-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ImGbK3sYBa1YP6q8bk21rI39U1pC78XiTxpgfQWXbrDZqBo4cJC9XKbmVnyeA7IF q++dlSIVZK7elE5kZ2Ikwg== 0000022698-96-000014.txt : 19960816 0000022698-96-000014.hdr.sgml : 19960816 ACCESSION NUMBER: 0000022698-96-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMSAT CORP CENTRAL INDEX KEY: 0000022698 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATION SERVICES, NEC [4899] IRS NUMBER: 520781863 STATE OF INCORPORATION: DC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04929 FILM NUMBER: 96613453 BUSINESS ADDRESS: STREET 1: 6560 ROCK SPRING DR CITY: BETHESDA STATE: MD ZIP: 20817 BUSINESS PHONE: 3012133000 MAIL ADDRESS: STREET 1: 6560 ROCK SPRING DRIVE CITY: BETHESDA STATE: MD ZIP: 20817 FORMER COMPANY: FORMER CONFORMED NAME: COMMUNICATIONS SATELLITE CORP /DE/ DATE OF NAME CHANGE: 19930719 10-Q 1 FORM 10-Q FOR QUARTER ENDED 6/30/96 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended June 30, 1996 Commission File Number 1-4929 COMSAT CORPORATION 6560 Rock Spring Drive Bethesda, MD 20817 (301) 214-3000 District of Columbia 52-0781863 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 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 twelve (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 ninety (90) days. Yes [X] No [ ] 48,472,000 shares of the Registrant's common stock were outstanding as of June 30, 1996. PART I. FINANCIAL INFORMATION ITEM 1. INTERIM FINANCIAL STATEMENTS FOR THE CORPORATION (UNAUDITED) COMSAT CORPORATION AND SUBSIDIARIES Condensed Consolidated Income Statements
Quarter Ended June 30, Six Months Ended June 30, -------------------------- ---------------------------- In thousands, except per share amounts 1996 1995 1996 1995 - -------------------------------------------------------------------------------------------------------------------- REVENUES $ 232,247 $ 210,809 $ 477,972 $ 418,692 ---------- ---------- ---------- ---------- Operating expenses: Cost of services 142,969 105,220 297,995 226,433 Depreciation and amortization 55,382 48,853 108,086 96,231 Research and development 5,692 6,031 10,834 10,636 General and administrative 5,529 5,766 12,618 10,696 ---------- ---------- ---------- ---------- Total operating expenses 209,572 165,870 429,533 343,996 ---------- ---------- ---------- ---------- OPERATING INCOME 22,675 44,939 48,439 74,696 Interest and other income (expense), net (1,133) 743 (2,489) 2,772 Interest expense, net of amounts capitalized (10,215) (10,374) (19,316) (19,249) ---------- ---------- ---------- ---------- Income before taxes 11,327 35,308 26,634 58,219 Income tax expense (5,545) (13,296) (11,525) (21,634) ---------- ---------- ---------- ---------- NET INCOME $ 5,782 $ 22,012 $ 15,109 $ 36,585 ========== ========== ========== ========== EARNINGS PER SHARE $ 0.12 $ 0.46 $ 0.31 $ 0.77 =========== ========== ========== ========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
2 COMSAT CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets
June 30, December 31, In thousands 1996 1995 - ----------------------------------------------------------------------------------------------------------------- ASSETS - ------ CURRENT ASSETS: Cash and cash equivalents $ 27,320 $ 124,156 Receivables 278,987 234,465 Inventories 33,963 26,851 Other 31,735 40,353 ----------- ----------- Total current assets 372,005 425,825 ----------- ----------- Property and equipment (net of accumulated depreciation of $1,206,670 in 1996 and $1,156,518 in 1995) 1,531,567 1,528,053 Investments 128,203 88,378 Goodwill 66,989 67,569 Franchise rights 104,595 107,962 Other assets 156,257 96,479 ----------- ----------- TOTAL ASSETS $2,359,616 $2,314,266 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES: Current notes payable $ 63,954 $ 11,688 Accounts payable and accrued liabilities 147,839 164,801 Due to related parties 19,597 22,825 Other 5,485 5,155 ----------- ----------- Total current liabilities 236,875 204,469 ----------- ----------- Long-term debt 657,585 664,601 Deferred income taxes and investment tax credits 143,786 134,208 Accrued postretirement benefit costs 50,225 49,497 Other long-term liabilities 133,529 129,911 ----------- ----------- Total liabilities 1,222,000 1,182,686 ----------- ----------- Minority interest 88,173 92,147 ----------- ----------- Preferred securities issued by subsidiary 200,000 200,000 ----------- ----------- STOCKHOLDERS' EQUITY: Common stock 328,597 324,074 Retained earnings 529,594 533,238 Treasury stock (4,245) (9,020) Other (4,503) (8,859) ----------- ----------- Total stockholders' equity 849,443 839,433 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,359,616 $2,314,266 =========== =========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3 COMSAT CORPORATION AND SUBSIDIARIES Condensed Consolidated Cash Flow Statements
