-----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, B2mbo6IWpcKm57gfWbTpUzJdqTUoRcgsi2LwEgtZABgOQe7uzMQ7Z1JGtljcHZer yEi5e8rvZx/US7ama1W7BA== 0000022698-95-000019.txt : 19951119 0000022698-95-000019.hdr.sgml : 19951119 ACCESSION NUMBER: 0000022698-95-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951113 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: 95590919 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 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 September 30, 1995 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 __ 47,486,000 shares of the Registrant's common stock were outstanding as of September 30, 1995. PART I. FINANCIAL INFORMATION Item 1. Interim Financial Statements for the Corporation (Unaudited) COMSAT CORPORATION AND SUBSIDIARIES Condensed Consolidated Income Statements (In thousands, except per share amounts)
Quarter Ended Nine Months Ended September 30, September 30, --------------------------------- --------------------------------- 1995 1994 1995 1994 Revenues $ 203,894 $ 200,771 $ 622,586 $ 609,127 -------------- ------------- ------------- ------------- Operating expenses: Cost of services 121,195 106,148 347,628 333,491 Depreciation and amortization 51,868 42,572 148,099 122,880 Research and development 4,342 4,279 14,978 11,228 General and administrative 5,817 5,859 16,513 16,584 Merger and integration costs - 477 - 4,741 Provision for restructuring 20,044 - 20,044 - -------------- ------------- ------------- ------------- Total operating expenses 203,266 159,335 547,262 488,924 -------------- ------------- ------------- ------------- Operating income 628 41,436 75,324 120,203 Interest and other income (expense), net (6,082) 1,089 (3,310) 2,773 Interest expense, net of amounts capitalized (10,377) (7,423) (29,626) (18,576) -------------- ------------- ------------- ------------- Income (loss) before taxes (15,831) 35,102 42,388 104,400 Income tax benefit (expense) 208 (13,704) (21,426) (41,204) -------------- ------------- ------------- ------------- Net income (loss) $ (15,623) $ 21,398 $ 20,962 $ 63,196 ============== ============= ============= ============= Earnings (loss) per share $ (0.33) $ 0.45 $ 0.44 $ 1.34 ============== ============= ============= =============
The accompanying notes are an integral part of these financial statements. COMSAT CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands)
September 30, December 31, 1995 1994 -------------- -------------- ASSETS Current assets: Cash and cash equivalents $ 16,522 $ 18,658 Receivables 214,994 226,189 Inventories 27,916 21,933 Other 46,111 31,460 ------------- ------------- Total current assets 305,543 298,240 ------------- ------------- Property and equipment (net of accumulated depreciation of $1,109,194 in 1995 and $990,596 in 1994) 1,501,930 1,431,066 Investments 82,327 69,541 Goodwill 53,186 46,535 Franchise and player contract rights 111,894 39,119 Other assets 102,970 91,491 ------------- ------------- Total assets $ 2,157,850 $ 1,975,992 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term obligations $ 8,700 $ 7,115 Commercial paper 5,998 121,356 Accounts payable and accrued liabilities 158,893 145,893 Due to related parties 14,096 36,750 Other 14,720 5,966 ------------- ------------- Total current liabilities 202,407 317,080 ------------- ------------- Long-term debt 594,357 515,542 Deferred income taxes and investment tax credits 125,904 122,798 Accrued postretirement benefit costs 49,519 50,817 Other long-term liabilities 120,787 112,824 ------------- ------------- Total liabilities 1,092,974 1,119,061 ------------- ------------- Minority interest 233,107 30,015 ------------- ------------- Stockholders' equity: Common stock 320,614 312,143 Retained earnings 525,577 532,229 Treasury stock (10,453) (12,502) Other (3,969) (4,954) ------------- ------------- Total stockholders' equity 831,769 826,916 ------------- ------------- Total liabilities and stockholders' equity $ 2,157,850 $ 1,975,992 ============= =============
The accompanying notes are an integral part of these financial statements. COMSAT CORPORATION AND SUBSIDIARIES Condensed Consolidated Cash Flow Statements (In thousands)
Nine Months Ended September 30, -------------------------------------- 1995 1994 Cash flows from operating activities: Net income $ 20,962 $ 63,196 Adjustment for noncash expenses: Depreciation and amortization 148,099 122,880 Provision for restructuring 20,044 - Changes in operating assets and liabilities (10,471) (21,935) Other 14,949 (1,706) --------------- --------------- Net cash provided by operating activities 193,583 162,435 --------------- --------------- Cash flows from investing activities: Purchase of property and equipment (226,759) (206,795) Decrease in INTELSAT ownership 17,564 12,950 Decrease (increase) in Inmarsat ownership (8,754) 3,517 Investments in unconsolidated businesses (23,367) (54,528) Purchase of subsidiaries, net of cash acquired of $2,988 in 1995 (77,601) (3,393) Other (4,404) (9,824) --------------- --------------- Net cash used in investing activities (323,321) (258,073) --------------- --------------- Cash flows from financing activities: Common stock issued 7,623 5,287 Proceeds from issuance of preferred securities of subsidiary 200,000 - Cash dividends paid (27,614) (24,433) Proceeds from issuance of long-term debt 81,986 40,323 Repayment of long-term debt (9,906) (75,641) Net short-term borrowings (repayments) (115,357) 117,684 Borrowings against company-owned life insurance policies 2,270 32,013 Other (11,400) - --------------- --------------- Net cash provided by financing activities 127,602 95,233 --------------- --------------- Net decrease in cash and cash equivalents (2,136) (405) Cash and cash equivalents, beginning of period 18,658 16,230 --------------- --------------- Cash and cash equivalents, end of period $ 16,522 $ 15,825 =============== ===============
The accompanying notes are an integral part of these financial statements. COMSAT CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Financial Statement Presentation These financial statements include the accounts of COMSAT Corporation and its majority-owned subsidiaries (COMSAT or the "corporation") and reflect all adjustments that are, in the opinion of management, necessary to fairly present the results of the periods covered. 2. INTELSAT and Inmarsat Share Changes The corporation's ownership share of INTELSAT has decreased from 20.1% at December 31, 1994 to 19.1% as of September 30, 1995. The corporation received cash proceeds of $17.6 million for this decrease in ownership. The corporation paid $8.8 million to increase its ownership share in Inmarsat from 22.4% at December 31, 1994 to 24.0% as of September 30, 1995. 3. Inventories Inventories, stated at the lower of cost (first-in, first-out) or market, consist of the following (in thousands): September 30, 1995 December 31, 1994 -------------------- ----------------- Finished goods $ 8,878 $ 5,228 Work in progress 10,635 9,187 Raw materials 8,403 7,518 -------------- ------------- Total $ 27,916 $ 21,933 ============== ============= 4. Investments In the first nine months of 1995 the corporation made direct investments totaling $11.4 million in a new company, ICO Global Communications, Ltd., that will own and operate a satellite system (see Note 8 to the 1994 financial statements). In addition, the accompanying balance sheet as of September 30, 1995, includes the corporation's $5.0 million share of Inmarsat's investment in ICO. 5. Acquisition On July 1, 1995, the corporation acquired a National Hockey League (NHL) franchise and related player contracts, management contracts and certain other assets from Le Club de Hockey Les Nordiques in Quebec, Canada for approximately $75 million. As part of the purchase, the corporation assumed contractual commitments to players aggregating $24.6 million over the next three years. The franchise, which was known as the Quebec Nordiques, has been relocated to Denver, Colorado and is known as the Colorado Avalanche. 6. Debt In February 1995, INTELSAT issued $200 million of 8.125% Eurobond notes due February 28, 2005. Interest is payable annually in arrears. The corporation has recorded its share of this long-term debt. The corporation issued four notes during the first nine months of 1995 under its medium-term note program. A $5 million 8.5% note was issued in February 1995, a $12 million 7.92% note was issued in March 1995 and a $9 million 7.77% note and a $16 million 7.7% note were issued in May 1995. These notes are due in 2007. The corporation has $26 million remaining under its medium-term note program. 7. Monthly Income Preferred Securities In July 1995, COMSAT Capital I, L.P. issued $200 million of Monthly Income Preferred Securities (MIPS). COMSAT Capital I, L.P. is a limited partnership formed for the sole purpose of issuing the MIPS and loaning the proceeds to COMSAT, the managing general partner. The MIPS were issued at a par value of $25 per share and an annual dividend rate of 8.125%. The MIPS are callable by the issuer after July 2000 at par value. The proceeds of the MIPS were loaned to COMSAT under the terms of a 8.125%, 30-year subordinated debenture agreement. This agreement allows COMSAT to extend the maturity of the debentures until 2044, provided that COMSAT satisfies certain financial covenants. The proceeds have been used to repay commercial paper borrowings and a $75 million bank loan incurred in the acquisition of the NHL franchise and related assets discussed in Note 5. COMSAT Capital I, L.P. has been consolidated in the financial statements of COMSAT beginning with the third quarter of 1995. The loan between the partnership and COMSAT has been eliminated in consolidation. The $200 million of MIPS is included in the consolidated balance sheet as a minority interest. 