hughes
Entities were $166.5 million in 2002, or 20% of our revenues in 2002, $161.2
million in 2001, or 19% of our revenues in 2001, and $143.5 million in 2000, or
14% of our revenues in 2000, making the Hughes Entities collectively our largest
customer in each of those periods.

Included in the Company's total backlog of $5.55 billion as of December 31,
2002 is $0.83 billion of backlog from Hughes Electronics and its affiliates, of
which $73.2 million may be terminated pursuant to certain contractual
termination rights. Backlog represents future cash payments expected from
customers under all long-term contractual agreements.

Hughes Electronics Term Loan

Prior to the Refinancing in February 2002, we had outstanding indebtedness
owed to Hughes Electronics under the Hughes Term Loan in the amount of $1.725
billion. The term loan had a scheduled maturity date of June 24, 2003, although
Hughes Electronics had the right to request that we use our best efforts to
replace the term loan at an earlier date. Consistent with the terms of the loan
agreement, Hughes Electronics exercised that right, and we repaid the Hughes
Term Loan with the proceeds of the Refinancing on February 25, 2002. Quarterly
payments of $50.0 million in principal were required on the term loan under
certain circumstances depending upon the level of cash flow from operations and
our credit ratings. We did not make, and were not required to make, any
principal payments on the term loan prior to its repayment. During the years
ended December 31, 2002, 2001 and 2000, we made approximately $7.2 million,
$82.4 million and $120.1 million, respectively, of interest payments to Hughes
Electronics on the term loan. The interest rate on the term loan was tied to the
interest rate on our existing revolving credit facility. The interest rate on
the term loan as of the repayment date was 2.30%.

As a result of certain arrangements between Hughes Electronics and the
Company, Hughes Electronics reimbursed the Company for certain fees and expenses
incurred in the Refinancing. Such reimbursement was approximately $2.6 million
and was received in 2002 (See "Liquidity and Capital Resources -- Long-Term
Debt").

Tax Sharing Arrangement

We currently operate under a federal income tax sharing arrangement with
Hughes Electronics, our parent corporation. In accordance with such arrangement,
we provide for current and deferred income taxes as if we were the common parent
of an affiliated group that is not included in the consolidated federal income
tax return that includes Hughes Electronics. At December 31, 2002, our balance
sheet reflected a deferred tax asset in the amount of $192.6 million
attributable to the future benefit from the utilization of certain net operating
tax loss carryforwards, alternative minimum tax credits and foreign tax credits.

Such tax sharing arrangement with Hughes Electronics does not provide for
the payment by Hughes Electronics for any benefit relating to any of our
then-remaining net operating loss carryforwards or other tax attributes once we
are no longer included in the same affiliated group with Hughes Electronics.

During 2002, the Internal Revenue Service commenced an examination of the
GM consolidated tax group for the years 1998-2000 of which the Company is a
member. As a result, the Company's federal income tax returns for those years
are currently under examination. Management believes that adequate provision has
been made for any adjustment which might be assessed as a result of this
examination.

53

Stockholder Agreement

On May 17, 2002, the stockholder agreement between PanAmSat, HCI and
certain of our stockholders terminated in accordance with its terms. Such
agreement governed the election of directors to our Board of Directors,
intercompany transactions, our ability to compete in certain lines of business,
and HCI's ability to acquire our outstanding common equity interests.

Other Hughes Transactions

In addition, Hughes Electronics and other Hughes Entities lease to us
office space in Long Beach, California and land for our teleport in Castle Rock,
Colorado, and provide general liability insurance and certain administrative
services to us, including the provision of certain advisory and audit services,
and permit the participation of us and our employees in certain discount
programs, such as a business travel discount program and an automobile purchase
discount program. During the years ended December 31, 2002, 2001 and 2000, we
incurred expenses related to such arrangements with Hughes Entities of
approximately $1.4 million, $1.9 million and $1.9 million, respectively.

RECENT ACCOUNTING PRONOUNCEMENTS

In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" ("SFAS 145"). SFAS 145 provides that a loss on extinguishment of
debt meet the requirements of APB 30 to be treated as an extraordinary item in
the statement of operations. SFAS 145 also amends FASB Statement No. 13 to
eliminate an inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions.

In connection with the Company's Refinancing in the first quarter of 2002,
the Company recorded an extraordinary loss on early extinguishment of debt as a
result of the write-off of the remaining unamortized debt issuance costs related
to the Hughes Electronics term loan (See "Liquidity and Capital Resources --
Long-term Debt" above). Upon adoption of the provisions of SFAS 145 related to
the rescission of FASB Statement No. 4, Reporting Gains and Losses from
Extinguishment of Debt ("SFAS 4"), on January 1, 2003, the Company will be
required to reclassify this loss on extinguishment of debt to other expense, as
it does not meet the new requirements for classification as an extraordinary
item in accordance with SFAS 145. This reclassification will have no effect on
net income but will result in lower income before income taxes of $3.3 million
for the quarter ended March 31, 2002 and year ended December 31, 2002. The other
provisions of SFAS 145 were effective in the second quarter of 2002 and did not
have a significant impact on our financial statements.

In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities"
("SFAS 146"). This Statement addresses financial accounting and reporting for
costs associated with exit or disposal activities and nullifies Emerging Issues
Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." This Statement requires that a liability
for a cost associated with an exit or disposal activity be recognized when the
liability is incurred. Whereas, under EITF Issue No. 94-3, a liability for an
exit cost was recognized at the date of an entity's commitment to an exit plan.
SFAS 146 is to be applied prospectively to exit or disposal activities initiated
after December 31, 2002. As such, the Company adopted the provisions of SFAS 146
effective January 1, 2003. The adoption of these provisions has not had a
significant impact on our financial statements.

In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation -- Transition and Disclosure -- an amendment of SFAS 123," ("SFAS
148") which is effective for financial statements for fiscal years ending after
December 15, 2002, with early adoption permitted. SFAS 148 was issued to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. If a company adopts
the expensing provisions of

54

Statement of Financial Accounting Standards No. 123 ("SFAS 123") in 2003, SFAS
148 allows for the following three methods of expensing stock options:

1. the prospective method -- apply the expensing provisions only to
options granted, modified or settled in the year of adoption or later;
or

2. the modified prospective method -- apply the provisions starting in the
year of adoption only to options granted, modified or settled after
1994; or

3. the retroactive restatement method -- restate all periods presented to
reflect the fair value of employee options granted, modified or settled
after 1994.

In addition, this Statement amends the disclosure requirements of SFAS 123
to require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. Had compensation expense for
employee stock options granted been determined based on the fair value of the
options at the grant dates (consistent with the provisions of SFAS 123), the
Company's net income would have been reduced by approximately $10.9 million, or
$0.07 per basic and diluted share in 2002, $15.2 million, or $0.10 per basic and
diluted share in 2001 and $16 million, or $0.11 per basic and diluted share in
2000.

The Company has elected to adopt the expensing provisions of SFAS 123
utilizing the prospective method beginning on January 1, 2003. Therefore, the
Company will record compensation expense for employee stock options granted
after December 31, 2002, but not in relation to previous awards granted.
Compensation expense will be based on the fair value of the options at the
respective grant dates utilizing the Black-Scholes model for estimating fair
value. Under the intrinsic value method reported previously, no compensation
expense had been recognized on options granted through December 31, 2002, as the
strike price of the options granted equaled the market price on the date of
grant for all prior grants (refer to Note 9 to the Company's Consolidated
Financial Statements, "Retirement and Incentive Plans").

In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN No. 45 clarifies and expands
existing disclosure requirements for guarantees, including loan guarantees, and
clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The initial recognition and initial measurement
provisions of FIN No. 45 are applicable on a prospective basis for guarantees
issued or modified after December 31, 2002. The disclosure requirements of FIN
No. 45 are effective for the Company's current financial statements ending
December 31, 2002. The adoption of the disclosure requirements of FIN No. 45
during 2002, as well as the initial recognition and initial measurement
provisions of FIN No. 45 in 2003, did not have a significant impact on our
financial statements.

In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities -- an Interpretation of Accounting Research Bulletin No. 51."
FIN No. 46 clarifies rules for consolidation of special purpose entities. FIN
No. 46 is effective for variable interest entities created after January 31,
2003 and to variable interest entities in which a Company receives an interest
after that date. This pronouncement is effective on January 1, 2004 for variable
interest entities acquired before February 1, 2003. The Company does not expect
the adoption of FIN No. 46 to have a significant impact on our financial
statements.

In November 2002, the EITF reached a consensus on Issue No. 00-21,
"Accounting for Revenue Arrangements with Multiple Deliverables." EITF Issue No.
00-21 addresses determination of whether an arrangement involving more than one
deliverable contains more than one unit of accounting and how the related
revenues should be measured and allocated to the separate units of accounting.
EITF Issue No. 00-21 will apply to revenue arrangements entered into after June
30, 2003; however, upon adoption, the EITF allows the guidance to be applied on
a retroactive basis, with the change, if any, reported as a cumulative effect of
accounting change in the statement of operations. The Company has not yet
determined the impact this issue will have on its consolidated results of
operations or financial position, if any.

55

RISKS RELATING TO OUR INDUSTRY

ONCE LAUNCHED AND PROPERLY DEPLOYED, SATELLITES ARE SUBJECT TO SIGNIFICANT
OPERATIONAL RISKS DUE TO VARIOUS TYPES OF POTENTIAL ANOMALIES.

Satellites utilize highly complex technology and operate in the harsh
environment of space and, accordingly, are subject to significant operational
risks while in orbit. These risks include malfunctions, commonly referred to as
anomalies, that have occurred in our satellites and the satellites of other
operators as a result of:

- the satellite manufacturer's error, whether due to the use of new and
largely unproven technology or simply due to a manufacturing defect;

- problems with the power systems of the satellites, including:

- circuit failures causing reductions in the power output of the solar
array panels on the satellites, which could require the operator to
forego the use of some transponders initially and to turn off
additional transponders in later years; and

- failure of the cells within the batteries, whose sole purpose is to
power the payload and spacecraft operations during the daily eclipse
periods which occur for brief periods of time during two 40-day
periods around March 21 and September 21;

- problems with the control systems of the satellites, including:

- failure of the primary and/or backup spacecraft control processor;
and

- failure of the xenon ion propulsion system ("XIPS") used on certain
Boeing satellites, which is an electronic propulsion system that
maintains the spacecraft's proper in-orbit position; and

- general failures resulting from operating satellites in the harsh space
environment.

We have experienced anomalies in each of the categories described above.
Although we work closely with the satellite manufacturers to determine and
eliminate the cause of these anomalies in new satellites and provide for
operational redundancies of certain critical components in the satellite to
minimize or eliminate service disruptions in the event of failure, we cannot
assure you that we will not experience anomalies in the future, whether of the
types described above or arising from the failure of other systems or
components, or that upon the occurrence of an anomaly, an operational redundancy
will be available. In particular, we may experience additional anomalies
relating to the failure of the spacecraft control processor in certain of our
Boeing 601 satellites (not including our Boeing 601 HP satellites), various
anomalies associated with XIPS in our Boeing 601 HP satellites, or a progressive
degradation of the solar arrays in certain of our Boeing 702 satellites.

Two Boeing 601 satellites that we operated in the past and other Boeing
601s operated by others have experienced a failure of the primary and backup
spacecraft control processors. Two of the Boeing 601 satellites that we
currently operate have experienced a failure of the primary spacecraft control
processor. We have two other Boeing 601 satellites in orbit that have not
experienced any anomalies related to their spacecraft control processors, but we
cannot assure you that similar anomalies will not occur on those models.

Certain of the Boeing model 601 HP spacecraft have experienced various
problems associated with XIPS. We operate seven satellites of this type. We
cannot assure you that problems associated with XIPS or other propulsion systems
on our satellites will not occur in the future.

Two of the three Boeing 702 satellites that we operate and other Boeing
702s of a similar design operated by others have experienced a progressive
degradation of their solar arrays causing a reduction in output power. Along
with the manufacturer, we are monitoring the problem to determine its cause and
its expected effect. The power reduction may require the satellite operator to
permanently turn off certain transponders on the affected satellite to allow for
the continued operation of other transponders, which could result in a loss of

56

revenue. At this time, the power degradation has not required us to reduce the
number of operating transponders on either affected satellite.