Six Months Ended June 30, -------------------------- In thousands 1996 1995 - -------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 15,109 $ 36,585 Adjustments for noncash depreciation and amortization 108,086 96,231 Changes in operating assets and liabilities (43,268) (32,437) Other (2,676) 7,752 ----------- ----------- Net cash provided by operating activities 77,251 108,131 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (172,374) (158,402) Decrease (increase) in INTELSAT ownership (1,054) 17,132 Decrease (increase) in Inmarsat ownership 5,746 (9,018) Investments in unconsolidated businesses (38,295) (20,109) Insurance proceeds from satellite launch failure 54,443 - Other (954) (1,466) ----------- ----------- Net cash used in investing activities (152,488) (171,863) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Common stock issued 8,102 4,594 Cash dividends paid (18,753) (18,365) Proceeds from issuance of long-term debt - 81,986 Repayment of long-term debt (9,489) (8,870) Net short-term borrowings 50,000 9,568 Repayment of borrowings against company-owned life insurance policies (51,443) - Other (16) (4,982) ----------- ----------- Net cash provided by (used for) financing activities (21,599) 63,931 ----------- ----------- Net increase (decrease) in cash and cash equivalents (96,836) 199 Cash and cash equivalents, beginning of period 124,156 18,658 ----------- ----------- Cash and cash equivalents, end of period $ 27,320 $ 18,857 =========== =========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4 COMSAT CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) 1. FINANCIAL STATEMENT PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared by COMSAT Corporation (COMSAT or the corporation) pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). These financial statements should be read in the context of the financial statements and notes thereto filed with the SEC in the corporation's 1995 Annual Report on Form 10-K. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such regulations. The accompanying condensed consolidated financial statements reflect all adjustments and disclosures which are, in the opinion of management, necessary for a fair presentation. All such adjustments are of a normal recurring nature. The results of operations for the interim periods are not necessarily indicative of the results of the entire year. 2. INTELSAT AND INMARSAT SHARE CHANGES The corporation's ownership share of INTELSAT has increased slightly since December 31, 1995. The corporation received cash proceeds of $5.7 million for a reduction in its ownership share in Inmarsat from 24.0% at December 31, 1995 to 23.0% as of June 30, 1996. 3. INVENTORIES Inventories, stated at the lower of cost (first-in, first-out) or market, consist of the following:
June 30, December 31, In thousands 1996 1995 - ----------------------------------------------------------------------------------------------- Finished goods $10,485 $ 8,137 Work in progress 14,263 10,260 Raw materials 9,215 8,454 -------- -------- Total $33,963 $26,851 ======== ========
4. INVESTMENTS As discussed in Notes 7 and 10 to the 1995 financial statements, the corporation and Inmarsat have committed to invest in I-CO Global Communications (Holdings) Limited (ICO). In January 1996, the corporation made an additional $29.2 million investment in ICO. The total investment in ICO, including the corporation's share of Inmarsat's investment in ICO, was $54.2 million as of June 30, 1996. See Note 7 of this Form 10-Q for further discussion of ICO matters. 5 5. SATELLITE LAUNCH FAILURE On February 14, 1996, the launch of the INTELSAT 708 satellite failed. The corporation's share of the construction and capitalized interest costs was fully insured. Insurance proceeds totaling $54.4 million were received in the second quarter of 1996. 6. DENVER ARENA DEVELOPMENT PROJECT On March 28, 1996, Ascent Entertainment Group Inc. (Ascent), an 80.67% owned subsidiary of COMSAT, entered into an agreement with The Anschutz Corporation (TAC), with which Ascent had been jointly developing a proposed arena project in Denver, Colorado, to purchase TAC's interests and assets related to the project. Ascent paid TAC $6.6 million in cash. Ascent also agreed to pay an additional $5.0 million and granted a paid-up suite license, both contingent on the construction and occupancy of the proposed arena. As part of the agreement, TAC agreed to use reasonable efforts to facilitate the development of the proposed arena. In connection with this agreement, Ascent also purchased TAC's limited partnership interest in New Elitch Gardens, Ltd. (Elitch Gardens), which owns an amusement park in downtown Denver, for $4.1 million. This purchase increased Ascent's ownership interest in Elitch Gardens from 13% to 26%. Additionally, on March 28, 1996, Ascent entered into an agreement with Southern Pacific Transportation Company (SPT) to purchase land in downtown Denver for $20.0 million for the proposed arena site. Pursuant to the agreement, the closing was to have occurred on or before June 28, 1996 but did not take place, and the agreement terminated. The corporation has been advised by Ascent that the agreement may be reinstated. If the agreement is reinstated, consummation of the transaction is subject to several conditions including obtaining reasonable financing, reaching agreements with the city and county of Denver regarding the construction of the proposed arena and the release of the Denver Nuggets and Colorado Avalanche from their current leases at McNichols Arena. 