8. National Basketball Association Expansion In May 1995, the National Basketball Association (NBA) approved the admission of two expansion teams into the NBA. Revenues for the second quarter of 1995 include the Denver Nuggets' $8.8 million share of the expansion fees ($125 million per expansion team). Approximately one half of this amount was received in cash in June 1995, and the corporation recorded a note receivable for the remainder. The note is expected to be collected in the fourth quarter of 1995. 9. Provision for Restructuring In the third quarter of 1995, the corporation took actions to strategically restructure elements of all its business units to lower costs and improve competitiveness for the long term. The corporation recorded a $20.0 million provision for these restructuring actions. This provision includes $1.6 million for employee severance costs in COMSAT World Systems (CWS) and COMSAT Mobile Communications (CMC), $10.9 million to restructure COMSAT's entertainment businesses, $5.3 million to restructure several businesses within COMSAT RSI (CRSI) and $2.2 million for actions taken in COMSAT Labs. The actions being taken in CWS and CMC are associated with the consolidation of the management and administration of these two businesses into one business unit. As a result, various administrative, marketing and other positions were eliminated. The actions taken to restructure the entertainment businesses stem from management's decision in this year's third quarter to discontinue the Satellite Cinema scheduled movie operation. The corporation expects, by the end of 1995, to convert certain Satellite Cinema hotel properties to services provided by On Command Video Corporation (OCV) and to discontinue Satellite Cinema operations at the remaining hotel properties. The principal components of the restructuring charge for the entertainment businesses are $5.1 million to write down property and inventory to estimated realizable value, an accrual of $1.0 million for employee severance costs and a charge of $4.8 million for costs related principally to settling contractual commitments incurred to support the Satellite Cinema business that will not be fulfilled. Additional charges related to the discontinued Satellite Cinema operations may be recorded based upon actual salvage values or severance costs for additional personnel. Within CRSI, management approved a plan to combine the management and administration of four of its business units into two businesses and to discontinue certain product lines in another business unit. Management expects to complete these actions by the end of this year. The restructuring provision includes $0.7 million for employee severance costs associated with these actions and $4.6 million primarily to write down inventory to its estimated realizable value. The corporation also downsized one of the divisions of its Labs business resulting in a $1.4 million accrual for employee severance costs and $0.8 million to write down property and equipment to its estimated realizable value. 10. Litigation As discussed in Note 9 to the corporation's 1994 financial statements, the corporation is engaged in an antitrust suit filed by Pan American Satellite (PanAmSat). 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 for summary judgment directed to dismissal of all claims in the complaint. PanAmSat has opposed the motion. A hearing on the motion was held in a U.S. District Court on August 3, 1995. In the opinion of management, the claims are without merit, and the ultimate disposition of this matter will not have a material effect on the corporation's financial statements. On August 9, 1994, COMSAT, the Denver Nuggets and The Anschutz Corporation ("Anschutz") signed a letter, expressly stated as not legally binding, setting forth certain elements regarding the proposed joint development of an arena in downtown Denver. In September 1995, Anschutz notified COMSAT that it was severing its relationship with the arena development, based upon Anschutz's contention that COMSAT breached its obligations under the letter, including COMSAT's alleged failure to honor an option for Anschutz to acquire 50% of the Colorado Avalanche (discussed above in Note 5). COMSAT has denied that it has breached any obligations to Anschutz and, in particular, has denied the existence of an enforceable option to acquire 50% of the Avalanche. COMSAT and Anschutz are continuing to discuss whether there is a mutually acceptable resolution to the dispute. However, if the parties fail to reach such a resolution, Anschutz has stated that it would bring suit against COMSAT. If such litigation is filed, COMSAT believes that it would be without merit and would contest it vigorously. The corporation believes that the ultimate disposition of this matter will not have a material adverse impact on the corporation's financial statements. 