Certain of our satellites are currently covered by insurance policies.
However, if we are adversely affected by the anomalies described above affecting
those satellites, there can be no assurance that we will be reimbursed by the
insurers, as they may dispute a payment obligation or the anomaly may occur
outside of an insurance policy period. In addition, there can be no assurance
that, following the expiration of the current policies, we will be able to
procure new insurance that covers losses of those types. Further, there can be
no assurance that we will be able to obtain insurance for such satellites on
commercially reasonable terms.

Any single anomaly or series of anomalies could materially and adversely
affect our operations, our revenues, our relationship with our current customers
and our ability to attract new customers for our satellite services. In
particular, future anomalies may result in the loss of individual transponders
on a satellite, a group of transponders on that satellite or the entire
satellite, depending on the nature of the anomaly and the availability of
operational redundancies. Anomalies may also cause a reduction of the expected
useful life of a satellite, a reduction of the revenue generated by that
satellite, or the recognition of an impairment loss. Finally, the occurrence of
anomalies may adversely affect our ability to insure our satellites at
commercially favorable premiums, if at all. While some anomalies are covered by
insurance policies, others are not or may not be covered.

NEW SATELLITES ARE SUBJECT TO LAUNCH FAILURES, THE OCCURRENCE OF WHICH CAN
MATERIALLY AND ADVERSELY AFFECT OUR OPERATIONS.

Satellites are subject to certain risks related to failed launches. Of the
36 satellites launched by us or our predecessors since 1983, three have resulted
in launch failures. In addition, certain launch vehicles that we have used or
are scheduled to use have experienced launch failures in the past. Launch
failures result in significant delays in the deployment of satellites because of
the need both to construct replacement satellites, which can take 24 months or
longer, and obtain other launch opportunities. Such significant delays could
materially and adversely affect our operations and our revenues. Launch vehicles
may also underperform, in which case the satellite may still be placed into
service by using its onboard propulsion systems to reach the desired orbital
location, resulting in a reduction in its useful life. In addition, although we
have had launch insurance on all of our launches to date, if we were not able to
obtain launch insurance on reasonable terms and a significant launch failure
were to occur, our financial condition would be materially and adversely
affected.

NEW OR PROPOSED SATELLITES ARE SUBJECT TO CONSTRUCTION AND LAUNCH DELAYS, THE
OCCURRENCE OF WHICH CAN MATERIALLY AND ADVERSELY AFFECT OUR OPERATIONS.

The construction and launch of satellites are subject to certain delays.
Such delays can result from the delays in the construction of satellites and
launch vehicles, the periodic unavailability of reliable launch opportunities,
possible delays in obtaining regulatory approvals and launch failures. We have
in the past experienced delays in satellite construction and launch which have
adversely affected our operations. Future delays may have the same effect. A
significant delay in the future delivery of any satellite may also adversely
affect our marketing plan for the satellite. If satellite construction schedules
are not met, there can be no assurance that a launch opportunity will be
available at the time a satellite is ready to be launched. Further, any
significant delay in the commencement of service of any of our satellites could
enable customers who pre-purchased or agreed to lease transponder capacity on
the satellite to terminate their contracts and could affect our plans to replace
an in-orbit satellite prior to the end of its useful life. The failure to
implement our satellite deployment plan on schedule could have a material
adverse effect on our financial condition and results of operations.

57

THE MARKET FOR SATELLITE INSURANCE HAS HISTORICALLY FLUCTUATED SIGNIFICANTLY,
AND WE MAY BE UNABLE TO OBTAIN NEW OR RENEWAL POLICIES ON COMMERCIALLY
REASONABLE TERMS OR AT ALL.

The price, terms and availability of insurance have fluctuated
significantly since we began offering commercial satellite services in 1984. In
the last several years, the cost of obtaining launch and in-orbit policies on
satellites reached historic lows but has recently begun to return to the higher
levels for such policies that were common in the early 1990s. We expect the cost
of obtaining such insurance to continue to rise and availability to be limited
as a result of recent satellite failures and general conditions in the insurance
industry, including the effects of the September 11th terrorist attacks. Launch
and in-orbit policies on satellites may not continue to be available on
commercially reasonable terms or at all. In addition to higher premiums,
insurance policies may provide for higher deductibles, shorter coverage periods,
higher loss percentages required for constructive total loss claims and
additional satellite health-related policy exclusions. For example, while we
have since the late 1990s been able to obtain launch policies covering a period
of three to five years from the date of launch and in-orbit policies covering a
period of one to three years from the date of expiration of the applicable
launch policy, providers of launch and in-orbit insurance recently have informed
us that they are unwilling to insure for periods greater than one year. An
uninsured failure of one or more of our satellites could have a material adverse
effect on our financial condition and results of operations. In addition, higher
premiums on insurance policies will increase our costs, thereby reducing our
operating income by the amount of such increased premiums.

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.

We are subject to the regulatory authority of the U.S. government,
primarily the FCC, and the national communications authorities of the countries
in which we operate. If we do not obtain all requisite regulatory approvals for
the construction, launch and operation of any of our future satellites and for
the orbital slots planned for these satellites or, the licenses obtained impose
operational restrictions on us, or permit interference which could affect the
use of our satellites, our business, financial condition and results of
operations could be materially adversely affected. In addition, there can be no
assurance that we will continue to coordinate successfully any or all of our
satellites under FCC procedures domestically and under procedures of the
International Telecommunications Union internationally. Such coordination is
required in connection with domestic and international procedures that are
intended to avoid interference to or from other satellites. More specifically,
the risks of government regulation include:

- the FCC reserves the right to require satellites within its jurisdiction
to be re-located to a different orbital location if it determines that
re-location is in the public interest;

- our ability to replace an existing satellite with a new satellite is
typically subject to FCC approval;

- governments, including the U.S. government, have the ability to regulate
satellite and terrestrial transmissions that have the potential to
interfere with government operations, or other satellite or terrestrial
commercial operations and such regulation could interfere with our
contractual obligations to customers;

- currently unused orbital slots that have been granted to us may be
revoked if we do not utilize such slots prior to their expiration dates,
as was the case with two slots previously granted to us that the FCC
revoked in 2000.

Because the regulatory schemes vary by country, we may be subject to
regulations in foreign countries of which we are not presently aware. If that
were to be the case, we could be subject to sanctions by a foreign government
that could materially and adversely affect our operations in that country. There
can be no assurance that any current regulatory approvals held by us are, or
will remain, sufficient in the view of foreign regulatory authorities, or that
any additional necessary approvals will be granted on a timely basis, or at all,
in all jurisdictions in which we wish to operate our new satellites, or that
applicable restrictions in those jurisdictions will not be unduly burdensome.
The failure to obtain the authorizations necessary to operate our

58

satellites internationally could have a material adverse effect on our financial
condition and results of operations.

WE FACE RISKS IN CONDUCTING BUSINESS INTERNATIONALLY.

A significant portion of our business is conducted outside the United
States. For the years ended December 31, 2002, 2001 and 2000, approximately 58%,
60% and 51% of our revenues were generated from customers outside of the United
States. We could be harmed financially and operationally by changes in foreign
regulations and telecommunications standards, tariffs or taxes and other trade
barriers. Although almost all of our contracts with foreign customers require
payment in U.S. dollars, customers in developing countries could have difficulty
in obtaining the U.S. dollars they owe us, including as a result of exchange
controls. Exchange rate fluctuations may adversely affect the ability of our
customers to pay us in U.S. dollars. If we ever need to pursue legal remedies
against our foreign business partners or customers, we may have to sue abroad,
where it could be hard for us to enforce our rights.

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.

Certain losses of a satellite may not be covered by launch or in-orbit
insurance policies. Some of our satellites are covered by insurance policies
that are subject to significant health-related exclusions and deductibles
related to specific components identified by the insurers as the most likely to
fail or by a policy with a lower coverage amount than the carrying value of its
insurable costs ("Significant Exclusion Policies"). Some of our satellites are
uninsured. Moreover, any claims under existing policies are subject to
settlement with the insurers. As of December 31, 2002, we had in effect launch
and in-orbit policies covering 16 satellites in the aggregate amount of $1.9
billion, six of which were covered by policies with Significant Exclusion
Policies. Six of our satellites were uninsured. As of such date, the uninsured
satellites and the satellites covered by Significant Exclusion Policies had a
total net book value of satellites and other insurable costs of approximately
$1.0 billion. As our other insurance policies expire, we may elect to reduce or
eliminate insurance coverage of certain other satellites to the extent permitted
by our debt agreements if, in our view, exclusions make such policies
ineffective or the costs make such insurance impractical and if we believe that
we can more effectively protect our business through the use of in-orbit spare
satellites, backup transponders and self-insurance.

An additional risk to our business is that we do not generally obtain
insurance to cover the risk of revenues lost as a result of satellite anomalies.
As a result, even if insurance were to cover a loss relating to a launch or
in-orbit failure, we would not be adequately compensated for lost revenue
attributable to that loss. As of December 31, 2002, the total net book value of
satellites and other insurable costs, which includes certain sales-type leases
plus the estimated amount of warranty liabilities related to transponders sold
outright, less incentive obligations, totaled approximately $2.4 billion. As of
December 31, 2002, insurance covered approximately $1.4 billion of these net
insurable costs. The partial or complete failure of any revenue-producing
satellites that are not substantially or fully insured could have a material
adverse effect on our financial condition and results of operations.

OUR CUSTOMERS' INDUSTRY AND REGIONAL MARKET RISKS COULD MATERIALLY AND ADVERSELY
AFFECT US.

A significant portion of our business is with customers who may be
adversely affected by recent events in certain industries and economic
conditions in certain parts of the world. Of our top 25 customers, we have
identified six, representing approximately $1.05 billion of our $5.55 billion
backlog, who may face such a risk. Included in these six customers is our
largest customer, DIRECTV Latin America. They have announced that they have
initiated discussions with certain programmers, suppliers, lenders, and business
associates, including the Company, to reduce excessive fixed costs and a
substantial debt burden. In that announcement,

59

DIRECTV Latin America indicated that if those discussions are not successful in
the near future, they may file for a restructuring under Chapter 11 of the U.S.
bankruptcy law.

If DIRECTV Latin America, one of the other larger affected customers, or a
group of these customers becomes unable to perform some or all of the
obligations to us, it could have a material adverse effect on our financial
condition and results of operations.

OUR BUSINESS IS CAPITAL INTENSIVE, AND WE MAY NOT BE ABLE TO ACCESS THE CAPITAL
MARKETS WHEN WE WOULD LIKE TO RAISE CAPITAL.

We may not be able to raise adequate capital to complete some or all of our
business strategies or to react rapidly to changes in technology, products,
services or the competitive landscape. Industry participants often face high
capital requirements in order to take advantage of new market opportunities,
respond to rigorous competitive pressures and react quickly to changes in
technology. Many of our competitors are committing substantial capital and, in
many instances, are forming alliances to acquire or maintain market leadership.
Our business is capital intensive and there can be no assurance that we will be
able to satisfy our capital requirements in the future.

WE ARE SUBJECT TO SIGNIFICANT AND INTENSIFYING COMPETITION BOTH WITHIN THE FIXED
SATELLITE SERVICES INDUSTRY AND OUTSIDE THE INDUSTRY FROM COMPANIES OFFERING
OTHER MEANS TO TRANSMIT SIGNALS, SUCH AS THROUGH FIBER OPTICS.

We face heavy competition in the fixed satellite services industry from
companies such as newly-privatized Intelsat Ltd. and Eutelsat S.A.; SES Global
("SES Global"), the entity formed by the November 2001 acquisition of GE
American Communications, Inc. by Societe Europeenne des Satellites, the
Luxembourg-based operator of ASTRA, one of Europe's leading DTH services; New
Skies Satellites N.V.; and Loral Space & Communications Ltd.; among others.
Intensifying competition in this market, particularly as a result of the
privatization in 2001 of both Intelsat and Eutelsat, may result in lower prices
for our services, which may adversely affect our results. Many of the owners of
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. There has been a trend toward
consolidation of major fixed satellite service providers as customers
increasingly demand more robust distribution platforms with network redundancies
and worldwide reach, and we expect to face increased competition as a result of
this trend. For example, SES Global now has the world's largest satellite fleet,
and the combined entity is now capable of providing service in many of the
markets we serve. These and other direct competitors are likely to continue
developing and launching satellites with greater power and more transponders,
which may create satellite capacity at lower costs. In order to compete
effectively, we may have to invest in similar technology.

