SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 16, 1994
COMSAT Corporation
(Exact name of Registrant as specified in Charter)
District of Columbia 1-4929 52-0781863
- ---------------------------- ----------- ---------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation File Number) Identifi-
cation Number)
6560 Rock Spring Drive, Bethesda, MD 20817
------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
Registrant s telephone number, including area code: (301) 214-3000
___________________________________________________________
(Former name or former address, if changed since last report)
PAGE 1
<PAGE>
Item 7. Financial Statements and Exhibits
(a) Financial Statements
1. Consolidated Financial Statements of COMSAT
Corporation
a. Independent Auditors Report
b. Consolidated Financial Statements of
COMSAT Corporation and Subsidiaries
(i) Consolidated Income Statements for
the Years Ended December 31, 1993,
1992 and 1991.
(ii) Consolidated Balance Sheets as of
December, 31, 1993, 1992 and 1991.
(iii) Consolidated Cash Flow
Statements for the Years Ended
December 31, 1993, 1992 and 1991.
(iv) Statements of Changes in
Consolidated Stockholders' Equity
for the Years Ended December 31,
1993, 1992 and 1991.
(v) Notes to Consolidated Financial
Statements for Each of the Three
Years in the Period Ended December
31, 1993.
PAGE 2
<PAGE>
INDEPENDENT AUDITORS REPORT
To the Shareholders of
COMSAT Corporation:
We have audited the accompanying consolidated balance sheets of
COMSAT Corporation and its subsidiaries as of December 31, 1993,
1992 and 1991 and the related consolidated statements of income,
cash flow and changes in stockholders equity for the years then
ended. These financial statements are the responsibility of the
Corporation s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
standards. 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, such consolidated financial statements present
fairly, in all material respects, the financial position of the
Corporation and its subsidiaries at December 31, 1993, 1992 and
1991 and the results of their operations and their cash flows for
the years then ended in conformity with generally accepted
accounting principles.
As discussed in Note 10 to the consolidated financial statements,
in 1991 the Corporation changed its method of accounting for
postretirement health and life insurance benefits to conform
with Statement of Financial Accounting Standards No. 106. Also,
as discussed in Note 11 to the consolidated financial statements,
in 1993 the Corporation changed its methods of accounting for
income taxes to conform with Statement of Financial Accounting
Standards No. 109.
DELOITTE & TOUCHE
Washington, D.C.
February 16, 1994
PAGE 3
<PAGE>
COMSAT CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
For the Years Ended December 31, 1993, 1992, and 1991
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Revenues $ 640,390 $ 563,615 $ 522,850
---------- ---------- ----------
Operating Expenses:
Cost of Services 328,727 272,351 245,187
Depreciation and Amortization 138,359 127,337 110,260
Research and Development 13,387 15,293 17,548
General and Administrative 21,819 21,168 22,382
Provision for Restructuring - 38,961 -
---------- ---------- ----------
Total Operating Expenses 502,292 475,110 395,377
---------- ---------- ----------
Operating Income 138,098 88,505 127,473
Other Income (Expense), Net 8,310 3,138 (6,407)
Interest Income 997 811 1,641
Interest Cost (45,117) (46,172) (46,941)
Interest Capitalized 22,197 20,481 27,307
---------- ---------- ----------
Income Before Taxes and Cumulative
Effect of Accounting Changes 124,485 66,763 103,073
Income Tax Expense (50,441) (23,839) (31,649)
---------- ---------- ----------