7. REGULATORY MATTERS AND CONTINGENCIES INVESTMENT IN ICO. As discussed in Note 10 to the 1995 financial statements, the corporation has applied to the FCC for authority to participate as an investor and service provider in ICO. In acting on the application, which is opposed by ICO's competitors, the FCC will determine whether the corporation satisfies the requisite legal and policy criteria to participate in ICO. The corporation believes that all necessary operating authorizations with respect to ICO will be obtained, although the FCC may condition U.S. service via ICO on reciprocal access by ICO's U.S. competitors to foreign markets. In addition, the provision of ICO service in the U.S. may be subject to the availability of adequate spectrum on an economic basis. INMARSAT SATELLITES. As discussed in Note 11 to the 1995 financial statements, the corporation had received FCC authorization to participate in the procurement of four third- generation Inmarsat satellites, with an application relating to a fifth satellite pending. The first Inmarsat-3 satellite was successfully launched in April 1996 and was placed in service in May 1996. Also, in May 1996, the corporation received authorization to participate in the procurement of the fifth satellite and to provide communications services, including its Planet 1(SM) and other land mobile services, over the Inmarsat-3 satellites. 6 LITIGATION. As discussed in Note 11 to the 1995 financial statements, the corporation is defending an antitrust suit brought by PanAmSat against the corporation. Discovery in the suit ended in November 1994; however, PanAmSat has motions pending which, if granted, would result in additional discovery. In December 1994, the corporation filed a motion which is pending before the court for summary judgment directed to dismissal of all claims in the complaint. In the opinion of management, the complaint against the corporation is without merit, and the ultimate disposition of this matter will not have a material adverse effect on the corporation's financial statements. On May 10, 1996, TRW, Inc. filed a patent infringement lawsuit in the U.S. District Court for the Central District of California against ICO. The suit seeks injunctive relief and monetary damages. The corporation has been advised by ICO that it intends to vigorously defend the lawsuit. 8. PLANNED BUSINESS COMBINATION On April 19, 1996, Ascent and its majority owned subsidiary, On Command Video Corporation (OCV) entered into an agreement with SpectraVision, Inc. (SpectraVision), which is currently operating under Chapter 11 bankruptcy protection, and SpectraVision's Creditors Committee. Pursuant to the agreement, Ascent would combine OCV with SpectraVision's assets and certain of its liabilities to form a new company which would be 72.5 percent owned by Ascent and the current minority shareholders of OCV. The SpectraVision bankruptcy estate would receive 27.5 percent of the new company's stock which would be distributed through a bankruptcy plan to SpectraVision's estate. The new company would also issue warrants to be distributed by Ascent to purchase 13 percent of the new company's common stock and warrants to SpectraVision's estate to purchase another 7 percent of the stock, in each case on a fully diluted basis. Ascent has agreed that warrants to purchase 9.2 percent of the new company's common stock will be distributed to Ascent's financial advisor in consideration for services in connection with the transaction and for the new company in the future. On August 2, 1996, the Bankruptcy Court approved SpectraVision's disclosure statement for distribution to SpectraVision's creditors. The Court set September 4, 1996 as the date by which creditors must vote on the Plan of Reorganization (the Plan) described in the disclosure statement, and set September 11, 1996, as the date for a confirmation hearing to approve the Plan. Ascent, OCV and SpectraVision are negotiating the final terms and conditions of certain agreements which must be entered into prior to consummation of the transaction. The transaction remains subject to bankruptcy court approval and other conditions. Assuming such conditions are satisfied Ascent's management believes the transaction will be completed by the end of the third quarter. 