In addition, we believe that there are many companies that are seeking ways
to improve the ability of existing land-based infrastructure, such as fiber
optic cable, to transmit signals. Any significant improvement or increase in the
amount of land-based capacity, particularly with respect to the existing fiber
optic cable infrastructure and point to point applications, may cause our video
services customers to shift their transmissions to land-based capacity or make
it more difficult for us to obtain new customers. If fiber optic cable networks
or other ground-based high-capacity transmission systems are available to
service a particular point, that capacity, when available, is generally less
expensive than satellite capacity. As land-based telecommunications services
expand, demand for some satellite-based services may be reduced.

Some of our direct and indirect competitors, both those in and outside of
the fixed satellites services industry, have greater financial resources and
operating flexibility than we do. This may permit them to respond better to
changes in the industry.

60

RISKS RELATING TO THE COMPANY'S INDEBTEDNESS

OUR SUBSTANTIAL INDEBTEDNESS COULD IMPAIR OUR FINANCIAL CONDITION AND OUR
ABILITY TO FULFILL OUR OBLIGATIONS UNDER OUR OUTSTANDING INDEBTEDNESS, INCLUDING
THE NOTES.

Subject to the restrictions contained in the indenture governing our
outstanding notes and in the agreement governing our Senior Secured Credit
Facility obtained, we may incur additional indebtedness. Our substantial
indebtedness could:

- Make it more difficult for us to satisfy our obligations with respect to
our outstanding notes and other indebtedness;

- Require us to dedicate a substantial portion of our cash flow from
operations to payments on our debt, thereby reducing the availability of
our cash flow to fund working capital, capital expenditures and other
general corporate requirements;

- Limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;

- Place us at a competitive disadvantage compared to our competitors that
have proportionately less debt;

- Make it more difficult for us to borrow money for working capital,
capital expenditures, acquisitions or other purposes; and

- Expose us to the risk of increased interest rates with respect to that
portion of our debt which has a variable rate of interest.

If we are unable to meet our debt obligations, we could be forced to
restructure or refinance our indebtedness, seek additional equity capital or
sell assets. We may be unable to obtain financing or sell assets on satisfactory
terms, or at all.

THE TERMS OF OUR INDEBTEDNESS IMPOSE SIGNIFICANT RESTRICTIONS ON OUR BUSINESS.

The indenture governing our outstanding notes and the agreement governing
our Senior Secured Credit Facility contain various covenants that limit our
ability to, among other things:

- Incur or guarantee additional indebtedness;

- Make restricted payments, including dividends;

- Create or permit to exist certain liens;

- Enter into business combinations and asset sale transactions;

- Make investments;

- Reduce or eliminate insurance on our satellites;

- Enter into transactions with affiliates; and

- Enter into new businesses.

These restrictions could limit our ability to obtain future financing, sell
assets, make acquisitions or needed capital expenditures, withstand a future
downturn in our business or the economy in general, conduct operations or
otherwise take advantage of business opportunities that may arise. Our Senior
Secured Credit Facility also requires us to maintain specified financial ratios.
Our ability to meet future financial ratios can be affected by events beyond our
control, such as general economic conditions. Our failure to maintain any
applicable financial ratios would prevent us from borrowing additional amounts
under our Senior Secured Credit Facility and could result in a default under
that facility, which could cause the indebtedness outstanding under the
facility, and by reason of cross-acceleration or cross-default provisions, our
outstanding

61

notes and any other indebtedness we may then have, to become immediately due and
payable. If we were unable to repay those amounts, the lenders under our Senior
Secured Credit Facility could initiate a bankruptcy proceeding or liquidation
proceeding or proceed against the collateral granted to them and the holders of
our senior notes issued in 1998 to secure that indebtedness. If the lenders
under our Senior Secured Credit Facility were to accelerate the repayment of
outstanding borrowings, we might not have sufficient assets to repay our
indebtedness, including the notes.

WE MAY BE UNABLE TO REPURCHASE THE SENIOR NOTES IF WE EXPERIENCE A CHANGE OF
CONTROL.

If we were to experience a change of control, as defined in the indenture
governing the Senior Notes, we will be required to make an offer to purchase all
of the notes at a purchase price equal to 101% of their principal amount, plus
accrued and unpaid interest. Our Senior Secured Credit Facility restricts our
ability to repurchase notes, including the repurchase of notes under a change of
control offer. Our failure to repay holders tendering notes upon a change of
control would result in an event of default under the Senior Notes. A change of
control, or an event of default under the Senior Notes, may also result in an
event of default under our Senior Secured Credit Facility, which may result in
the acceleration of the indebtedness under that facility requiring us to repay
that indebtedness immediately. If a change of control were to occur, we cannot
assure you that we would have sufficient funds to repay debt outstanding under
the Senior Secured Credit Facility or to purchase the Senior Notes or any other
securities which we would be required to offer to purchase or that become
immediately due and payable as a result. We expect that we would require
additional financing from third parties to fund any such purchases, and we
cannot assure you that we would be able to obtain financing on satisfactory
terms or at all.

OUR MAJORITY STOCKHOLDER AND OTHERS TO WHOM IT MAY BE BOUND MAY HAVE INTERESTS
THAT CONFLICT WITH THOSE OF THE NOTEHOLDERS.

Hughes Electronics beneficially owns approximately 81% of our common stock.
As the majority stockholder, Hughes Electronics has the ability to control
fundamental corporate transactions requiring the approval of our stockholders,
including but not limited to the election of directors and the approval of
significant corporate transactions, including a change of control. The interests
of Hughes Electronics as a stockholder and the interests of others to whom
Hughes Electronics may be bound may differ from the interests of the other
stockholders and holders of the Company's indebtedness.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Market Risks."

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

62

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
PanAmSat Corporation

We have audited the accompanying consolidated balance sheets of PanAmSat
Corporation and subsidiaries (the "Company") as of December 31, 2002 and 2001,
and the related consolidated statements of income, changes in stockholders'
equity and other comprehensive income (loss), and cash flows for each of the
three years in the period ended December 31, 2002. Our audits also included the
financial statement schedule listed in the index at item 15(a)2. These
consolidated financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and the financial statement
schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of PanAmSat
Corporation and subsidiaries as of December 31, 2002 and 2001, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 2002, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.

As discussed in Note 2 to the consolidated financial statements, the
Company has changed its method of accounting for goodwill to conform to
Statement of Financial Accounting Standards No. 142.

/s/ DELOITTE & TOUCHE LLP

Stamford, Connecticut
January 13, 2003
(February 28, 2003 as to the Repayment of the 6% Notes
described in Note 6, the Revised Compensation Program
described in Note 9, the Galaxy XI and PAS-1R Insurance
Claims described in Note 11 and to Note 13)

63

PANAMSAT CORPORATION

CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

See notes to consolidated financial statements.
64

PANAMSAT CORPORATION

CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2002 AND 2001
(IN THOUSANDS)

See notes to consolidated financial statements.
65

PANAMSAT CORPORATION

CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2002 AND 2001
(IN THOUSANDS, EXCEPT SHARE DATA)

See notes to consolidated financial statements.
66

PANAMSAT CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND OTHER COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
(IN THOUSANDS, EXCEPT SHARE DATA)

See notes to consolidated financial statements.
67

PANAMSAT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(IN THOUSANDS)

See notes to consolidated financial statements.
68

PANAMSAT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS

BASIS OF PRESENTATION -- Effective May 16, 1997, PanAmSat International
Systems, Inc. (then operating under its previous name, PanAmSat Corporation) and
the Galaxy Satellite Services division of Hughes Communications, Inc. (a
wholly-owned subsidiary of General Motors Corporation, or "GM") ("HCI") were
merged (the "Merger"). The merged company was renamed PanAmSat Corporation (the
"Company"). Within these consolidated financial statements, in addition to the
"Company", the terms "we", "us" and "our" refer to PanAmSat Corporation and its
subsidiaries.

As of the date of the Merger, HCI beneficially owned 71.5% of the then
outstanding shares of the Company. In May 1998, HCI increased its beneficial
ownership of the Company to approximately 81% by purchasing 11.2 million shares
from minority shareholders for $851 million.

On October 28, 2001, 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.

DESCRIPTION OF THE BUSINESS -- 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
deliver entertainment and information to cable television systems, television
broadcast affiliates, direct-to-home television operators, Internet service
providers, telecommunications companies and other corporations. The Company also
provides satellite services and related technical support for live transmissions
for news and special events coverage. In addition, PanAmSat provides satellite
services to telecommunications carriers, corporations and Internet service
providers for the provision of satellite-based communications networks,
including private corporate networks employing very small aperture antennas and
international access to the U.S. Internet backbone.

With 21 satellites in orbit, excluding one that was deorbited in January of
2003, we have one of the world's largest commercial geostationary earth orbit
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.

2. SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of the Company and its domestic and foreign subsidiaries.
All significant intercompany balances and transactions have been eliminated.

USE OF ESTIMATES -- The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect amounts
reported therein. Due to the inherent uncertainty involved in making estimates,
actual results reported in future periods may be based upon amounts that differ
from those estimates.

69

PANAMSAT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

REVENUE RECOGNITION -- The Company enters into contracts to provide
satellite capacity and related services. Revenues are generated from outright
sale, sales-type lease and operating lease contracts with customers to provide
satellite transponders and transponder capacity and, in certain cases, earth
station and teleport facilities, for periods typically ranging from one year to
the life of the satellite. Almost all contracts stipulate payment terms in U.S.
dollars.

Pursuant to an outright sale contract, all rights and title to a
transponder are purchased. In connection with an outright sale, the Company
recognizes the sale amount as revenue and the cost basis of the transponder is
removed and charged to cost of outright sales and sales-type leases.

Lease contracts qualifying for capital lease treatment (typically based,
among other factors, on the term of the lease) are accounted for as sales-type
leases. For sales-type lease transactions, the Company recognizes as revenue the
net present value of the future minimum lease payments. The cost basis of the
transponder is removed and charged to cost of outright sales and sales-type
leases. During the life of the lease, the Company recognizes as revenue in each
respective period, that portion of each periodic lease payment deemed to be
attributable to interest income. The balance of each periodic lease payment,
representing principal repayment, is recognized as a reduction of the net
investment in sales-type leases. Interest income from sales-type leases of
approximately $20 million, $22 million, and $24 million is included in
sales-type lease revenues for the years ended December 31, 2002, 2001 and 2000,
respectively.

Lease contracts that do not qualify as sales-type leases are accounted for
as operating leases. Operating lease revenues are generally recognized on a
straight-line basis over the lease term unless collectability is not reasonably
assured (refer to "Accounts Receivable" below). Differences between operating
lease payments received and revenues recognized are deferred as, or amortized
from, operating lease receivables. Revenues for occasional services are
recognized as services are performed and billed. The Company has certain
obligations, including providing spare or substitute capacity if available, in
the event of satellite service failure under certain long-term agreements. If no
spare or substitute capacity is available, the agreements may be terminated.
Except for certain deposits, the Company is not obligated to refund operating
lease payments previously made.

Sales-type lease agreements and contracts for the sale of transponders
typically include a telemetry, tracking and control ("TT&C") service agreement
with the customer, which require the customer to pay monthly service fees which
are recognized and billable as the services are performed. For a significant
portion of our customer lease agreements, we perform TT&C services for the
customer but the fees for such services are included in the customer's monthly
lease payment.

FAIR VALUE OF FINANCIAL INSTRUMENTS -- The carrying amounts of cash,
accounts receivable, accounts payable and accrued liabilities approximate their
fair values generally due to the short maturity of these items. The carrying
amount of the net investment in sales-type leases approximates fair value based
on the interest rates implicit in the leases.

The Company uses derivative financial instruments, including interest rate
hedges to manage market risks. The Company entered into a three year interest
rate hedge agreement in relation to $100 million of the outstanding borrowings
under the Senior Secured Credit Facility during the third quarter of 2002. See
Note 6, "Long-Term Debt."

At December 31, 1997, in connection with its debt refinancing activities,
the Company entered into certain U.S. Treasury rate lock contracts to reduce its
exposure to fluctuations in interest rates. The aggregate nominal value of these
contracts was $375 million and these contracts were accounted for as hedges
because they were applied to a specific refinancing plan that was consummated
shortly after December 31, 1997. The cost to unwind these instruments in 1998
was $9.1 million and this amount has been deferred and is being amortized to
interest expense over the terms of the related debt securities.