Income Before Cumulative
Effect of Accounting Changes 74,044 42,924 71,424
Cumulative Effect of Accounting Change for
Postretirement Benefits, net of $13,707
tax - - (26,607)
Cumulative Effect of Accounting Change for
Income Taxes 1,238 - -
---------- ---------- ----------
Net Income $ 75,282 $ 42,924 $ 44,817
========== ========== ==========
Earnings Per Share:
Primary:
Before Cumulative Effect of Accounting $ 1.82 $ 1.09 $ 1.88
Cumulative Effect of Accounting Changes 0.03 - (0.70)
---------- ---------- ----------
Net Income $ 1.85 $ 1.09 $ 1.18
========== ========== ==========
Fully Diluted:
Before Cumulative Effect of Accounting $ 1.82 $ 1.09 $ 1.80
Cumulative Effect of Accounting Changes 0.03 - (0.63)
---------- ---------- ----------
Net Income $ 1.85 $ 1.09 $ 1.17
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
PAGE 4
<PAGE>
COMSAT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993, 1992, and 1991
(In thousands)
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 8,794 $ 3,857 $ 6,868
Receivables 143,347 135,558 109,359
Deferred Income Taxes 8,769 12,322 11,502
Other 17,572 13,477 8,419
----------- ----------- -----------
Total Current Assets 178,482 165,214 136,148
----------- ----------- -----------
Property and Equipment 1,308,167 1,244,947 1,171,594
Investments 19,493 14,838 31,256
Goodwill 30,778 22,733 -
Franchise Rights 41,084 43,049 -
Other Assets 74,511 52,062 30,548
----------- ----------- -----------
Total Assets $ 1,652,515 $ 1,542,843 $ 1,369,546
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current Maturities of Long-
Term Obligations $ 74,904 $ 1,506 $ 94,305
Commercial Paper 43,233 47,795 -
Accounts Payable and Accrued
Liabilities 97,329 77,803 52,818
Due to Related Parties 56,601 34,101 26,089
Accrued Interest 5,231 5,746 13,262
Income Taxes Payable 542 2,570 4,636
----------- ----------- -----------
Total Current Liabilities 277,840 169,521 191,110
----------- ----------- -----------
Long-Term Debt 402,402 486,383 382,764
Deferred Income Taxes 79,990 61,513 57,013
Deferred Investment Tax Credits 22,151 27,201 29,912
Accrued Postretirement Benefit Costs 50,014 47,053 40,346
Other Long-Term Liabilities 119,393 115,843 83,415
Commitments and Contingencies
(Notes 6,7 and 14) - - -
Minority Interest 21,373 14,197 -
Stockholders' Equity:
Common Stock, without par value,
100,000 shares authorized,
40,226 shares outstanding in 1993,
39,317 in 1992 and 38,092 in 1991 281,371 268,334 256,425
Preferred Stock 5,000 shares
authorized, no shares issued
or outstanding - - -
Retained Earnings 421,833 376,128 360,331
Treasury Stock, at cost,
1,348 shares in 1993,
2,103 in 1992 and 3,162
in 1991 (13,311) (20,433) (29,842)
Unearned Compensation,
Key Employee Stock Plan (8,240) (2,897) (1,928)
Minimum Pension Liability (2,301) - -
----------- ----------- -----------
Total Stockholders' Equity 679,352 621,132 584,986
----------- ----------- -----------
Total Liabilities and
Stockholders' Equity $ 1,652,515 $ 1,542,843 $ 1,369,546
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial
PAGE 5
<PAGE>
COMSAT CORPORATION AND SUBSIDIARIES
STATEMENTS OF CHANGES IN CONSOLIDATED STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1993, 1992, and 1991
(In thousands)
<TABLE>
<CAPTION> Unearned
Minimum Compensation,
Shares Shares Common Retained Treasury Pension Key Employee
Issued Outstanding Stock Earnings Stock Liability Stock Plan
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1990 41,029 37,597 $ 251,459 $ 340,827 $ (32,386) $ 0 $ (1,836)
Net Income 44,817
Cash Dividends
($0.67 per share) (25,313)
Exercise of Stock Options
and Restricted Stock Units 136 477 1,279
Stock Options and Restricted
Stock Awarded 134 2,481 1,265 (3,746)