9. NEW ACCOUNTING PRONOUNCEMENT As discussed in Note 1 to the corporation's 1995 financial statements, Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation" was issued in 1995 and was effective beginning January 1, 1996. SFAS No. 123 requires expanded disclosures of stock-based compensation arrangements with employees and encourages (but does not require) compensation cost to be measured based on the fair value of the equity instrument awarded. Companies are permitted, however, to continue to apply APB Opinion No. 7 25, "Accounting for Stock Issued to Employees," which recognizes compensation based on the intrinsic value of the equity instrument awarded. The corporation has elected to continue to account for its stock-based compensation awards to employees under APB No. 25 and will disclose the required pro forma effect on net income and earnings per share in the corporation's 1996 annual financial statements. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1996 ANALYSIS OF OPERATIONS CONSOLIDATED OPERATIONS - ----------------------- Consolidated revenues for the second quarter of 1996 were $232.3 million, an increase of $21.4 million over the second quarter of 1995. The majority of the increase came from growth within the Technology Services segment. All business units reported increases in second quarter revenues over the same period of last year, except COMSAT Mobile Communications (CMC) and Ascent Entertainment Group, Inc. (Ascent). Excluding non-recurring revenues recorded in the second quarter of 1995 associated with National Basketball Association (NBA) expansion fees, Ascent's second quarter revenues increased over the same period last year. Year-to-date revenues were $478.0 million, an increase of $59.3 million over the same period last year which reflects improvements in all business units except CMC. Operating income in the second quarter was $22.7 million, a decline of $22.3 million from the prior year. During the second quarter of 1995, the corporation recorded non-recurring credits totaling $14.8 million that included a benefit plan curtailment gain at COMSAT RSI, Inc. (CRSI), a credit for Inmarsat-related costs in CMC that were over-accrued during 1994 and the NBA expansion fees. Excluding non-recurring items, the decline over the second quarter of 1995 was $7.5 million. For the first half of 1996 operating income was $48.4 million, $26.3 below the comparable period in 1995. Excluding non-recurring items, the decrease was $11.5 million. The primary causes of the decline in operating income were the establishment of a contingency reserve in International Communication's regulated World Systems division, lower revenues and increased satellite depreciation expense in CMC, and increased operating losses in Ascent. Interest and other income (expense), net, decreased in the second quarter and year-to-date by $1.9 million and $5.3 million, respectively, largely due to dividend payments on the $200 million of Monthly Income Preferred Securities which were issued in July 1995, offset in part by the minority interest in the losses from Ascent. Interest expense, net of amounts capitalized, for the quarter as well as for the year-to-date period, was relatively unchanged from 1995. This was as a result of a decrease in interest expense because of reduced short-term borrowings, offset by lower interest capitalized due to completion of satellite projects. The tax provision for the second quarter of 1996 reflects an increase in the corporation's effective tax rate for the year. The effective tax rate increased primarily due to higher non-deductible losses from foreign ventures. Net income for the second quarter was $5.8 million, which was $16.2 million below that of the same period last year. Year-to-date net income was $15.1 million, which was $21.5 million lower than the first half of 1995. Excluding the non-recurring items discussed above, income declined $6.8 million for the second quarter and $12.0 million for the first six months of 1996. Earnings per share for the second quarter and first half of 1996 were $0.12 and $0.31, 9 respectively, compared to $0.46 and $0.77 for the same periods last year. Excluding non-recurring items, earnings per share for the second quarter and first half of 1995 were $0.26 and $0.57, respectively. SEGMENT OPERATING RESULTS - ------------------------- Commencing in 1996, the corporation reports operating results in three segments: International Communications, Technology Services and Entertainment. The International Communications segment includes COMSAT World Systems (CWS), COMSAT Mobile Communications (CMC) and COMSAT International Ventures (CIV). Prior to 1996, CMC was reported in a separate segment. RESULTS BY SEGMENT:
Quarter Ended June 30, Six Months Ended June 30, --------------------------- ---------------------------- In millions 1996 1995 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- REVENUES - -------- International Communications: World Systems $ 67.5 $ 63.0 $133.1 $125.7 Mobile Communications 39.3 46.1 81.9 93.2 International Ventures 12.4 8.2 24.3 16.1 ------- ------- ------- ------- Total International Communications 119.2 117.3 239.3 235.0 Technology Services 70.4 48.1 132.0 94.9 Entertainment 49.1 49.3 118.7 96.7 Eliminations and other (6.4) (3.9) (12.0) (7.9) ------- ------- ------- ------- Total revenues $232.3 $210.8 $478.0 $418.7 ======= ======= ======= ======= OPERATING INCOME (LOSS) - ----------------------- International Communications: World Systems $ 24.0 $ 26.7 $ 49.4 $ 54.3 Mobile Communications 11.2 17.6 24.9 30.2 International Ventures (4.6) (4.6) (8.5) (8.0) ------- ------- ------- ------- Total International Communications 30.6 39.7 65.8 76.5 Technology Services 5.1 6.5 8.5 9.1 Entertainment (6.9) 6.3 (11.1) 3.1 ------- ------- ------- ------- Total segment operating income 28.8 52.5 63.2 88.7 General and administrative expenses (5.5) (5.8) (12.6) (10.7) Other (0.6) (1.8) (2.2) (3.3) ------- ------- ------- ------- Total operating income $ 22.7 $ 44.9 $ 48.4 $ 74.7 ======= ======= ======= =======
10 INTERNATIONAL COMMUNICATIONS - ---------------------------- Revenues in the International Communications segment in the second quarter were $119.2 million and for the first six months were $239.3 million, 2% better than the same periods of last year. Operating income for the second quarter was $30.6 million and for the first half of 1996 was $65.8 million, 23% and 14% lower than the same periods of 1995, respectively. CWS's second quarter and year-to-date revenues increased 7% and 6%, respectively, over the same periods of 1995 mostly due to increases in VSAT leases, INTELSAT system revenues, IBS traffic and Wide-band Mobile revenues. Operating income in CWS declined 10% in the second quarter and 9% for the first half of the year as compared to the previous year. This was a result of a lower rate base in the regulated business, offset in part by higher revenues. Revenues in CMC, as compared to last year, decreased 15% in the second quarter and 12% for the first six months of 1996 primarily as a result of the expiration of the AMSC service contract, lower revenues from IDB and a decline in telex traffic. In addition, analog telephone revenues decreased relative to last year, since traffic remained flat year-to-year while prices decreased to meet continued competitive pressures. Digital service revenues are slightly improved, but CMC's market share has declined over last year. The lower market share is the result of aggressive pricing by CMC's competitors and delays in introducing several digital data services caused by technical problems. CMC's operating income declined $6.4 million for the second quarter and $5.3 million for the first half as compared to last year. During the second quarter of 1995, CMC recorded a $3.3 million non-recurring credit for Inmarsat-related costs that were over-accrued during 1994. Exclusive of the non-recurring, item the decline over last year was $3.1 million for the quarter and $2.0 million for the first six months. This was primarily as a result of the decline in revenues offset in part by cost savings from the third quarter 1995 restructuring. CIV's revenues increased 50% over last year for both the second quarter and the first half of 1996 principally due to the growth in the Argentina and Brazil ventures, offset in part by decreases in the Russian venture, BelCom. In 1995, CIV experienced operational difficulties at BelCom and management changes were made during the first quarter of 1996. CIV's operating loss, as compared to last year, was unchanged for the quarter and 6% higher for the first half of the year. Improvements in operating income in the Argentina and Brazil ventures were offset by start-up costs in CIV's newer ventures. TECHNOLOGY SERVICES - ------------------- The Technology Services segment includes CRSI and COMSAT Laboratories. This segment reported a 46% improvement in revenues in the second quarter and a 39% increase year-to-date over the same periods of last year. Approximately half of the growth was related to the consolidation of revenues from two new companies, JEFA and Plexsys International, which were not included in consolidated results until the second half of 1995. The balance of the improvement came predominantly from the Commercial Satellite Communications Initiative (CSCI) contract with the U.S. Department of Defense, mobile satellite service programs and shipments of wireless antennas which were mostly for the U.S. Personal Communications Service (PCS) market. Operating income declined $1.4 million for the second quarter and $0.6 11 million for the first half of 1996 as compared to last year. During the second quarter of 1995, CRSI recorded a non-recurring benefit plan curtailment gain of $2.7 million. Excluding such gain, Technology Services performance improved over last year by $1.3 million for the quarter and $2.1 million for the first six months of 1996, which is primarily the result of the improvement in