70

PANAMSAT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONCENTRATION OF CREDIT RISK -- The Company provides satellite transponders
and related services and extends credit to a large number of customers in the
commercial satellite communications market. Management monitors its exposure to
credit losses and maintains allowances for anticipated losses that are charged
to selling, general and administrative expenses. The majority of our contracts
are denominated is the U.S. dollar. Revenues derived from affiliates of Hughes
Electronics comprised approximately 20% of total revenues in 2002. No other
customer provides the Company with revenues in excess of 10% of total revenues.

CASH AND CASH EQUIVALENTS -- Cash and cash equivalents consists of cash on
hand and highly liquid investments with maturities at date of acquisition of
three months or less.

Supplemental cash flow information for 2002, 2001 and 2000 is as follows
(in thousands):

SHORT-TERM INVESTMENTS -- At December 31, 2002, we had short-term
investments of $99.8 million, for which there was no comparable balance as of
December 31, 2001. The short-term investments primarily consist of commercial
paper with original maturities of up to nine months. All of the short-term
investments held as of December 31, 2002 have remaining maturities of four
months or less. In accordance with Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities," the
Company has classified these short-term investments as available-for-sale. These
securities are carried at estimated fair market value. The aggregate unrealized
gains and losses related to these investments, net of taxes, are reflected as a
part of other comprehensive income within stockholders' equity.

ACCOUNTS RECEIVABLE -- Accounts receivable include amounts earned under
service agreements and occasional services which are billable as performed. An
allowance for doubtful accounts is maintained in the amount of approximately
$8.7 million and $15.0 million at December 31, 2002 and 2001, respectively. If
collectability of the receivable is not reasonably assured at the time services
are performed, the Company does not initially record the revenue, but rather
records an allowance for customer credits to offset the receivable. If there is
a change in the customer's financial status or the receivable is collected,
revenue is recorded at that time. During the years ended December 31, 2002 and
2001 the Company recorded $11.5 million and $1.5 million, respectively, of net
customer credits. The total allowance for customer credits was $13.0 million and
$1.5 million as of December 31, 2002 and 2001, respectively.

SATELLITES AND OTHER PROPERTY AND EQUIPMENT -- Satellites and other
property and equipment are stated at historical cost, or in the case of
satellites acquired in connection with the Merger, the fair value at the date of
acquisition. The capitalized cost of satellites includes all construction costs,
incentive obligations, launch costs, launch insurance, and capitalized interest.
Substantially all other property and equipment consists of the Company's
teleport facilities.

71

PANAMSAT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Depreciation and amortization are provided using the straight-line method
over the estimated useful lives of the respective assets as follows:

The estimated useful lives of the Company's satellites are based upon the
lower of the satellite's design life or the estimated life of the satellite as
determined by an engineering analysis performed during initial in-orbit testing.
As the telecommunications industry is subject to rapid technological change and
the Company's satellites have been subject to certain health related anomalies,
the Company may be required to revise the estimated useful lives of its
satellites and communications equipment or to adjust their carrying amounts.
Accordingly, the estimated useful lives of the Company's satellites are
periodically reviewed using current engineering data. If a significant change in
the estimated useful lives of our satellites is identified, the Company accounts
for the effects of such changes on depreciation expense on a prospective basis.
Reductions in the estimated useful lives of our satellites would result in
additional depreciation expense in future periods. If the reduction in the
estimated useful life of a satellite results in undiscounted future cash flows
for the satellite which are less than the carrying value of the satellite, an
impairment charge would be recorded. During 2000, the estimated useful life of
the Galaxy VIII-i satellite was reduced from 15 years to 5 years as a result of
difficulties with its xenon ion propulsion system ("XIPS")(see Note 4
"Satellites and Other Property and Equipment -- Net").

DEFERRED CHARGES AND OTHER ASSETS -- The Company's Deferred Charges and
Other Assets are summarized as follows (in millions):

LONG-TERM RECEIVABLES -- The Company's Long-term Receivables primarily
represent receivables with payment terms extending beyond one year and
receivables from operating leases with escalating payment terms that are
recognized on a straight-line basis into revenue over the lease term.
Differences between operating lease payments received and revenues
recognized are deferred as, or amortized from, operating lease receivables.
These Long-term Receivables are net of an allowance for doubtful accounts
of approximately $3.6 million and $0 as of December 31, 2002 and 2001,
respectively.

DEBT ISSUANCE COSTS -- Debt issuance costs of $63.1 and $39.0 million
as of December 31, 2002 and 2001, respectively, represent costs incurred by
the Company to secure debt financing. These costs are being amortized to
interest expense on a straight-line basis over the life of the related
indebtedness and

72

PANAMSAT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the accumulated amortization at December 31, 2002 and 2001 amounted to
$22.9 million and $28.1 million, respectively. Debt issuance costs
capitalized in relation to the Company's Refinancing (see Note 6 "Long-term
Debt") totaled $41.4 million during the year ended December 31, 2002.

CUSTOMER INCENTIVE PROGRAMS -- Deferred charges related to Customer
Incentive Programs are amortized against revenue over the terms of the
respective customer contracts. Deferred charges related to customer
contracts were $28.7 million and $25.9 million at December 31, 2002 and
2001, respectively. These costs primarily represent the cost of antennas
provided to cable operators without charge pursuant to certain customer
contractual arrangements as well as certain other contractual costs
incurred by the Company in order to secure customer leases. These costs are
being amortized against the related revenue recorded pursuant to the terms
of the contracts and the accumulated amortization at December 31, 2002 and
2001 amounted to $1.3 million and $0.6 million, respectively.

PREPAID INSURANCE -- The Company amortizes prepaid insurance costs to
expense over the terms of the respective insurance policies.

OTHER ASSETS -- The Company's Other Assets consists of prepayments of
installation costs associated with Telemetry, Tracking & Control ("TT&C")
satellite services to third parties that are amortized over the respective
contract periods, as well as other miscellaneous deferred charges and other
assets.

INVESTMENTS -- The Company has investments in certain equity
securities, which represent less than a 10% ownership interest. These
investments are accounted for by the Company under the cost method and are
included within deferred charges in the accompanying balance sheet at the
lower of cost or market. The Company's investments were $5.5 million and
$5.3 million at December 31, 2002 and 2001, respectively.

GOODWILL -- The Company adopted Statement of Financial Accounting Standards
No. 142 ("SFAS 142") effective January 1, 2002. Pursuant to SFAS 142, the
Company discontinued the amortization of goodwill beginning January 1, 2002.
SFAS 142 also requires at least an annual assessment of recorded goodwill for
impairment. The initial annual impairment test had to be completed by December
31, 2002. Any impairment charges resulting from an annual impairment test would
be recorded in operating results. The Company has established the fourth quarter
of each year as the timeframe for annual impairment assessment. Accumulated
amortization was $337.6 million at December 31, 2002 and 2001 (See Note 5
"Goodwill").

EVALUATION OF LONG-LIVED ASSETS -- The Company periodically evaluates
potential impairment loss relating to long-lived assets including satellites,
when a change in circumstances occurs, by assessing whether the unamortized
carrying amount can be recovered over the remaining life through undiscounted
future expected cash flows generated by the underlying assets (excluding
interest payments). If the undiscounted future cash flows were less than the
carrying value of the asset, an impairment charge would be recorded. The
impairment charge would be measured as the excess of the carrying value of the
asset over the present value of estimated expected future cash flows using a
discount rate commensurate with the risks involved.

In the event a portion of a satellite was rendered inoperative and/or
incapable of performing its intended function, the Company would apply the
concepts of Statement of Financial Accounting Standards No. 144 "Accounting for
the Impairment or Disposal of Long Lived Assets" ("SFAS 144"), which supersedes
FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of," in the determination of whether an
impairment loss had occurred. If an impairment loss was indicated, such amount
would be recognized in the period of occurrence, net of any insurance proceeds
to be received so long as such amounts are determinable and receipt is probable.
If no impairment loss was indicated in accordance with FASB Statement No. 144
and the Company received insurance proceeds, the proceeds would offset the
carrying value of the satellite. In the event that the insurance proceeds
received exceeded the carrying value of the satellite, the excess of the
proceeds over the carrying value of the satellite would be recognized in the
income statement.
73

PANAMSAT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In the event a portion of a satellite was rendered inoperative and/or
incapable of performing its intended function and the satellite was not insured,
the Company would apply the concepts of SFAS 144 in the determination of whether
an impairment loss had occurred. In the event an impairment loss had occurred,
such amount would be recognized in the period of occurrence. If no impairment
loss was required as calculated under SFAS 144, the Company would make a
determination, based on the facts and circumstances at the time of occurrence,
if disclosure of the event in the accompanying notes is required.

DEFERRED REVENUES -- The Company enters into agreements with its customers
under which they make prepayments for services to be rendered over a specific
period. Payments received are deferred and amortized over the periods of
performance.

TRANSPONDER INSURANCE -- The Company accrues an obligation for the present
value of estimated in-orbit performance insurance costs on transponder sales,
sales-type leases and other agreements with performance warranty provisions,
concurrently with the recognition of the related revenue. The Company also
purchases insurance for the book value of its owned satellite transponders (see
Note 11 "Commitments and Contingencies"). Premiums paid relative to such
insurance are amortized to expense over the insurance policy terms, which are
typically one to five years.

OTHER COMPREHENSIVE INCOME (LOSS) -- Other comprehensive income (loss)
refers to revenues, expenses, gains and losses that under accounting principles
generally accepted in the United States of America are included in other
comprehensive income (loss) but are excluded from net income (loss) as these
amounts are recorded directly as an adjustment to stockholders' equity, net of
tax. The Company's other comprehensive income (loss) is composed of unrealized
gains and losses on available-for-sale securities, unrealized losses on our cash
flow hedge, and foreign currency translation adjustments.

FOREIGN CURRENCY TRANSLATION -- Assets and liabilities of the Company's
foreign subsidiaries, where the functional currency is the local currency, are
translated into U.S. dollars using year-end exchange rates. Revenues and
expenses of foreign subsidiaries are translated at the average exchange rates in
effect during the year. Adjustments resulting from financial statement
translations are included as a separate component of stockholders' equity. Gains
and losses resulting from foreign currency transactions are recorded within the
income statement when recognized. Aggregate translation losses of approximately
$0.8 million and $0 were recorded within accumulated other comprehensive loss in
stockholders' equity at December 31, 2002 and 2001, respectively. The
translation loss as of December 31, 2002 was primarily due to devaluation of the
Brazilian Real during 2002 and the Company's increased activity in Brazil after
opening the Company's first sales office in Brazil in December 2001.

INCOME TAXES -- The provision for income taxes is based upon reported
income before income taxes. Deferred income tax assets and liabilities reflect
the impact of temporary differences between the amounts of assets and
liabilities recognized for financial reporting purposes and such amounts
recognized for tax purposes, as measured by applying currently enacted tax
rates. Beginning in 1998, the Company and its subsidiaries joined with Hughes
Electronics and GM in filing a consolidated U.S. Federal income tax return.
Under the tax sharing arrangement with Hughes Electronics, the portion of the
Hughes Electronics' consolidated tax amounts recorded by PanAmSat is generally
equivalent to the amounts it would have incurred on a separate return basis. In
accordance with such arrangement, we provide for current and deferred income
taxes as if we were the common parent of an affiliated group that is not
included in the consolidated federal income tax return that includes Hughes
Electronics. At December 31, 2002, our balance sheet reflected a deferred tax
asset in the amount of $192.6 million attributable to the future benefit from
the utilization of certain net operating tax loss carryforwards, alternative
minimum tax credits and foreign tax credits.

Our existing federal income tax sharing arrangement with Hughes Electronics
does not provide for the payment by Hughes Electronics for any benefit relating
to any of our then-remaining net operating loss

74

PANAMSAT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

carryforwards or other tax attributes once we are no longer included in the same
affiliated group with Hughes Electronics.

From the Merger date in 1997 and up to the date upon which Hughes
Electronics became an 81% shareholder in PanAmSat, the Company and its domestic
subsidiaries filed a separate consolidated U.S. Federal income tax return.

BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION -- The Company operates its
business as a single operating segment, which provides video and data network
services to major broadcasting, direct-to-home television providers and
telecommunications companies worldwide. Substantially all of the Company's
operating facilities are located in the United States. The geographic
distribution of the Company's revenues for 2002, 2001 and 2000 was as follows:

REVENUE BY SERVICE TYPE -- For the years ended December 31, 2002, 2001 and
2000, PanAmSat's revenues were $812.3 million, $870.0 million, $1.024 billion,
respectively. These revenues were derived from the following service areas:

EARNINGS PER SHARE -- The Company reports its earnings per share in
accordance with SFAS No. 128, "Earnings Per Share." The Company's only dilutive
securities are common stock options and these options have no dilutive effect on
the earnings per share presented. The weighted average amount of outstanding
antidilutive common stock options excluded from the computation of diluted
earnings per share was 6,588,333, 3,658,407 and 674,058 for the years ended
December 31, 2002, 2001 and 2000, respectively.