Amortization of Key
Employee Stock
Plan Expense 3,654
Shares Issued Under
Employee Stock
Purchase Plan 225 225 2,008
-------- -------- -------- -------- -------- ------- --------
Balance at
December 31, 1991 41,254 38,092 256,425 360,331 (29,842) 0 (1,928)
Net Income 42,924
Cash Dividends
($0.70 per share) (27,127)
Exercise of Stock Options
and Restricted Stock Units 991 5,067 8,789
Stock Options and Restricted
Stock Awarded 68 4,278 620 (4,898)
Amortization of Key
Employee Stock
Plan Expense 3,929
Shares Issued Under
Employee Stock
Purchase Plan 166 166 2,564
-------- -------- -------- -------- -------- ------- --------
Balance at
December 31, 1992 41,420 39,317 268,334 376,128 (20,433) 0 (2,897)
Net Income 75,282
Cash Dividends
($0.74 per share) (29,577)
Exercise of Stock Options
and Restricted Stock Units 407 1,018 3,810
Restricted Stock Awarded 348 5,322 3,312 (8,634)
Amortization of Key
Employee Stock
Plan Expense 3,291
Shares Issued Under
Employee Stock
Purchase Plan 154 154 3,153
Tax Benefit on Exercise
of Stock Options 3,544
Minimum Pension
Liability Adjustment (2,301)
Balance at -------- -------- -------- -------- ------- ------- --------
December 31, 1993 41,574 40,226 $281,371 $421,833 $(13,311) $(2,301) $ (8,240)
</TABLE>
The accompanying notes are an integral part of these financial statements.
PAGE 6
<PAGE>
COMSAT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENTS
For the Years Ended December 31, 1993, 1992, and 1991
(In thousands)
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 75,282 $ 42,924 $ 44,817
Adjustments for Noncash Expenses:
Depreciation and Amortization 138,359 127,337 110,260
Cumulative Effect of Accounting Changes, (1,238) - 26,607
Provision for Restructuring - 38,961 -
Changes in Operating Assets and Liabilities:
Receivables and Other Current Assets (10,918) (31,266) 9,887
Current Liabilities 37,552 (7,835) 13,805
Non-current Liabilities 26,196 44,508 34,545
Other (5,528) 2,485 15,862
---------- ---------- ----------
Net Cash Provided by Operating Activities 259,705 217,114 255,783
---------- ---------- ----------
Cash Flows from Investing Activities:
Purchase of Property and Equipment (230,241) (219,468) (257,976)
Decrease in INTELSAT Ownership 16,442 19,760 17,582
Decrease (Increase) in Inmarsat Ownership 4,771 886 (42)
Investments in Unconsolidated Businesses (13,737) (10,268) (21,335)
Purchase of Minority Shares of Subsidiaries (12,606) - -
Purchase of Subsidiaries, net of $11,655
cash acquired - (5,321) -
Other 508 (7,452) (4,489)
---------- ---------- ----------
Net Cash Used in Investing Activities (234,863) (221,863) (266,260)
---------- ---------- ----------
Cash Flows from Financing Activities:
Common Stock Issued 7,952 16,420 3,764
Proceeds from Issuance of Subsidiary's
Common Stock 11,582 - -
Cash Dividends Paid (29,577) (27,127) (25,313)
Proceeds from Issuance of Long-term Debt 32,745 201,454 75,000
Repayment of Long-term Debt (38,045) (232,439) (1,366)
Net Short-term Borrowings (Repayments) (4,562) 43,642 (36,247)
Other - (212) (850)
---------- ---------- ----------
Net Cash Provided by (Used for) Financing
Activities (19,905) 1,738 14,988
---------- ---------- ----------
Net Increase (Decrease) in Cash and
Cash Equivalents 4,937 (3,011) 4,511
Cash and Cash Equivalents, Beginning of Year 3,857 6,868 2,357
---------- ---------- ----------
Cash and Cash Equivalents, End of Year $ 8,794 $ 3,857 $ 6,868
========== ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest Paid, net of amount capitalized $ 25,332 $ 29,678 $ 19,145
Income Taxes Paid $ 22,074 $ 21,180 $ 14,206
Noncash Financing of Inmarsat Satellites $ 6,200 $ 12,480 $ 24,268
</TABLE>
The accompanying notes are an integral part of these financial statements.