revenues. ENTERTAINMENT - ------------- The Entertainment segment is comprised of Ascent of which COMSAT owns 80.67% of the common stock. Revenues for the second quarter were $49.1 million as compared to $49.3 million for the same period of last year. For the first six months, revenues were $118.7 million as compared to $96.7 million. The second quarter of 1995 included non-recurring revenues of $8.8 million related to NBA expansion fees. In addition, the second quarter and first half of 1995 included revenues of $6.8 million and $13.7 million, respectively, for the Satellite Cinema business, which ceased operations December 31, 1995. Exclusive of these items, revenues improved in the second quarter by $15.4 million and for the first half of 1996 by $44.5 million. Approximately half of these increases is related to the Colorado Avalanche National Hockey League franchise, which was acquired in July 1995. The balance of the increase was predominantly related to growth at On Command Video Corporation (OCV). This segment's operating loss for the second quarter was $6.9 million as compared to operating income of $6.3 million for the same period of 1995. For the first half of the year, the loss was $11.1 million compared to income of $3.1 million for the same period last year. The decreases in both periods are primarily attributable to the non-recurring 1995 NBA expansion fees and losses related to the Ascent sport franchises, offset in part by improvements resulting from the elimination of the unprofitable Satellite Cinema operations which incurred a $2.7 million operating loss during the first half of 1995. OUTLOOK - ------- MANY OF THE STATEMENTS THAT FOLLOW ARE FORWARD-LOOKING AND RELATE TO ANTICIPATED FUTURE OPERATING RESULTS. STATEMENTS WHICH LOOK FORWARD IN TIME ARE BASED ON MANAGEMENT'S CURRENT EXPECTATIONS AND ASSUMPTIONS, WHICH MAY BE AFFECTED BY SUBSEQUENT DEVELOPMENTS AND BUSINESS CONDITIONS, AND NECESSARILY INVOLVE RISKS AND UNCERTAINTIES. THEREFORE, THERE CAN BE NO ASSURANCE THAT ACTUAL FUTURE RESULTS WILL NOT DIFFER MATERIALLY FROM ANTICIPATED RESULTS. ALTHOUGH THE CORPORATION HAS ATTEMPTED TO IDENTIFY SOME OF THE IMPORTANT FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE ANTICIPATED, THOSE FACTORS SHOULD NOT BE VIEWED AS THE ONLY FACTORS WHICH MAY AFFECT FUTURE OPERATING RESULTS. In July 1996, Bruce L. Crockett resigned as president and chief executive officer, and the Board of Directors elected Betty C. Alewine president and chief executive officer of the corporation. The corporation also announced that it planned to concentrate its primary efforts on its core international telecommunications services and venture businesses, and over time, to redeploy its capital into such businesses. Among other things, this could entail a further reduction in the corporation's ownership interest in Ascent at an opportune time. 12 In the first quarter of 1996, the corporation retained an investment banker to assess strategic alternatives for enhancing shareholder value and to analyze the capital needs of its businesses for continued expansion, while permitting COMSAT as a parent organization to reduce debt, strengthen its balance sheet and improve liquidity. The investment banker's portion of the review has been completed. The corporation is now actively considering the alternatives encompassed by the study and is prioritizing those options in light of strategic, operational and market conditions. Actions as a result of this analysis will be announced as and when decisions are made and implemented. CWS's operating income is expected to be lower in the second half of the year as compared to the first half of 1996 due to a reduced rate base resulting from the receipt in the second quarter of 1996 of insurance proceeds related to the launch failure of the INTELSAT 708 satellite. Operating income in CMC for the second half of 1996 is expected to decline over the first half of the year as CMC seeks to respond to competition by lowering several service prices and improving the operational performance of its digital services. In addition, the introduction of Planet 1(SM) in the fourth quarter will result in increased start-up costs. CIV's revenues are expected to continue to grow, driven by increases in the Argentina and Brazil ventures. CIV losses for the second half of 1996 are expected to be at approximately the same level as the first half of the year as increases in operating income in the Argentina and Brazil ventures are offset by losses at BelCom and CIV's newer ventures. It is anticipated that BelCom will continue to have a negative impact on earnings as BelCom's new management team takes steps to improve operating results. Delays in achieving improvements in BelCom's operating results could result in greater than expected losses at CIV. In August 1996, the corporation increased its ownership interest in BelCom from 72.2% to 98.5% of BelCom's outstanding voting stock primarily