STOCK-BASED COMPENSATION -- As permitted by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"), the Company accounts for stock-based awards to employees using the
intrinsic value method in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees". See "Recent Accounting
Pronouncements" below.

RECENT ACCOUNTING PRONOUNCEMENTS -- In April 2002, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards No.
145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections" ("SFAS 145"). SFAS 145 provides
that a loss on extinguishment of debt meet the requirements of APB 30 to be
treated as an extraordinary item in the statement of operations. SFAS 145 also
amends FASB Statement No. 13 to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions.

75

PANAMSAT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In connection with the Company's Refinancing in the first quarter of 2002,
the Company recorded an extraordinary loss on early extinguishment of debt as a
result of the write-off of the remaining unamortized debt issuance costs related
to the Hughes Electronics term loan (See Note 6 "Long-term Debt"). Upon adoption
of the provisions of SFAS 145 related to the rescission of FASB Statement No. 4,
Reporting Gains and Losses from Extinguishment of Debt ("SFAS 4"), on January 1,
2003, the Company will be required to reclassify this loss on extinguishment of
debt to other expense, as it does not meet the new requirements for
classification as an extraordinary item in accordance with SFAS 145. This
reclassification will have no effect on net income but will result in lower
income before income taxes of $3.3 million for quarter ended March 31, 2002 and
year ended December 31, 2002. The other provisions of SFAS 145 were effective in
the second quarter of 2002 and did not have a significant impact on our
financial statements.

In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities"
("SFAS 146"). This Statement addresses financial accounting and reporting for
costs associated with exit or disposal activities and nullifies Emerging Issues
Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." This Statement requires that a liability
for a cost associated with an exit or disposal activity be recognized when the
liability is incurred. Whereas, under EITF Issue No. 94-3, a liability for an
exit cost was recognized at the date of an entity's commitment to an exit plan.
SFAS 146 is to be applied prospectively to exit or disposal activities initiated
after December 31, 2002. As such, the Company adopted the provisions of SFAS 146
effective January 1, 2003. The adoption of these provisions has not had a
significant impact on our financial statements.

In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation -- Transition and Disclosure -- an amendment of SFAS 123," ("SFAS
148") which is effective for financial statements for fiscal years ending after
December 15, 2002, with early adoption permitted. SFAS 148 was issued to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. If a company adopts
the expensing provisions of SFAS 123 in 2003, SFAS 148 allows for the following
three methods of expensing stock options:

1. the prospective method -- apply the expensing provisions only to
options granted, modified or settled in the year of adoption or later;
or

2. the modified prospective method -- apply the provisions starting in the
year of adoption only to options granted, modified or settled after
1994; or

3. the retroactive restatement method -- restate all periods presented to
reflect the fair value of employee options granted, modified or settled
after 1994.

In addition, this Statement amends the disclosure requirements of SFAS 123
to require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. Had compensation expense for
employee stock options granted been determined based on the fair value of the
options at the grant dates (consistent with the provisions of SFAS 123), the
Company's net income would have been reduced by approximately $10.9 million, or
$0.07 per basic and diluted share in 2002, $15.2 million, or $0.10 per basic and
diluted share in 2001 and $16 million, or $0.11 per basic and diluted share in
2000.

The Company has elected to adopt the expensing provisions of SFAS 123
utilizing the prospective method beginning on January 1, 2003. Therefore, the
Company will record compensation expense for employee stock options granted
after December 31, 2002, but not in relation to previous awards granted.

76

PANAMSAT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Compensation expense will be based on the fair value of the options at the
respective grant dates utilizing the Black-Scholes model for estimating fair
value. Under the intrinsic value method reported previously, no compensation
expense had been recognized on options granted through December 31, 2002, as the
strike price of the options granted equaled the market price on the date of
grant for all prior grants (refer to Note 9 to the Company's Consolidated
Financial Statements, "Retirement and Incentive Plans").

In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN No. 45 clarifies and expands
existing disclosure requirements for guarantees, including loan guarantees, and
clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The initial recognition and initial measurement
provisions of FIN No. 45 are applicable on a prospective basis for guarantees
issued or modified after December 31, 2002. The disclosure requirements of FIN
No. 45 are effective for the Company's current financial statements ending
December 31, 2002. The adoption of the disclosure requirements of FIN No. 45
during 2002, as well as the initial recognition and initial measurement
provisions of FIN No. 45 in 2003, did not have a significant impact on our
financial statements.

In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities -- an Interpretation of Accounting Research Bulletin No. 51."
FIN No. 46 clarifies rules for consolidation of special purpose entities. FIN
No. 46 is effective for variable interest entities created after January 31,
2003 and to variable interest entities in which a Company receives an interest
after that date. This pronouncement is effective on January 1, 2004 for variable
interest entities acquired before February 1, 2003. The Company does not expect
the adoption of FIN No. 46 to have a significant impact on our financial
statements.

In November 2002, the EITF reached a consensus on Issue No. 00-21,
"Accounting for Revenue Arrangements with Multiple Deliverables." EITF Issue No.
00-21 addresses determination of whether an arrangement involving more than one
deliverable contains more than one unit of accounting and how the related
revenues should be measured and allocated to the separate units of accounting.
EITF Issue No. 00-21 will apply to revenue arrangements entered into after June
30, 2003; however, upon adoption, the EITF allows the guidance to be applied on
a retroactive basis, with the change, if any, reported as a cumulative effect of
accounting change in the statement of operations. The Company has not yet
determined the impact this issue will have on its consolidated results of
operations or financial position, if any.

RECLASSIFICATIONS -- Certain prior period amounts have been reclassified to
conform with the current year's presentation.

3. OPERATING LEASES AND NET INVESTMENT IN SALES-TYPE LEASES

Future minimum lease payments due from customers under long-term operating
leases on satellites in service and to be launched are as follows (in
thousands):

77

PANAMSAT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Future minimum lease payments due from customers related to satellites in
service and satellites to be launched totaled approximately $4.76 billion and
$0.79 billion, respectively. Included in the amounts above are 51 contracts
representing total backlog of $514.8 million, of which $224.8 million of backlog
may be terminated by the customers pursuant to certain contractual termination
rights.

The components of the net investment in sales-type leases are as follows
(in thousands):

Future minimum payments due from customers under sales-type leases and
related service agreements (primarily TT&C and in-orbit performance protection)
as of December 31, 2002 are as follows (in thousands):

On March 29, 2002, the Company entered into an agreement with one of its
customers regarding the revision of the customer's sales-type lease agreements
as well as certain other trade receivables. This agreement resulted in the
termination of the customer's sales-type leases and the establishment of new
operating leases in their place. As a result, the Company recorded a non-cash
charge in its consolidated income statement during 2002 of $18.7 million.

Future cash payments expected from customers under all long-term
contractual agreements (backlog) described above, including operating leases,
sales-type leases and related service agreements, aggregated approximately $5.55
billion as of December 31, 2002.

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PANAMSAT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. SATELLITES AND OTHER PROPERTY AND EQUIPMENT -- NET

The Company's satellites and other property and equipment are summarized as
follows (in thousands):

Satellite contracts typically require the Company to make progress payments
during the period of the satellite's construction and orbital incentive payments
(plus interest) over the orbital life of the satellite. The incentive
obligations are subject to reduction or refund if the satellite fails to meet
specific technical operating standards. As of December 31, 2002 and 2001 the
Company's had $152.1 million and $155.2 million recorded in relation to
satellite incentive obligations. Annual maturities of these incentives as of
December 31, 2002 are as follows (in thousands):

2003........................................................ $ 11,995
2004........................................................ 12,521
2005........................................................ 12,442
2006........................................................ 12,109
2007........................................................ 13,069
2008 and thereafter......................................... 89,977
--------
$152,113
========

The Company expects to launch up to four more satellites by the end of
2005. The Company expects to launch Galaxy XII in the second quarter of 2003 to
74 degrees west longitude. The Company, together with Horizons LLC, which we
jointly own with JSAT International Inc. ("JSAT"), a Japanese satellite services
provider, also expects to launch the Galaxy XIII/Horizons I satellite to 127
degrees west longitude in mid 2003. The Company has two additional satellites
that are under construction for United States coverage. We are currently
scheduled to launch one of these additional satellites to replace Galaxy V at
125 degrees west longitude prior to the end of its useful life in 2005. The
other additional satellite is scheduled to replace Galaxy 1R at 133 degrees west
longitude prior to the end of its useful life in 2006.

The satellite construction contracts contain provisions that would enable
the Company to terminate the contracts with or without cause. If terminated
without cause, the Company would forfeit its progress payments and be subject to
termination payments that escalate with the passage of time. If terminated for
cause, the Company would be entitled to recover any payments it made under the
contracts and certain liquidated damages as specified in the contracts.

The Company has entered into launch contracts for the launch of both
specified and unspecified future satellites. Each of the Company's launch
contracts provides that the Company may terminate such contract at its option,
subject to payment by the Company of a termination fee that increases in
magnitude as the

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applicable launch date approaches. In addition, in the event of a failure of any
launch, the Company may exercise the right to obtain a replacement launch within
a specified period following the Company's request for re-launch.

The Company has experienced various technical incidents on a number of its
in-orbit satellites. These incidents generally have resulted in one or more of
the following: (i) a limitation or total loss of the satellite's ability to
provide the full complement of services that it was designed to provide, (ii) a
material reduction to the satellite's expected orbital life, or (iii) a
reduction in certain of the satellite's on-board redundant systems exposing it
to potential damage in the event of an additional incident. Whenever the Company
experiences a satellite anomaly or failure, management conducts an investigation
of the cause of the event and determines the effects, if any, that the anomaly
may have on the carrying value of its satellites and other assets and
liabilities.

Two Boeing 601 satellites that we operated in the past and other Boeing
601s operated by others have experienced a failure of the primary and backup
spacecraft control processors. Two of the Boeing 601 satellites that we
currently operate have experienced a failure of the primary spacecraft control
processor. We have two other Boeing 601 satellites in orbit that have not
experienced any anomalies related to their spacecraft control processors, but we
cannot assure you that similar anomalies will not occur on those models.

Certain of the Boeing model 601 HP spacecraft have experienced various
problems associated with XIPS. We operate seven satellites of this type. We
cannot assure you that problems associated with XIPS or other propulsion systems
on our satellites will not occur in the future.

Two of the three Boeing 702 satellites that we operate and other Boeing
702s of a similar design operated by others have experienced a progressive
degradation of their solar arrays causing a reduction in output power. Along
with the manufacturer, we are monitoring the problem to determine its cause and
its expected effect. The power reduction may require the satellite operator to
permanently turn off certain transponders on the affected satellite to allow for
the continued operation of other transponders, which could result in a loss of
revenue. At this time, the power degradation has not required us to reduce the
number of operating transponders on either affected satellite. On February 19,
2003, the Company filed proofs of loss under the insurance policies for these
Boeing model 702 spacecraft for constructive total losses based on degradation
of the solar panels (See Note 11 "Commitments and Contingencies").

To reduce the effect of anomalies, 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. These redundancies may
include backup and separate on-board propulsion systems, backup transponders and
conservative system margins (for example, fuel and power).

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. The insurance policy was in
the amount of $253.4 million and included a provision for us to share 25% of
future revenues on PAS-7 with the insurers. In the first quarter of 2002, our
insurers confirmed to us their agreement to settle the PAS-7 insurance claim by
payment to the Company of $215 million. Pursuant to this agreement, no future
revenue share payments will be required to be made in relation to PAS-7. During
the first quarter of 2002, the Company recorded a gain of approximately $40.1
million related to the PAS-7 insurance claim, which reflected the net proceeds
agreed to by the insurers less the net book value of the PAS-7 satellite,
including incentive obligations. The Company received the $215 million of
insurance proceeds in 2002.

In December 2000, the Company filed an insurance claim related to the
failure of its Galaxy VII satellite which ceased transmissions on November 22,
2000 due to the failure of an onboard system responsible for controlling the
spacecraft and maintaining its position relative to earth. The insurance
settlement in the
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amount of $132.4 million was recognized as an offset to the carrying value of
the satellite and a $3.4 million gain was recognized in 2000, representing
proceeds in excess of the carrying value of the satellite.