PAGE 7
<PAGE>
COMSAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED DECEMBER 31, 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies that have guided the
preparation of these financial statements are:
Principles of Consolidation
Accounts of COMSAT Corporation and its majority-owned
subsidiaries (the corporation) have been consolidated.
Significant intercompany transactions have been eliminated.
The corporation has consolidated its share of the accounts
of the International Telecommunications Satellite
Organization (INTELSAT), Inmarsat and the MARISAT Joint
Venture (MARISAT). The corporation's ownership interests in
INTELSAT and Inmarsat are based primarily on the
corporation's usage of these systems. As of December 31,
1993, the corporation owned 20.9% of INTELSAT, 23.0% of
Inmarsat and 86.3% of MARISAT.
The corporation's investments in the Denver Nuggets Limited
Partnership (the Nuggets) and On Command Video Corporation
(OCV) (see Note 4) were accounted for using the equity
method until the third quarter of 1992. Since July 1992,
the accounts of these investments have been consolidated in
the accompanying financial statements. The interest of
other shareholders in the net assets of OCV is shown as
Minority Interest in the accompanying balance sheet. The
minority interest share of the net income of OCV, which is
not significant, is included in Other Income (Expense).
Revenue Recognition
Revenue from satellite services is recognized over the
period during which the satellite services are provided.
Revenue from technical and other service contracts is
accounted for using the percentage-of-completion method.
Revenue from other services is recorded as services are
provided.
Income Taxes and Investment Tax Credits
The corporation adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes,"
effective January 1, 1993. This accounting standard
requires the use of the asset and liability approach for
financial accounting and reporting for income taxes.
PAGE 8
<PAGE>
The provision for income taxes includes taxes currently
payable and those deferred because of differences between
the financial statement and tax bases of assets and
liabilities. The corporation has earned investment tax
credits on certain INTELSAT and Inmarsat satellite costs.
These tax credits have been deferred and are being
recognized as reductions to the tax provision over the
estimated service lives of the related assets.
Earnings Per Share
Primary earnings per share are computed using the average
number of shares outstanding during each period, adjusted
for outstanding stock options and restricted stock units.
Fully diluted earnings per share also assume the conversion
of the corporation's convertible debentures, which were
redeemed in March 1992 (see Note 5). The calculation of the
weighted average number of shares outstanding and all per
share amounts have been adjusted for a two-for-one stock
split on June 1, 1993 (see Note 8). The weighted average
number of shares for each year is:
<TABLE>
<CAPTION>
In thousands 1993 1992 1991
--------------------------------------------------
<S> <C> <C> <C>
Primary 40,708 39,347 38,069
Fully Diluted 40,770 40,763 42,767
</TABLE>
Goodwill
The balance sheet includes goodwill related primarily to the
acquisitions of OCV and the Nuggets. Nuggets goodwill is
amortized over 25 years and OCV goodwill is amortized over
15 years. Accumulated goodwill amortization was $2,343,000,
$875,000 and $105,000 at December 31, 1993, 1992 and 1991,
respectively. Net goodwill of $6,740,000 for the Nuggets
and OCV was included in the Investments line on the balance
sheet for 1991 because these investments were accounted for
using the equity method at that time.
Franchise Rights and Other Assets
Franchise rights were recorded in connection with the
consolidation of the Nuggets in 1992 and are being
amortized over 25 years. The amounts shown on the balance
sheets are net of accumulated amortization of $2,955,000 and
$990,000 at December 31, 1993 and 1992, respectively.