as a result of converting certain outstanding indebtednes of Belcom into equity. Accordingly, the corporation will recognize a larger portion of BelCom's losses in the second half of 1996. Revenues in Technology Services are expected to continue to increase as a result of anticipated strong worldwide demand for wireless communications infrastructure and increased U.S. Government spending on advanced communications products and services. Operating margins and income in Technology Services are also expected to improve, although not at the same pace as revenues due to the introduction of services under the CSCI contract, the roll-out of new VSAT and cellular switch products and increasing investment in product development. Backlog in the Technology Services segment at June 30, 1996 was $247 million as compared to $209 million at June 30, 1995. Earnings growth in Technology Services, however, will continue to depend upon this segment's ability to contain costs and complete projects with favorable margins. Operating losses at Ascent Entertainment Group are projected to be higher in the second half of the year as compared to the first half of 1996. This is primarily a result of seasonality, increased costs in the sports franchises and at OCV, and the expected impact of the pending SpectraVision transaction on OCV results. A number of factors could cause Ascent's 13 actual results to differ materially from those projected, including, but not limited to, unanticipated costs associated with consummation of the SpectraVision transaction or integration of SpectraVision's and OCV's businesses, the level of ticket sales and other revenues by Ascent's professional sports franchises, and market conditions. On a consolidated basis, the corporation expects continued improvement in revenues as a result of growth predominantly within the Technology Services and Entertainment segments. Interest costs are expected to increase during the balance of 1996 due to increased borrowings primarily for capital expenditures. Operating results in the second half of 1996 are expected to be significantly below results for the same period of 1995. LIQUIDITY AND CAPITAL RESOURCES The primary sources of cash in the first half of 1996 were operations, short-term borrowings and insurance proceeds related to the February 1996 launch failure of the INTELSAT 708 satellite. Cash was expended primarily for property and equipment, repayment of life insurance loans, investment in ICO and dividends. The corporation's working capital decreased from $221.4 million at December 31, 1995 to $135.1 million at June 30, 1996. The corporation has $26 million remaining at June 30, 1996 under a $100 million medium-term note program, which is unchanged from year-end 1995. The medium-term note program is part of a $200 million debt securities shelf registration program initiated in 1994. The corporation has access to short- and long-term financing at favorable rates. The corporation's current long-term debt ratings are A- from Standard and Poor's and A3 from Moody's. The corporation's current commercial paper ratings are A2 from Standard and Poor's and P2 from Moody's. The corporation's capital structure and debt-financing activities are regulated by the FCC. The corporation is required to submit a financial plan to the FCC for review annually. Under existing FCC guidelines, the corporation is subject to a maximum long-term debt to total capital ratio of 45%, a limit of $200 million in short-term debt and an interest coverage ratio of 2.3 to 1. In April 1996, the corporation submitted its current plan, which seeks a temporary decrease in the interest coverage ratio to a minimum of 1.9 to 1 for the 1996 plan year and an increase in its short-term debt limit to $275 million as long as the financials of Ascent are consolidated with those of COMSAT. The corporation was in compliance with both the long-term debt to total capital ratio and the short-term debt limit at June 30, 1996 and expects to be in compliance with those guidelines at year-end 1996 if the short-term debt limit is modified as requested. If the FCC approves this request, the corporation expects that the cash flows from operations and its short-term borrowing capacity will be sufficient to fund its cash requirements for the balance of 1996. Comsat expects to seek a further modification of the interest coverage ratio, in order to comply with that guideline at the December 31, 1996 annual measurement date, primarily due to Ascent's operations. Accordingly, the corporation will need to apply for a further modification of the interest coverage ratio and, in order to meet its funding requirements beyond 1996, may seek a further modification of the short-term debt limit. 14 If the corporation were to fail to satisfy one or more of the FCC guidelines as of an applicable measurement date, the corporation would be required to seek advance FCC approval of future financing activities on a case by case basis. If such approval were not granted, the corporation could be required to reduce or reschedule planned capital investments, reduce cash outlays, reduce debt or sell assets. 