In the third quarter of 2000, the Galaxy VIII-i satellite experienced
difficulties with its xenon ion propulsion system ("XIPS"), an electronic
propulsion system that is used to maintain the spacecraft's proper orbit and
altitude. The satellite is operating normally on its backup chemical propulsion
system. Without the use of XIPS, the spacecraft was expected to reach its
end-of-life in late 2002. PanAmSat began accelerating depreciation of the
spacecraft in the fourth quarter of 2000 to reflect its revised operational
life, resulting in an increase in current and projected depreciation expense of
approximately $15.0 million per quarter. Galaxy VIII-i is now fully depreciated
and is being operated in an inclined orbit as a supplement to Galaxy IIIC.

Our customer for all of the capacity on the Galaxy VIII-iR satellite has
exercised its pre-launch right to terminate its lease agreement with us. We and
the manufacturer have agreed in principle to terminate the construction contract
by mutual agreement, subject to the execution of mutually acceptable
documentation, but we cannot assure you that this will occur. In connection with
the termination of the contract, as of December 31, 2002, we had a receivable
due from the satellite manufacturer of $72.0 million, which represents amounts
previously paid to the manufacturer (of approximately $58.8 million), liquidated
damages and interest owed to us under the construction agreement. The Company
expects that it will collect substantially all of this receivable and does not
anticipate recording a charge to earnings related to this receivable. In
addition, we have agreed with the Galaxy VIII-iR launch vehicle provider to
defer our use of the launch to a future satellite.

5. GOODWILL

On January 1, 2002, the Company adopted SFAS 142. Among other things, SFAS
142 provides that intangible assets with finite useful lives be amortized and
that goodwill and intangible assets with indefinite lives not be amortized, but
rather be tested for impairment annually or when a change in circumstances
occurs. PanAmSat has determined that, for such impairment testing, the Company
has only one reporting unit, which is at the enterprise level.

In the quarter ended June 30, 2002, the Company completed its transitional
assessment of the recoverability of its goodwill and determined that no
impairment charge was required. In the third quarter of 2002, PanAmSat disclosed
that it will perform its annual impairment test for its reporting unit during
the fourth quarter of each year, beginning with the fourth quarter of 2002. In
conjunction with this annual impairment test, the Company utilized an
independent valuation expert to assist the Company in assessing the fair value
of the reporting unit. This independent valuation, which was prepared utilizing
a discounted cash flow approach, resulted in a fair value for the reporting unit
which exceeded the carrying value of the Company's goodwill and, as such, no
impairment charge was required. If an impairment loss results from future
impairment tests, the loss will be recorded as a pre-tax charge to operating
income. The amount of any loss resulting from future impairment tests could be
material to PanAmSat's results of operations.

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The adoption of SFAS 142 resulted in the elimination of goodwill
amortization beginning January 1, 2002. As of December 31, 2002, the Company had
goodwill of approximately $2.24 billion and no other intangible assets. Prior to
the adoption of SFAS 142, our annual goodwill amortization was approximately $65
million. Net income and earnings per share for the years ended December 31,
2002, 2001, and 2000 adjusted to exclude amortization expense related to
goodwill which is no longer amortized, are as follows:

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6. LONG-TERM DEBT

As of December 31, 2002 and 2001, long-term debt consisted of the following
(in thousands):

Fair value amounts were determined based on quoted market prices for the
Notes or on current rates available to the Company for debt with similar
maturities and similar terms.

At December 31, 2002, the Company had total debt outstanding of $2.55
billion, including current maturities of $200 million related to the Company's
6.0% notes due in 2003. The $200 million 6.0% notes matured on January 15, 2003
and were repaid in full, plus accrued interest of $6.0 million, from available
cash.

In February 2002, the Company entered into a credit facility in an
aggregate principal amount of up to $1.25 billion (the "Senior Secured Credit
Facility") and completed an $800 million private placement debt offering
pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Senior
Notes"). We refer to these transactions as the "Refinancing." Our net proceeds
from the Senior Notes and borrowings of $1.0 billion under the Senior Secured
Credit Facility were approximately $1.759 billion in the aggregate, after
underwriting fees and other expenses of the transactions. We used $1.725 billion
of the proceeds from the Refinancing to repay in full the indebtedness owed
under the term loan to Hughes Electronics.

The Senior Secured Credit Facility is comprised of a $250.0 million
revolving credit facility, which is presently undrawn and will terminate on
December 31, 2007 (the "Revolving Facility"), a $300.0 million term loan A
facility, which matures on December 31, 2007 (the "Term A Facility"), and a
$700.0 million term loan B facility which matures on December 31, 2008 (the
"Term B Facility"). Principal payments under the Term A Facility and Term B
Facility are due in varying amounts (described below) commencing in 2004 until
their respective maturity dates. Currently, the Revolving Facility and the Term
A Facility bear interest at LIBOR plus 3.0%, although these interest rates are
subject to adjustment based on the Company's total leverage ratio. The Term B
Facility bears interest at LIBOR plus 3.5%. In addition, the Company is required
to pay to the lenders under the Revolving Facility a commitment fee in respect
of the unused commitments at a rate that is subject to adjustment based on the
Company's total leverage ratio. As of December 31, 2002, this commitment fee
rate was 0.50% per year, and the Company had outstanding letters of credit
totaling $1.1 million, which reduced our ability to borrow against the Revolving
Facility by such amount. At

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December 31, 2002, the applicable interest rate on the Term A Facility was
4.42%, the applicable interest rate on the Term B Facility was 4.92%, and the
unused commitment fee for the period from February 25, 2002 through December 31,
2002 was approximately $1.1 million.

Obligations under the Senior Secured Credit Facility are, or will be, as
the case may be, unconditionally guaranteed by each of our existing and
subsequently acquired or organized domestic and, to the extent no adverse tax
consequences would result therefrom, foreign restricted subsidiaries. In
addition, such obligations are equally and ratably secured by perfected first
priority security interests in, and mortgages on, substantially all of the
tangible and intangible assets of the Company and its subsidiaries, including
its satellites.

In accordance with the agreement governing the Senior Secured Credit
Facility, the Company entered into an interest rate hedge agreement for 10% of
the outstanding borrowings under the Senior Secured Credit Facility during the
third quarter of 2002. This interest rate hedge is designated as a cash flow
hedge of the Company's variable rate Term B Facility. In relation to this hedge
agreement, the Company exchanged its floating-rate obligation on $100.0 million
of its Term B Facility for a fixed-rate payment obligation of 6.64% on $100.0
million through August 30, 2005. The notional amount of the interest rate hedge
agreement matches the repayment schedule of the Term B facility though the
maturity date of the interest rate hedge. During the year ended December 31,
2002, no ineffectiveness was recognized in the statement of operations on this
hedge. In the unlikely event that the counter party, Deutsche Bank, fails to
meet the terms of the interest rate hedge agreement, the Company's exposure is
limited to the interest rate differential on the notional amount at each
quarterly settlement period over the life of the agreements. The Company does
not anticipate nonperformance by the counter party. Amounts accumulated in other
comprehensive income ("OCI") related to this cash flow hedge are reclassified
into earnings as interest is accrued on the hedged transaction. The amount
accumulated in OCI will fluctuate based on the change in the fair value of the
derivative at each reporting period, net of applicable deferred income taxes.
The fair value of the interest rate hedge agreement is the estimated amount that
the Company would pay or receive to terminate the agreement at the reporting
date, taking into account current interest rates, the market expectation for
future interest rates and the current creditworthiness of the Company. The fair
value of the outstanding interest-rate hedge agreement as of December 31, 2002,
based upon quoted market prices from the counter party, reflected a hedge
liability of approximately $2.5 million.

The Revolving Facility will terminate on December 31, 2007. The Term A
Facility will mature on December 31, 2007 and amortizes in quarterly
installments during each year as follows:

Interest expense for 2002, 2001 and 2000 is presented net of interest
income of $15.2 million, $13.5 million and $6.8 million, respectively and net of
capitalized interest for 2002, 2001 and 2000 of $27.3 million, $23.3 million and
$56.1 million, respectively.

7. INCOME TAXES

The income tax provision consisted of the following (in thousands):

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The income tax provision was different than the amount computed using the
U.S. statutory income tax rate for the reasons set forth in the following table
(in thousands):

Temporary differences that give rise to deferred tax assets and liabilities
are as follows (in thousands):

At December 31, 2002, the Company had non-current deferred tax liabilities
of $686.7 million and deferred tax assets of $276.8 million, of which $7.9
million was classified as current. At December 31, 2001, the Company had
non-current deferred tax liabilities of $640.0 million and deferred tax assets
of $266.4 million, of which $8.2 million was classified as current. At December
31, 2002, the Company had $16.3 million of alternative minimum tax credits that
can be carried forward indefinitely. The Company also had $170.5 million of
deferred tax assets relating to federal and state net operating losses that
expire in varying amounts over the period of 2004-2022 if not utilized and a
$5.8 million deferred tax asset relating to foreign tax credit carryforwards
that expire between the years 2004-2007 if not utilized.

During 2002, the Internal Revenue Service commenced an examination of the
GM consolidated tax group for the years 1998-2000 of which the Company is a
member. As a result, the Company's federal income tax returns for those years
are currently under examination. Management believes that adequate provision has
been made for any adjustment which might be assessed as a result of this
examination.

8. RELATED PARTY TRANSACTIONS AND BORROWINGS

Prior to the fourth quarter of 2000, the Company purchased certain of its
satellites and launch services from Hughes Space and Communications Company, a
subsidiary of Hughes Electronics, which was sold to Boeing Satellite Systems,
Inc. The Company has also provided services to several subsidiaries of Hughes
Electronics. Additionally, the Company reimburses Hughes Electronics for the
allocated costs of certain expense items it jointly incurs with Hughes,
principally relating to administrative and other expenses. The
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PANAMSAT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

aggregate amounts of related party transactions with Hughes Electronics and its
affiliates are summarized below (in thousands):

The following table provides summary information relative to the Company's
accounts receivable and borrowings from Hughes Electronics and its affiliates
(in thousands):

In connection with the May 1997 merger of PanAmSat International and the
Galaxy business of HCI, we obtained a term loan from Hughes Electronics in the
amount of $1.725 billion. The Hughes Term Loan borrowings were scheduled to
mature in June 2003. Quarterly payments of $50.0 million in principal were
required on the term loan under certain circumstances depending upon the level
of cash flow from operations and our credit ratings. On October 15, 2001, Hughes
Electronics exercised its right to request that we use our best efforts to
replace the $1.725 billion term loan in order to repay the principal amount
outstanding under the term loan plus any accrued and unpaid interest. In
February 2002, we repaid the Hughes Term Loan. We did not make, and were not
required to make, any principal payments on the Hughes Term Loan prior to its
repayment. During 2002, 2001 and 2000 we made interest payments on the term loan
of $7.7 million, $82.4 million and $120.1 million, respectively. The interest
rate on the term loan was tied to the interest rate on our existing revolving
credit facility. The interest rate on the term loan as of the repayment date was
2.30%. The Hughes borrowings were subordinate to the 1998 Senior Notes, the
Revolving Credit Facility and the notes issued under the Commercial Paper
Program. As a result of certain arrangements between Hughes Electronics and the
Company, Hughes Electronics reimbursed the Company for certain fees and expenses
incurred in the Refinancing. Such reimbursement was approximately $2.6 million
and was received in 2002 (see Note 6 "Long-term Debt").

Included in the Company's total backlog of $5.55 billion as of December 31,
2002 is $0.83 billion of backlog from Hughes Electronics and its affiliates, of
which $73.2 million may be terminated pursuant to certain contractual
termination rights. Backlog represents future cash payments expected from
customers under all long-term contractual agreements.

9. RETIREMENT AND INCENTIVE PLANS

EMPLOYEE BENEFIT PLANS:

DEFINED CONTRIBUTION PLANS 401(K) PLAN -- The Company has a 401(k) plan for
qualifying employees. A portion of employee contributions is matched by the
Company with shares of its common stock. The number

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of shares contributed to the plan and the respective market values were 96,216,
68,423, and 30,407, shares and $1.8 million, $2.2 million, and $1.2 million for
2002, 2001 and 2000, respectively.