11. Ascent Entertainment Group, Inc. In August 1995, the corporation increased its ownership percentage in OCV to approximately 85% through the contribution to OCV of substantially all of the corporation's other hotel in-room entertainment assets. In 1995, COMSAT formed Ascent Entertainment Group, Inc. (AEG) (formerly COMSAT Entertainment Group, Inc.) and contributed 100% of the stock of COMSAT Video Enterprises, Inc. to AEG. AEG includes all of the corporation's businesses reported in the Entertainment segment. In October 1995, AEG filed a registration statement with the Securities and Exchange Commission for an initial public offering of its common stock. The preliminary registration statement calls for an offering of approximately $80 million in common stock, plus an over-allotment option. Following the completion of the offering, COMSAT would continue to own at least 80 percent of AEG. The offering is expected to be completed in the fourth quarter of 1995. Prior to the public offering, AEG plans to borrow approximately $140 million in a combination of short-term and long-term debt under a bank credit facility. AEG will use these proceeds to repay an intercompany note payable to COMSAT. COMSAT will use the majority of these proceeds to repay its commercial paper and for general corporate purposes. The proceeds of the public offering will be used to repay some of the AEG debt. The balance of the AEG debt will be included in COMSAT's consolidated balance sheet. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1995 ANALYSIS OF OPERATIONS Consolidated Operations Consolidated revenues for the third quarter of 1995 were $203.9 million, an increase of $3.1 million over last year's third quarter. The International Communications and Entertainment segments reported solid growth in revenues whereas Mobile Communications segment and Technology Services segment revenues fell from last year's third quarter. Year-to-date revenues were $622.6 million, an increase of $13.5 million over the same period last year. The International Communications and Entertainment segments reported revenue growth during this period, whereas the Mobile Communications and Technology Services segments reported lower revenues than last year. Revenues for the second quarter of 1995 included the corporation's $8.8 million share of National Basketball Association expansion fees. Last year's second quarter revenues included $4.8 million of business interruption insurance income as discussed in Note 15 to the 1994 financial statements. As discussed in Note 9 to the accompanying financial statements, the corporation took actions to restructure elements of all its business units and recorded a $20.0 million restructuring provision in the third quarter of 1995. This provision included $4.7 million for employee severance costs, $10.5 million to write down property and inventory to net realizable value and $4.8 million for costs related principally to settling contractual commitments that will not be fulfilled. The third quarter and first nine months of 1994 included charges totaling $0.5 million and $4.7 million, respectively, for merger and integration costs related to the merger with Radiation Systems, Inc. Absent the restructuring provision in 1995 and the merger costs in 1994, operating income for the third quarter of 1995 decreased $21.2 million from the third quarter of 1994. All segments reported lower operating income this year. The results were exacerbated by certain charges to operating expenses totaling $7.3 million in this year's third quarter. These charges include $4.6 million in COMSAT International Ventures for its majority-owned business, Belcom, primarily to write off uncollectible customer receivables, for costs related to a reorganization of its operations and for other costs. The Entertainment segment results include $1.3 million in charges primarily to increase its allowance for uncollectible accounts related to the decision to discontinue the Satellite Cinema business as discussed in Note 9 to the accompanying financial statements. The Technology Services segment results include $1.4 million in charges primarily to adjust certain inventory to its estimated realizable value. Operating income for the first nine months of 1995, excluding this year's restructuring provision and last year's merger costs, decreased $29.6 million as compared to the same period last year. The Mobile Communications segment reported growth in operating income, whereas the other segments reported lower results this year. As discussed above, this year's third quarter includes $7.3 million of other charges. The NBA expansion revenues in this year's second quarter contributed directly to operating income as there were no related operating expenses. This year's second quarter also included a $3.3 million credit for Inmarsat-related costs which were over-accrued during 1994 and the first quarter of 1995 and a $2.7 million benefit plan curtailment gain resulting from the reduction of pension benefits and the elimination of postretirement health care benefits for a group of employees. Net interest and other income (expense) declined $7.2 million in the third quarter of 