15 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings ----------------- See Notes 7 and 8 of this Form 10-Q incorporated herein by reference. ITEM 2. Change in Securities -------------------- None ITEM 3. Defaults Upon Senior Securities ------------------------------- None ITEM 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- At the Corporation's Annual Meeting of Shareholders held on May 17, 1996 (the "Annual Meeting"), all twelve of the Corporation's nominees for director were elected by the vote totals noted below: Nominee For Withheld ------- --- -------- Lucy Wilson Benson 40,877,599 406,100 Edwin I. Colodny 40,876,797 406,901 Bruce L. Crockett 40,861,828 419,332 Lawrence S. Eagleburger 40,863,831 419,867 Neal B. Freeman 40,887,576 396,122 Arthur Hauspurg 40,873,674 409,997 Caleb B. Hurtt 40,890,337 393,361 Peter W. Likens 40,890,028 393,670 Howard M. Love 40,890,261 393,437 Robert G. Schwartz 40,875,226 408,472 C. J. Silas 40,889,350 393,348 Delores D. Wharton 40,927,189 356,509 Bruce L. Crockett resigned as a director of the Corporation on July 19, 1996. The Corporation also has three directors who are appointed by the President pursuant to the Satellite Act of 1962 and whose terms continued after the Annual Meeting. They are: Barry M. Goldwater, Peter S. Knight and Charles T. Manatt. The following additional matters were approved at the Annual Meeting: o amendment of the Non-Employee Directors Stock Option Plan to (i) authorize the grant of share awards or phantom stock units, and (ii) provide for the vesting of participants' rights under the Plan in the event of certain changes in control, which amendment was approved by a vote of 38,744,089 for, 1,872,431 against, 355,677 abstentions and 312,194 broker non-votes; and 16 o appointment of Deloitte & Touche LLP as independent public accountants of the Corporation for the fiscal year ending December 31, 1996, which appointment was approved by a vote of 41,014,447 for, 114,542 against and 155,402 abstentions. A shareholder proposal requiring the reporting of governmental service during the past five years of certain of the Corporation's directors, officers and consultants was defeated by vote of 1,367,737 for, 28,982,244 against, 2,103,282 abstentions and 8,831,128 broker non-votes. ITEM 5. Other Information ----------------- None ITEM 6. (a) Exhibits -------- No. 11 - Computation of Earnings per Share No. 27 - Financial Data Schedule (b) Reports on Form 8-K ------------------- Report dated April 19, 1996 reporting that Ascent Entertainment Group, Inc. had entered into an agreement to acquire certain assets of SpectraVision, Inc. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. COMSAT Corporation ------------------ By /s/ Alan G. Korobov ------------------- Alan G. Korobov Controller Date: August 14, 1996 18 Exhibit 11 COMSAT CORPORATION AND SUBSIDIARIES Computation of Earnings Per Share
Three Months Ended June 30, Six Months Ended June 30, ----------------------------- ---------------------------- In thousands, except per share amounts 1996 1995 1996 1995 - ------------------------------------------------------------------------------------------------------------------- PRIMARY - ------- Earnings $ 5,782 $22,012 $15,109 $36,585 ======= ======= ======= ======= Shares: Weighted average number of common shares outstanding 48,267 47,179 48,086 47,084 Add shares issuable from assumed exercise of options 1,078 676 859 672 ------- ------- ------- ------- Weighted average shares 49,345 47,855 48,945 47,756 ======= ======= ======= ======= Primary earnings per share $0.12 $0.46 $0.31 $0.77 ======= ======= ======= ======= ASSUMING FULL DILUTION - ---------------------- Earnings $5,782 $22,012 $15,109 $36,585 ======= ======= ======= ======= Shares: Weighted average number of common shares outstanding 48,267 47,179 48,086 47,084 Add shares issuable from assumed exercise of options 1,085 678 1,060 421 ------- ------- ------- ------- Weighted average shares 49,352 47,857 49,146 47,505 ======= ======= ======= ======= Fully diluted earnings per share $0.12 $0.46 $0.31 $0.77 ======= ======= ======= =======
19 EX-27 2 FDS - FISCAL YEAR ENDING 12/31/96
5 0000022698 COMSAT CORPORATION 1000 U.S. DOLLARS 6-MOS 3-MOS DEC-31-1996 DEC-31-1996 JAN-01-1996 APR-01-1996 JUN-30-1996 JUN-30-1996 1.00 1.00 27,320 27,320 0 0 278,987 278,987 0 0 33,963 33,963 372,005 372,005 2,738,237 2,738,237 1,206,670 1,206,670 2,359,616 2,359,616 236,875 236,875 657,585 657,585 0 0 0 0 328,597 328,597 520,846 520,846 2,359,616 2,359,616 0 0 477,972 232,247 0 0 297,995 142,969 131,538 66,603 0 0 19,316 10,215 26,634 11,327 11,525 5,545 15,109 5,782 0 0 0 0 0 0 15,109 5,782 0.31 0.12 0.31 0.12
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