DEFERRED COMPENSATION PLAN -- The Company has a Supplemental Savings Plan
and a Deferred Compensation Plan for eligible employees. Under both plans,
executives and other highly compensated employees of the Company are entitled to
defer a portion of their compensation to future years. The annual amount that
can be deferred is subject to certain limitations, and a portion of the
employee's contribution may be matched by the Company if the employee elected to
defer the maximum amount permissible under the 401(k) plan and the Internal
Revenue Code of 1986, as amended. The maximum annual Company match under the
401(k) plan is limited to an aggregate level of 4% of annual compensation. The
Company matched portion of the Supplemental Savings Plan consists of "credits"
which vest when awarded. Contributions that receive employer matching are
required to be deferred until termination of employment, and any non-matched
contributions may be deferred over a period selected by the employee. In
addition, the Company, at its discretion, may make contributions to the Deferred
Compensation Plan and the Supplemental Savings Plan for the benefit of any
participant as supplemental compensation. The Deferred Compensation Plan and the
Supplemental Savings Plan are unfunded plans, and the deferrals and matching
credits will receive earnings based upon rates set by the Compensation Committee
of the Board of Directors (the "Compensation Committee"), but in no event will
these amounts earn less than 100% of the Moody's Corporate Bond Index Rate.

1997 STOCK INCENTIVE PLAN -- On May 5, 1997, the Company's Board of
Directors adopted the PanAmSat Corporation Long-Term Stock Incentive Plan (the
"Stock Plan"), which provides for the granting of nonqualified stock options,
incentive stock options, alternate appreciation rights, restricted stock,
performance units and performance shares to executive officers, other employees,
directors and independent contractors of the Company. Restricted stock,
performance units and performance shares may be granted at the discretion of the
Compensation Committee on such terms as the committee may decide. Effective
December 7, 2000, the Company amended the Stock Plan to provide that, upon a
"Change in Control" (as defined) of the Company, all unvested stock options and
other awards granted under the Stock Plan would immediately vest and become
exercisable, and restrictions on any awards such as restricted stock would
immediately lapse. A "Change in Control" is defined as (i) any transaction or
series of transactions pursuant to which Hughes Electronics Corporation and/or
General Motors Corporation does not directly or indirectly own more than 50% of
the outstanding Common Stock, in value, of the Company or any successor
surviving entity; or (ii) the sale or distribution of all or substantially all
of the assets of the Company to an unrelated entity or entities or to an entity
in which Hughes Electronics Corporation and/or General Motors Corporation does
not directly or indirectly own more than 50% in value of the equity of such
entity. The Company currently estimates that upon a change-in control, the
Company will be required to record a charge of up to approximately $2.6 million
within its consolidated statement of income as a result of this amendment. Also
effective December 7, 2000, the Stock Plan was amended to eliminate the
portability of unvested options for employees transferring to non-controlled
affiliates, such as Hughes Electronics.

As approved by the Company's Board of Directors in December 2000 and as
subsequently ratified by the Company's stockholders in June 2001, the maximum
number of shares of common stock that may be issued under the Stock Plan was
increased to 17,456,140. The maximum number of shares of common stock that may
be issued to any grantee pursuant to the plan is 2,000,000. The Stock Plan is
administered by the Compensation Committee. As of December 31, 2002,
nonqualified options for 7,285,269 shares of common stock (net of options
expired or terminated) have been granted under the Stock Plan. Such options are
exercisable at a price equal to 100% of the fair market value at the date of
grant and generally vest ratably over three years for grants prior to 1999. In
2002, 2001 and 2000, the Company issued 0, 2,336,250 and 881,925 options,
respectively, under a two-year grant program with ratable vesting over a
four-year period, and 1,915,100, 641,505 and 460,900 options, respectively,
under the existing annual grant program with ratable vesting over three years.
Employees receiving option grants under the two-year program will not be
eligible for
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PANAMSAT CORPORATION

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additional grants until 2003. Activity in the Company's Stock Plan during the
past three years is summarized below:

As permitted by SFAS 123, "Accounting for Stock Based Compensation", the
Company has applied the recognition and measurement principles of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued To Employees", to
its employee stock options and other stock-based compensation awards and,
accordingly, no compensation expense has been recognized on options granted to
date. Had compensation expense for employee stock options granted been
determined based on the fair value of the options at the grant dates (consistent
with the provisions of SFAS 123), the Company's net income would have been
reduced by approximately $10.9 million, or $0.07 per basic and diluted share in
2002, $15.2 million, or $0.10 per basic and diluted share in 2001 and $16
million, or $0.11 per basic and diluted share in 2000.

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PANAMSAT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company uses the Black-Scholes model for estimating the fair value of
its compensation instruments. The estimated fair value of options granted in
2002 was $8.70 per share and the weighted average assumptions used for
calculation of the value were as follows: risk-free interest rate of 4.3%;
dividend yield 0%; expected life of five years; and stock volatility of 39.32%.
The estimated fair value of options granted in 2001 was $15.57 per share and the
weighted average assumptions used for calculation of the value were as follows:
risk-free interest rate of 4.8%; dividend yield 0%; expected life of five years;
and stock volatility of 39.96%. The estimated fair value of options granted in
2000 was $25.45 and the weighted average assumptions used for calculation of the
value were as follows: risk-free interest rate of 5.9%; divided yield 0%;
expected life of ten years; stock volatility of 39.1%.

In accordance with the adoption of SFAS No. 148, the Company has elected to
adopt the expensing provisions of SFAS 123 utilizing the prospective method
beginning on January 1, 2003. Therefore, the Company will record compensation
expense for employee stock options granted after December 31, 2002, but not in
relation to previous awards granted. Compensation expense will be based on the
fair value of the options at the respective grant dates utilizing the
Black-Scholes model for estimating fair value (See Note 2 "Significant
Accounting Policies -- Recent Accounting Pronouncements" above).

From 1998 to 2001, directors who were not full-time employees of the
Company received their annual retainers in shares of restricted Common Stock of
the Company. The shares were issued each year after the Company's annual
meeting, vested quarterly over the course of the year served, and could not be
sold for a period of six months after vesting, subject to the Company's trading
policies. Directors also received meeting fees in shares of restricted Common
Stock of the Company. The shares were issued after each in-person or telephonic
board or committee meeting attended, and could not be sold for a period of six
months following the date of grant, subject to the Company's trading policies.
As a group, each member of the Board of Directors who is not an employee of the
Company or its affiliates ("Non-Employee Director") received 4,335 shares with a
weighted average fair value of $45.27 per share in 2000 and 7,468 shares with a
weighted average fair value of $37.66 per share in 1999. Directors also were
granted non-qualified stock options for 1,216 shares at an average price of
$35.88 in 1999, and 4,284 shares at an average price of $53.09 in 1998 under the
Stock Plan (as described above) upon their initial year of election to the Board
of Directors. Director stock option grants vest over a six-month period from the
date of grant and all 5,500 shares became exercisable in 1999.

On December 7, 2000 the Company's Board of Directors approved a
compensation program for Non-Employee Directors, the PanAmSat Corporation
Non-Employee Directors Fee Plan. Effective January 1, 2001, each Non-Employee
Director was eligible to receive an annual fee of $50,000 for services rendered
as a member of the Board of Directors and an additional annual $5,000 fee for
each member who serves as a chairperson of a committee of the Board of
Directors. Each Non-Employee Director may elect to receive up to 50% of the
aggregate amount of the fee in cash. Any amount not paid to a Non-Employee
Director in cash will be paid in restricted shares of the Company's common
stock. The number of shares to be issued in payment of the fees will be
calculated based on the average daily closing price of the Company's common
stock on Nasdaq during the month prior to the date of grant. The shares vest
100% on the first anniversary of the date the shares are granted; prior to being
fully vested, such shares will be subject to forfeiture upon the termination of
a board member's services. Directors may also elect to defer the fees, payable
in stock, in the form of units of the Company's common stock, to the PanAmSat
Corporation 1999 Non-Employee Directors Compensation Deferral Plan. During 2002,
Non-Employee Directors were granted 3,585 restricted shares and 3,701 restricted
units which were deferred at a price of $21.62 per share and cash of $57,500. In
2001, Non-Employee Directors were granted 2,093 restricted shares and 4,303
restricted units which were deferred at a price of $38.34 per share and cash of
$25,000.

On February 28, 2003, the Company's Board of Directors approved a revised
compensation program for Non-Employee Directors under the PanAmSat Corporation
Non-Employee Directors Fee Plan (the "Revised Compensation Program"). Pursuant
to the Revised Compensation Program, effective January 1, 2003, each

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Non-Employee Director was eligible to receive an annual fee of $75,000 for
services rendered as a member of the Board of Directors, which is payable at
each director's election either (a) all in restricted stock granted under the
Stock Plan or (b) up to 40% ($30,000) in cash and the balance in restricted
stock. Additionally, under the Revised Compensation Program, the Non-Employee
Director chairing the audit committee was eligible to receive an additional
annual fee of $15,000 and each Non-Employee Director who serves as a chairperson
of a committee of the Board of Directors other than the audit committee was
eligible to receive an additional annual fee of $10,000. Each of these
additional fees are payable at such director's election either (a) all in
restricted stock granted under the Company's Stock Plan or (b) all in cash. The
number of shares to be issued in payment of the fees will be calculated based on
the average daily closing price of the Company's common stock on Nasdaq during
the month prior to the date of grant. The shares vest 100% on the first
anniversary of the date the shares are granted; prior to being fully vested,
such shares will be subject to forfeiture upon the termination of a board
member's services. Directors may also elect to defer the fees payable in stock,
in the form of units of the Company's common stock, to the PanAmSat Corporation
1999 Non-Employee Directors Compensation Deferral Plan.

In January 1999, the Company terminated the stock options previously
granted to a senior executive of the Company and issued new options to this
individual whose status changed from employee to consultant. Under the terms of
the new option agreement, the options have strike prices equal to the strike
prices of the former options and vest over a six-month period. The new options
have a term of five years and contain a twelve-month non-compete restriction
with respect to options exercised on or before December 31, 2000. These
nonqualified stock options were not issued from shares reserved for the Stock
Plan and consist of options for 40,000 shares at a strike price of $39.00 per
share, and 31,250 shares with a strike price of $29.00 per share. In 1999,
compensation expense of $1.2 million was recognized relative to these options
based on the Black-Scholes valuation of the options as they vested.

COMPENSATION PLANS -- On May 16, 1997, the Company assumed the certain
obligations of PanAmSat International with respect to its General Severance
Policy, Employee Separation Plan and an Executive Severance Pay Program. These
plans allow for benefits to be paid to the former employees of PanAmSat
International who became employees of the Company as a result of the Merger
under certain circumstances relating to a termination of employment. The
benefits provided under these programs expired at various dates through May
1999. Agreements with two officers of the Company were replaced with new
retention agreements that provide for cash payments and the issuance of
restricted stock units that entitle the holder to receive shares of common stock
of the Company. These latter agreements contain a vesting term of three years,
and the related compensation expense is being amortized over the vesting period.
Two other officers of the Company exercised their severance agreements and were
entitled to separation payments that are subject to a non-compete agreement. A
portion of the separation compensation expense has been assigned to the non-
compete agreement and is being amortized over its term. During 2002, 2001 and
2000 compensation expense of $0.3 million, $1.1 million and $1.6 million,
respectively, has been recorded for these separation and retention agreements.

10. FACILITIES RESTRUCTURING AND SEVERANCE COSTS

Facilities restructuring and severance costs were $13.7 million for the
year ended December 31, 2002 and $8.2 million for the corresponding period in
2001.

On March 29, 2002, the Company's management approved a plan to restructure
several of its United States locations and close certain facilities, certain of
which are currently being leased through 2011. Upon approval of this plan, the
Company recorded a non-cash charge in its consolidated income statement in the
first quarter of 2002 of $11.2 million. This charge reflects future lease costs,
net of estimated future sublease revenue, of $8.9 million related to
approximately 98,000 square feet of unused facilities and the write-off of
approximately $2.3 million of leasehold improvements related to these
facilities. During the third quarter of

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PANAMSAT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2002, the Company implemented a plan focused on further streamlining its
operations through the consolidation of certain facilities. As a result, the
Company recorded an additional non-cash charge of $2.7 million in its
consolidated income statement for the three months ended September 30, 2002.
This charge reflects future lease costs, net of estimated future sublease
revenue, of $0.9 million related to approximately 15,000 square feet of unused
facilities and the write-off of approximately $1.8 million of leasehold
improvements related to these facilities.