1995 and $6.1 million in the first nine months of 1995 as compared to the same periods last year. As discussed in Note 7 to the accompanying financial statements, a newly established affiliate of the corporation issued $200.0 million of preferred securities in July 1995. The dividends on these securities, which totaled $3.3 million in this year's third quarter, are recorded as minority interest expense in COMSAT's consolidated financial statements and are included in the "Other income (expense)" line on the income statement. This year's third quarter includes the corporation's share of an increase in allowance for uncollectible receivables totaling $2.2 million for an investment accounted for under the equity method (Philcom). Additionally, this year's third quarter includes accruals totaling $1.5 million primarily to write off costs incurred in connection with a business venture which will not be pursued. The corporation sold its interest in a communications venture in Chile in the first quarter of this year and recognized a $2.0 million gain. This year's first quarter also included a $0.9 million accrual for a judgment in a lawsuit brought by a former employee of a subsidiary of the corporation. Net interest expense for the third quarter increased $3.0 million over last year's third quarter, and year-to-date net interest expense increased $11.1 million over the first nine months of 1994. These increases are due to increases in borrowings and interest rates and lower capitalized interest. The corporation's borrowings have grown to meet capital expenditure and investment requirements. Interest capitalized, primarily on satellite construction projects, has declined due to the completion of several INTELSAT satellites in the second half of 1994 and the first nine months of 1995. The tax provision for the third quarter of 1995 reflects an increase in the corporation's effective tax rate for the year. In accordance with accounting requirements, the retroactive adjustment for the increased tax rate related to the results for the first half of the year has also been recorded in the third quarter tax provision. The effective tax rate increased primarily due to higher non-deductible losses from foreign ventures. Segment Operating Results As discussed in Note 15 to the 1994 financial statements, the corporation reports operating results in four segments: International Communications, Mobile Communications, Entertainment and Technology Services. The method of allocating indirect corporate costs was changed in 1995. Segment operating results for 1994 have been restated for this change. Results by Segment (in millions):
Quarter Ended Nine Months Ended September 30, September 30, ---------------------------- ----------------------------- 1995 1994 1995 1994 REVENUES International Communications $ 72.6 $ 67.2 $ 214.4 $ 195.0 Mobile Communications 47.5 51.3 140.7 141.4 Entertainment 37.6 33.0 134.3 111.9 Technology Services 50.9 53.7 145.8 170.6 Eliminations and other (4.7) (4.4) (12.6) (9.8) ----------- ----------- ----------- ----------- Total revenues $ 203.9 $ 200.8 $ 622.6 $ 609.1 =========== =========== =========== =========== OPERATING INCOME (LOSS) International Communications $ 19.8 $ 25.9 $ 66.1 $ 76.3 Mobile Communications 13.3 15.2 43.5 37.7 Entertainment (6.4) 3.6 (3.3) 11.6 Technology Services 0.6 3.9 9.7 18.5 ----------- ----------- ----------- ----------- Total segment operating income 27.3 48.6 116.0 144.1 Merger and integration costs 0.0 (0.5) 0.0 (4.8) Provision for restructuring (20.0) 0.0 (20.0) 0.0 Other corporate (6.7) (6.7) (20.7) (19.1) ----------- ----------- ----------- ----------- Total operating income $ 0.6 $ 41.4 $ 75.3 $ 120.2 =========== =========== =========== ===========
International Communications The International Communications segment includes the results of COMSAT World Systems (CWS) and COMSAT International Ventures (CIV). CWS's third quarter revenues decreased $0.7 million over last year's third quarter as a result of revenue declines associated with the conversion of carrier analog circuits to digital circuits and rate reductions, which were nearly offset by higher private line digital circuit growth and higher INTELSAT system revenues. Year-to-date revenues increased $2.4 million over the same period last year primarily due to a strong increase in very small aperture terminal (VSAT) network leases and continued growth in INTELSAT system revenues. CIV's revenues increased by $6.0 million for the third quarter and $17.0 million for the first nine months of 1995 because of growth in ventures in Latin America, as well as the inclusion of revenues related to Belcom, a venture in the Commonwealth of Independent States (CIS), which was not consolidated until the fourth quarter of last year. Operating income for the segment declined $6.1 million for the third quarter and $10.2 million for the first nine months as compared to the same periods last year. These decreases are primarily attributable