The cash surrender values of life insurance policies (net of
loans) totalling $40,849,000, $33,350,000 and $23,419,000 at
December 31, 1993, 1992 and 1991, respectively, are included
in Other Assets. Other Income (Expense) on the income
statement includes the increases in the cash surrender
values of these policies. Additionally, the corporation
recorded income of $4,131,000 ($3,137,000 net of tax) from
the death benefit proceeds of certain policies in 1993.
PAGE 9
<PAGE>
Cash Flow Information
The corporation considers highly liquid investments with a
maturity of three months or less at the time of purchase to
be cash equivalents.
Statement Presentation
Certain prior period amounts have been reclassified to
conform with the current year's presentation.
New Accounting Pronouncements
SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," was issued in May 1993 and must be
adopted by the corporation in 1994. This statement requires
that certain investments in debt or equity securities be
carried on the balance sheet at fair value. The effect of
this statement is not material to the corporation as of
December 31, 1993.
SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," was issued in November 1992 and must be adopted
by the corporation in 1994. This statement requires that
the estimated cost of benefits provided to former or
inactive employees be accrued over the term of their active
service as employees. Although the corporation has not
completed its analysis, the effect of adopting this
statement is not expected to be material.
2. RECEIVABLES
Receivables at each year-end are composed of:
<TABLE>
<CAPTION>
In thousands 1993 1992 1991
-----------------------------------------------------------------
<S> <C> <C> <C>
Billed Customer Receivables $125,027 $118,336 $85,535
Customer Receivables -
Related Parties 3,846 4,736 2,312
Unbilled Customer Receivables 23,204 20,063 28,644
Other 3,304 2,612 1,611
Total 155,381 145,747 118,102
Less Allowance for Doubtful
Accounts (12,034) (10,189) (8,743)
Total $143,347 $135,558 $109,359
======== ======== ========
</TABLE>
Unbilled receivables consist principally of revenues
recorded on long-term contracts, which are billable and
collectible within the next year.
Related party customer receivables are primarily amounts due
from INTELSAT and Inmarsat.
PAGE 10
<PAGE>
3. PROPERTY AND EQUIPMENT
Property and equipment include the corporation's shares of
INTELSAT, Inmarsat and MARISAT property and equipment.
<TABLE>
<CAPTION>
In thousands 1993 1992 1991
-----------------------------------------------------------------
<S> <C> <C> <C>
Property and Equipment
at Cost:
Satellites $1,182,924 $1,116,953 $1,004,344
Furniture, Fixtures
and Equipment 510,387 476,139 407,789
Buildings and Improvements 107,040 80,526 86,879
Land 5,055 4,033 4,108
---------- ---------- ----------
Total 1,805,406 1,677,651 1,503,120
Less Accumulated
Depreciation (836,474) (766,279) (647,013)
Net Property and Equipment
In Service 968,932 911,372 856,107
Property and Equipment Under
Construction:
INTELSAT Satellites 222,223 218,455 221,729
Inmarsat Satellites 66,962 47,284 49,869
Other 50,050 67,836 43,889
---------- ---------- ----------
Total $1,308,167 $1,244,947 $1,171,594
========== ========== ==========
</TABLE>
Depreciation is calculated using the straight-line method
over the estimated service life of each asset. The service
life for satellites and furniture, fixtures and equipment
is 3 to 15 years. The service life for buildings and
improvements is 6 to 40 years.
Costs of satellites which are lost at launch or that fail in
orbit are carried, net of any insurance proceeds, in the
property accounts. The remaining net amounts are
depreciated over the estimated service life of a satellite
of the same series.
4. ACQUISITIONS AND INVESTMENTS
Denver Nuggets Limited Partnership
In November 1989, the corporation acquired a 62.5% interest
in a limited partnership which acquired the Denver Nuggets,
a franchise of the National Basketball Association. In
1991, the corporation acquired an additional interest,
bringing its ownership to 65.3% as of December 31, 1991. In
1992, the corporation acquired the remaining interests in
the partnership. The total cost of this investment was
$71,500,000 including liabilities assumed of $33,900,000.