The Company recorded severance costs of $8.2 million for the year ended
December 31, 2001. An additional $1.3 million of severance costs was recorded
during the first quarter of 2002. These costs were related to the Company's
expense reduction and NET-36 (now webcast services) restructuring plan that
began in the third quarter of 2001 and were primarily comprised of employee
compensation and employee benefits, outplacement services and legal and
consulting expenses associated with the cumulative reduction in workforce of 164
employees. Included in the 2001 severance costs was approximately $3.3 million
that relates to costs associated with the resignation of the former Chief
Executive Officer of PanAmSat in August 2001. In the third quarter of 2002, the
Company recorded a restructuring credit of $1.5 million for the reversal of
prior period severance charges due to actual costs being lower than originally
estimated.

The following table summarizes the recorded accruals and activity related
to these facilities restructuring and severance charges (in millions):

11. COMMITMENTS AND CONTINGENCIES

The Company has commitments for operating leases primarily relating to
equipment and its executive office facilities in Wilton, Connecticut and various
other locations. These leases contain escalation provisions for increases as a
result of increases in real estate taxes and operating expenses. Minimum annual
rentals of all leases, exclusive of potential increases in real estate taxes and
operating assessments, are as follows (in thousands):

2003........................................................ $ 5,157
2004........................................................ 4,823
2005........................................................ 4,752
2006........................................................ 4,988
2007........................................................ 4,670
2008 and thereafter......................................... 11,580
-------
$35,970
=======

Rental expenses under the operating leases were $6.4 million in 2002, $7.7
million in 2001 and $5.1 million in 2000.

93

PANAMSAT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

SATELLITE COMMITMENTS

We have invested approximately $4.3 billion in our existing satellite fleet
and ground infrastructure through December 31, 2002, and we have approximately
$116.8 million of expenditures remaining to be made under existing satellite
construction and launch contracts as of December 31, 2002. These commitments
related to satellite construction and launch contracts are net of approximately
$6.2 million of costs to be paid by JSAT in conjunction with our Horizons
strategic relationship. Satellite launch and in-orbit insurance contracts
related to future satellites to be launched are cancelable, up to thirty days
prior to the satellite's launch. As of December 31, 2002, the Company did not
have any commitments related to existing launch insurance or in-orbit insurance
contracts for satellites to be launched.

In December 2002, we terminated one of our noncontingent agreements with
Orbital Sciences Corporation for the construction of a Ka-band satellite. Such
termination was in accordance with the Company's Ka-band strategy which included
relinquishing all but one of our U.S. Ka-band orbital locations, which would
have required systems to be placed in service before 2005, and filing for new
authorizations in Australia. This filing and return of authorizations allows the
Company more time to place Ka-band satellites in service. We are exploring the
business case for use of the remaining Ka-band satellite under construction by
Orbital Sciences Corporation and may conclude that we will not pursue the
construction of this satellite to completion.

SATELLITE 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.
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PANAMSAT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

Upon the expiration of our existing insurance policies, there can be no
assurance that we will be able to procure new insurance for our satellites. In
addition, new satellite insurance may only be available with higher premiums,
higher deductibles, shorter coverage periods, higher loss percentages required
for constructive total loss claims, additional satellite health-related policy
exclusions, or other terms which may make such insurance commercially
unreasonable. Accordingly, we may elect to discontinue insuring certain
satellites. An uninsured failure of one or more of our satellites could have a
material adverse effect on our financial condition and results of operations. In
addition, higher premiums on insurance policies will increase our costs, thereby
reducing our operating income by the amount of such increased premiums.

PANAMSAT CORPORATION LONG-TERM INCENTIVE PLAN

Effective December 7, 2000, the Company amended the PanAmSat Corporation
Long-Term Incentive Plan (the "Stock Plan") to provide that, upon a "Change in
Control" (as defined) of the Company, all unvested stock options and other
awards granted under the Stock Plan would immediately vest and become
exercisable, and restrictions on any awards such as restricted stock would
immediately lapse. The Company currently estimates that upon a change-in
control, the Company will be required to record a charge of up to approximately
$2.6 million within its consolidated statement of income as a result of this
amendment. (See Note 9 "Retirement and Incentive Plans").

CUSTOMER AND VENDOR OBLIGATIONS

The Company has certain contracts with its customers which require the
Company to provide equipment, services and other support to these customers
during the course of the related contracts. As of December 31, 2002, the Company
had commitments under these customer contracts which aggregated approximately
$42.0 million related to the provision of equipment, services and other support.

The Company has certain long-term contractual obligations with service
providers primarily for the operation of certain of our satellites. As of
December 31, 2002, the Company had commitments under these vendor contracts
which aggregated approximately $59.3 million related to the provision of
equipment, services and other support.

OTHER

Boeing Satellite Systems, Inc., formerly Hughes Space and Communications
Company, has security interests in certain transponders on the Company's PAS-2,
PAS-3, PAS-4 and PAS-5 satellites to secure incentive payments owed by the
Company to Boeing pursuant to satellite construction contracts.

95

PANAMSAT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In conjunction with the sale-leaseback of certain office equipment which
was entered into in the fourth quarter of 2001, the CIT Group, the purchaser and
lessor, has a security interest in the equipment which has a total cost of
approximately $1.7 million.

The Company is involved in litigation in the normal course of its
operations. Management does not believe the outcome of such matters will have a
material effect on the consolidated financial statements.

12. CONTRACTED BACKLOG FOR FUTURE SERVICES

Future contractual cash payments expected from customers (backlog)
aggregated approximately $5.55 billion as of December 31, 2002, including
approximately $785.5 million related to satellites to be launched. Included in
the total backlog of $5.55 billion is $224.8 million of backlog that may be
terminated pursuant to certain contractual termination rights.

Due to events in the telecommunications industry and general economic
conditions in certain parts of the world, we have reviewed our backlog for our
top 25 customers to identify risks to our business related to these events and
conditions. Of our $5.55 billion backlog as of December 31, 2002, approximately
$4.13 billion, or 74.5% related to our top 25 customers. Having conducted both
quantitative and qualitative analyses, we concluded that six of our top 25
customers, including our largest customer, DIRECTV Latin America, have a risk of
future non-performance of their contractual obligations to us. These six
customers are meeting substantially all of their obligations at the present time
and are paying in a manner consistent with past experience. They represented
approximately $1.05 billion of our backlog as of December 31, 2002. DIRECTV
Latin America announced in January 2003 that it has initiated discussions with
certain programmers, suppliers, lenders, and business associates, including
PanAmSat, to reduce excessive fixed costs and a substantial debt burden. In that
announcement, DIRECTV Latin America indicated that if those discussions are not
successful in the near future, they may file for a restructuring under Chapter
11 of the U.S. bankruptcy law. At December 31, 2002, DIRECTV Latin America
represented approximately $572 million, or 10% of our total backlog. The
smallest of these six customers represented approximately $40.6 million, or 0.7%
of our total backlog. If DIRECTV Latin America, one of the other larger affected
customers, or a group of these customers becomes unable to perform some or all
of their obligations to us, it could have a material adverse effect on our
financial condition and results of operations.

13. SUBSEQUENT EVENTS

ACQUISITION OF HUGHES GLOBAL SERVICES

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 Hughes Global Services, Inc. ("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 revenue 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

96

PANAMSAT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

TELEPORT CONSOLIDATION PLAN

In January 2003, the Company's management approved a plan to consolidate
certain of its teleports in order to improve customer service and reduce
operating costs. This teleport consolidation plan includes the closure of
certain teleports which are owned by the Company. Under this plan, we expect the
Company's Homestead and Spring Creek teleports will be permanently closed during
2003 and 2004 and the Fillmore and Castle Rock teleports will provide reduced
services. Our Napa teleport will become the West Coast hub for communications,
video, and data services, taking on occasional-use and full-time services now
provided by the Fillmore teleport. In addition to the pre-existing services that
it provides, the Ellenwood teleport will serve as our East Coast hub, providing
similar services that migrate over from Homestead and Spring Creek.

14. QUARTERLY FINANCIAL INFORMATION -- UNAUDITED

Summary financial information on a quarterly basis for the Company in 2002
and 2001 follows (in thousands, except per share data):

97

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

See the information set forth under the captions "Election of Directors"
and "Executive Officers of the Company" contained in the Company's Proxy
Statement (to be filed not later than 120 days after the end of the Company's
fiscal year) for the 2003 Annual Meeting of Stockholders, which information is
incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

See the information set forth under the caption "Executive Compensation"
(up to but not including the subcaption "Report of the Compensation Committee")
contained in the Company's Proxy Statement (to be filed not later than 120 days
after the end of the Company's fiscal year) for the 2003 Annual Meeting of
Stockholders, which information is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

See the information set forth under the caption "Security Ownership of
Certain Beneficial Owners and Management" contained in the Company's Proxy
Statement (to be filed not later than 120 days after the end of the Company's
fiscal year) for the 2003 Annual Meeting of Stockholders, which information is
incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

See the information set forth under the subcaptions "Compensation Committee
Interlocks and Insider Participation" and "Certain Transactions" under the
caption "Executive Compensation" contained in the Company's Proxy Statement (to
be filed not later than 120 days after the end of the Company's fiscal year) for
the 2003 Annual Meeting of Stockholders, which information is incorporated
herein by reference.

ITEM 14. CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures designed to ensure
that information required to be disclosed in reports filed under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported within the specified time periods. Within 90 days prior to the date of
this report, PanAmSat's President and Chief Executive Officer and PanAmSat's
Executive Vice President and Chief Financial Officer evaluated, with the
participation of PanAmSat's management, the effectiveness of the Company's
disclosure controls and procedures. Based on the evaluation, which disclosed no
significant deficiencies or material weaknesses, PanAmSat's President and Chief
Executive Officer and PanAmSat's Executive Vice President and Chief Financial
Officer concluded that the Company's disclosure controls and procedures are
effective. There were no significant changes in the Company's internal controls
or in other factors that could significantly affect internal controls subsequent
to the evaluation.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(A) 1. FINANCIAL STATEMENTS

See Index to Financial Statements on page 62.

2. Financial Statement Schedule II -- Valuation and Qualifying Accounts
for the Years Ended December 31, 2002, 2001 and 2000.

98

(B) REPORTS ON FORM 8-K

During the last quarter of 2002, the Company filed a Current Report on
Form 8-K with an Item 5 disclosure with the Securities and Exchange
Commission on December 11, 2002, and a Current Report on Form 8-K with an
Item 5 disclosure with the Securities and Exchange Commission on December
23, 2002.

(C) EXHIBITS

100

101

102

103

104

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

* Filed herewith.

(1) Portions of this Exhibit have been omitted pursuant to an order of the
Securities and Exchange Commission granting confidential treatment with
respect thereto.

(2) Portions of this Exhibit have been omitted pursuant to an application for
confidential treatment filed with the Securities and Exchange Commission
under separate cover on the date hereof.

In lieu of filing certain instruments with respect to long-term debt of the
kind described in Item 601(b)(4) of Regulation S-K, Registrant agrees to furnish
a copy of such instruments to the Securities and Exchange Commission upon
request.

A copy of any of the exhibits included in this Annual Report on Form 10-K,
other than those as to which confidential treatment is pending or has been
granted by the Securities and Exchange Commission, upon payment of a fee to
cover the reasonable expenses of furnishing such exhibits, may be obtained by
written request to the Company, at the address set forth on the front cover,
attention General Counsel.

105

PANAMSAT CORPORATION

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

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

(a) Primarily relates to accounts written-off.

Reference should be made to the Notes to the Consolidated Financial Statements.

106

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
Town of Wilton, State of Connecticut.

PanAmSat Corporation

By: /s/ JAMES W. CUMINALE
------------------------------------
James W. Cuminale
Executive Vice President,
General Counsel and Secretary

March 6, 2003

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

107

CERTIFICATIONS

I, Joseph R. Wright, President and Chief Executive Officer of PanAmSat
Corporation, certify that:

1. I have reviewed this annual report on Form 10-K of PanAmSat
Corporation;

2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this annual report;

3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;

4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing
the equivalent functions):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.

/s/ JOSEPH R. WRIGHT
--------------------------------------
Joseph R. Wright
President and Chief Executive
Officer

Date: March 6, 2003

108

I, Michael J. Inglese, Executive Vice President and Chief Financial Officer of
PanAmSat Corporation, certify that:

1. I have reviewed this annual report on Form 10-K of PanAmSat
Corporation;

2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this annual report;

3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;

4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing
the equivalent functions):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.

/s/ MICHAEL J. INGLESE
--------------------------------------
Michael J. Inglese
Executive Vice President and
Chief Financial Officer

Date: March 6, 2003

109