to the consolidation of Belcom's operating losses in 1995. Operating results for CWS have remained relatively even with last year. The increase in depreciation expense due to the recent launches of INTELSAT satellites has been offset somewhat by the effects of operating cost control measures and by lower legal expenses. Mobile Communications COMSAT Mobile Communications (CMC) third quarter revenues were $3.8 million below the same quarter in 1994. This decrease was caused by the shift of traffic from higher priced analog services to lower priced digital services. In addition, the third quarter 1994 results included revenues from mobile terminals deployed in Haiti during that country's period of unrest. For the first nine months of 1995, revenues were slightly below the same period in 1994. Growth primarily in Inmarsat C data services and digital telephone services partially offset decreases in analog services. Third quarter operating income decreased $2.0 million as compared to the same quarter in 1994. This was primarily caused by the increase in time revenues in 1994 that were associated with the unrest in Haiti and by lower revenues related to the transition of analog to digital services. Year-to-date operating income increased $5.7 million over the same period last year due in part to the reversal in this year's second quarter of an over-accrual in 1994 of Inmarsat-related costs. CMC also benefited from its increased ownership share of Inmarsat from 22.4% in December 1994 to 24.0% as of September 30, 1995. Entertainment Third quarter revenues increased $4.6 million and year-to-date revenues were up $22.4 million as compared to the same periods in 1994. The quarter and year-to-date revenues improved primarily because of the increase in the number of hotel rooms installed with the On Command Video (OCV) system. Additionally, revenues were up from Beacon Communications as they were not included in the corporation's consolidated financials until December 1994. The year-to-date results also include revenues of $8.8 million for the corporation's share of NBA expansion fees in the second quarter of 1995. The revenue improvements were partially offset by reduced revenues from the NBC television distribution contract, which has entered the option period, and a decreased number of Satellite Cinema hotel rooms this year. Operating income was down $10.0 million for the third quarter and $14.9 million for the first nine months of 1995 as compared to the same periods last year. For the quarter and year-to-date periods the decrease in operating income was related to losses resulting from declining revenues from the Satellite Cinema business, which will end operations by year end, and lower margins associated with the option phase of the NBC contract offset in part by the growth in the number of higher margin on-demand hotel rooms installed with the OCV system. Additionally, the decrease in operating income includes operating losses related to Beacon Communications and the Colorado Avalanche which were not included in the comparative 1994 financial results. Beacon was acquired in December 1994 and the Colorado Avalanche was acquired in July 1995 (see Note 5 to the accompanying financial statements). For the year-to-date period, these decreases were partially offset by the $8.8 million related to the NBA expansion fees. Technology Services Revenues for the Technology Services segment declined $2.8 million in the third quarter of 1995 and $24.8 million in the first nine months of 1995 as compared to the same periods last year. Revenues increased this year from satellite services for classified government users, from earth station component sales and from two acquisitions: a VSAT manufacturer (Intelesys) and a manufacturer of low-cost cellular switch and base station equipment for emerging wireless markets (Plexsys). These revenue improvements were more than offset by the lack of recurring revenues from several large international and U.S. Government projects which were completed in 1994 and delays in sales of microwave and cellular antennas. Additionally, the year-to-date revenue decline also reflects a $4.8 million insurance settlement recorded in the second quarter of 1994. Operating income was down $3.3 million and $8.7 million for the third quarter and first nine months of 1995, respectively, as compared to the same periods last year. These declines were primarily due to lower revenues and to new product development costs associated with the newly acquired businesses referred to above. Additionally, operating income for this year includes a $2.7 million credit recorded in the second quarter for a benefit plan curtailment gain related to the reduction of pension benefits and the elimination of postretirement health care benefits for a group of employees. Outlook CWS results are expected to remain steady for the remainder of 1995. CIV will concentrate primarily on the growth of its existing ventures. CIV expects to continue to incur losses for the remainder of 1995, primarily due to losses from its investment in Belcom and other start-up ventures. Competition in the Mobile Communications analog and digital telephone markets remains strong. This segment is expected to show some improvement in operating results in this year's fourth quarter. Progress continues as planned for the new "Planet-1" digital mobile terminal which is scheduled for introduction during the second half of 1996. The costs to be incurred in 1996 associated with the introduction of the "Planet-1" service are expected to exceed revenues from this service next year. In the Entertainment segment, OCV backlog at the end of the third quarter was approximately 116,000 rooms, and installation of systems is expected to continue at about 10,000 rooms per month. Satellite Cinema is planning to discontinue its scheduled movie operations by year-end 1995 with conversion of some of its remaining rooms to on-demand services. Ticket sales and other revenues from the Colorado Avalanche are expected to make a significant contribution to the Entertainment segment's revenues; however, the revenue improvements will be exceeded by operating expenses and the amortization of franchise acquisition costs. As a result of the operating losses expected to be incurred by the Avalanche and Beacon, COMSAT expects operating losses in the Entertainment segment through the end of 1995 and in 1996. As discussed in Note 11 to the accompanying financial statements, in October 1995, the corporation's wholly owned subsidiary, Ascent Entertainment Group, Inc. (AEG), filed a registration statement with the Securities and Exchange Commission for an initial public offering of its stock. Following the completion of the offering, COMSAT will continue to own at least 80% of AEG and will continue to consolidate its financial results. In the Technology Services segment, the corporation has been successful in winning new contracts this year and expects to continue to build its contract backlog throughout the rest of the year. CRSI backlog rose to $202.7 million at September 30, 1995, as compared with $194.8 million at June 30, 1995, and as compared with $149.7 million at September 30, 1994. The corporation expects some improvement in operating results in this segment in the fourth quarter. On a consolidated basis, the corporation expects only slight improvement in earnings in this year's fourth quarter as compared to the third quarter results absent the restructuring provision and other charges. Additionally, consolidated net income is not expected to improve in 1996 versus 1995. These trends are based on the anticipated lack of significant improvement in segment results compounded by the costs of increased borrowings. The corporation expects a significant increase in interest expense in 1996 due to increased borrowings primarily for capital expenditure requirements. The corporation also expects that the amount of interest capitalized next year will decrease significantly as compared to this year as a result of placing several new satellites in service in 1996. LIQUIDITY AND CAPITAL RESOURCES The primary sources of cash in the first nine months of 1995 were operations, borrowings, proceeds from preferred securities issued by an affiliate and proceeds from the decrease in INTELSAT ownership. Cash was expended primarily for property and equipment, acquisition of a National Hockey League franchise, investments in businesses, acquisition of additional Inmarsat ownership, repayment of short-term and long-term debt and quarterly dividends. The corporation's working capital deficit of $18.8 million at December 31, 1994 improved to positive working capital of $103.1 million at September 30, 1995. This improvement is primarily due to the repayment of commercial paper borrowings with the proceeds of the MIPS discussed below. In July 1995, COMSAT Capital I, L.P. issued $200 million of Monthly Income Preferred Securities (MIPS). COMSAT Capital I, L.P. is a limited partnership formed for the sole purpose of issuing the MIPS and loaning the proceeds to COMSAT, the managing general partner. The MIPS were issued at a par value of $25 per share with an annual dividend rate of 8.125%. The MIPS are callable by the issuer after July 2000 at par value. The proceeds of the MIPS were loaned to COMSAT under the terms of an 8.125%, 30-year subordinated debenture agreement. This agreement allows COMSAT to extend the maturity of the debentures until 2044, provided that COMSAT satisfies certain financial covenants. The proceeds were used to repay commercial paper borrowings and the $75 million bank loan incurred in the acquisition of the Colorado Avalanche. In February 1995, INTELSAT issued $200.0 million of 8.125% notes. The corporation has recorded its share of these notes as long-term debt. The corporation received approximately $20.1 million of its share of the proceeds and used this amount to repay commercial paper. The balance of the proceeds was retained by INTELSAT for the corporation's share of satellite construction costs. As discussed in Note 7 to the 1994 financial statements and in Note 6 to the accompanying financial statements, the corporation has a $100 million "medium-term note program." The corporation has issued $74.0 million of notes under this program. The proceeds of these notes have been used to repay commercial paper. As discussed in Note 11 to the accompanying financial statements, the corporation's subsidiary, Ascent Entertainment Group, plans to issue a combination of short-term and long-term debt totaling $140 million during the fourth quarter of 1995 to repay a note payable to COMSAT and to issue approximately $80 million in common stock in a public offering. The proceeds of the public offering will be used to repay some of the newly issued debt and the balance of these new borrowings are expected to be outstanding at the end of this year. These borrowings, in addition to commercial paper borrowings available to the corporation, are expected to meet the corporation's cash requirements in the short-term. Moody's Investors Service has placed COMSAT Corporation's debt rating under review for possible downgrade as a result of the corporation's third quarter operating results. If downgraded, the corporation may be subject to higher interest rates on future borrowings. Standard and Poor's has not taken a similar action. The corporation has access to short-term and long-term financing at favorable rates. The corporation's borrowing activities are regulated by the Federal Communications Commission (FCC). As of September 30, 1995, the corporation had $6.0 million in commercial paper borrowings under a $200 million commercial paper program. The corporation is reviewing financing alternatives to ensure that it will meet anticipated cash requirements throughout 1996 consistent with the FCC's regulation of the corporation's capital structure. Part II OTHER INFORMATION Item 1. Legal Proceedings See Note 10 on page 7 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 None 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 (i) Press releases dated September 27, 1995, announcing (1) that the corporation's expected third quarter operating results and charges related to a restructuring of its business units and other accruals, and (2) that the corporation intends to continue its efforts to build a new arena in downtown Denver, notwithstanding the decision by The Anschutz Corporation to terminate its relationship with COMSAT to build the Pepsi Center. 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/ Allen E. Flower --------------------------------- Allen E. Flower Controller Date: November 13, 1995 EXHIBIT INDEX Exhibit No. Description 11 Computation of Earnings Per Share 27 Financial Data Schedule
Exhibit 11 COMSAT CORPORATION AND SUBSIDIARIES Computation of Earnings Per Share (In thousands, except per share amounts) Quarter Ended Nine Months Ended September 30, September 30, --------------------------------- --------------------------------- 1995 1994 1995 1994 PRIMARY Earnings (loss) $ (15,623) $ 21,398 $ 20,962 $ 63,196 ============== ============= ============= ============= Shares: Weighted average number of common shares outstanding 47,457 46,650 47,208 46,538 Add shares issuable from assumed exercise of options - 806 732 776 -------------- ------------- ------------- ------------- Weighted average shares 47,457 47,456 47,940 47,314 ============== ============= ============= ============= Primary earnings (loss) per share $ (0.33) $ 0.45 $ 0.44 $ 1.34 ============== ============= ============= ============= ASSUMING FULL DILUTION Earnings (loss) $ (15,623) $ 21,398 $ 20,962 $ 63,196 ============== ============= ============= ============= Shares: Weighted average number of common shares outstanding 47,457 46,650 47,208 46,538 Add shares issuable from assumed exercise of options - 827 855 850 -------------- ------------- ------------- ------------- Weighted average shares 47,457 47,477 48,063 47,388 ============== ============= ============= ============= Fully diluted earnings (loss) per share $ (0.33) $ 0.45 $ 0.44 $ 1.33 ============= ============= ============= ============
EX-27 2 ART. 5 FDS FOR 3RD QUARTER 10-Q
5 This schedule contains summary financial information extracted from the financial statements for the quarter ended September 30, 1995 and is qualified in its entirety by reference to such financial statements. 9-MOS 3-MOS DEC-31-1995 DEC-31-1995 SEP-30-1995 SEP-30-1995 16,522 16,522 0 0 214,994 214,994 0 0 27,916 27,916 305,543 305,543 2,611,124 2,611,124 1,109,194 1,109,194 2,157,850 2,157,850 202,407 202,407 594,357 594,357 320,614 320,614 0 0 0 0 511,155 511,155 2,157,850 2,157,850 0 0 622,586 203,894 0 0 347,628 121,195 199,634 82,071 0 0 29,626 10,377 42,388 (15,831) 21,426 (208) 20,962 (15,623) 0 0 0 0 0 0 20,962 (15,623) 0.44 (0.33) 0.44 (0.33)
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