The partnership's assets, liabilities, revenues and expenses
have been consolidated with the corporation's financial
statements since July 1, 1992. Prior to this date, the
corporation was the majority owner in the partnership, but
was not its managing general partner. Accordingly, the
financial results of the partnership in prior periods were
accounted for using the equity method.
PAGE 11
<PAGE>
The corporation's shares of the partnership's losses
accounted for under the equity method were $6,603,000 in
1991 and $2,857,000 for the first six months of 1992. Had
the financial results been consolidated throughout 1992 or
1991, the effect on the corporation's financial statements
would not have been material.
On Command Video
In 1991, the corporation acquired a 47% interest in On
Command Video Corporation (OCV), a California-based company
that developed and markets a proprietary video entertainment
system to hotels. The corporation purchased additional
shares of OCV stock throughout 1992 and 1993. OCV's
financial statements have been consolidated since the third
quarter of 1992, when the corporation's ownership increased
to 50.4%. The corporation's ownership share was 65.7% at
December 31, 1992 and 73.5% at December 31, 1993. Had the
financial results been consolidated throughout 1992 or 1991,
the effect on the corporation's financial statements would
not have been material. The total cost of the corporation's
investment in OCV was $77,282,000 as of December 31, 1993.
Rock Spring II Limited Partnership
The corporation entered into a limited partnership to
build and lease a new headquarters facility. The
corporation holds a 50% interest in the partnership,
primarily as a limited partner. The managing general
partner, a regional real estate investment company, owns the
remaining 50% interest in the partnership. An affiliate of
the managing general partner owns the building site and has
leased this site to the partnership.
The corporation relocated its headquarters operations to the
new building during the second quarter of 1993. The
corporation has entered into a 15-year lease with the
partnership for the building starting April 1993 (see Note 6).
The partnership borrowed $27,000,000 in the form of a 26-year
mortgage at a fixed interest rate of 9.45% to cover
construction costs. As of December 31, 1993, the
corporation has guaranteed repayment of this loan. The
corporation's guarantee will be reduced to $2,700,000 after
satisfaction of certain contractual requirements which are
expected to be completed in 1994. Subsequently, the
corporation's guarantee will be reduced as the principal
balance is paid down and completely eliminated once the
outstanding loan balance is less than $24,300,000.
5. DEBT
The corporation, as regulated by the Federal Communications
Commission (FCC), is allowed to undertake long-term
borrowings of up to 45% of its total capital (long-term debt
plus equity) and $200,000,000 in short-term borrowings.
PAGE 12
<PAGE>
Commercial Paper
The corporation has a $125,000,000 commercial paper program.
Throughout 1993, 1992 and 1991, the corporation issued
short-term commercial paper with repayment terms of 90 days
or less. The corporation had $43,233,000 and $47,795,000 in
borrowings outstanding at December 31, 1993 and December 31,
1992, respectively. There were no short-term borrowings
outstanding at December 31, 1991.
Credit Facilities
The corporation has a $200,000,000 revolving credit
agreement which will expire in December 1998. There have
been no borrowings under this agreement.
Long-Term Debt
Long-term debt at each year-end consists of:
<TABLE>
<CAPTION>
In thousands 1993 1992 1991
-----------------------------------------------------------------
<S> <C> <C> <C>
8.125% Notes Due 2004 $160,000 $160,000 $ -
8.95% Notes Due 2001 75,000 75,000 75,000
7.375% INTELSAT Eurobonds
Due 2002 41,793 43,685 -
6.75% INTELSAT Eurobonds
Due 2000 31,344 - -
9.55% Notes Due 1994 - 100,000 100,000
7.75% Debentures - - 110,000
Inmarsat Financing Obligations 94,959 102,346 91,193
Other, net of discounts on
notes payable (694) 5,352 6,571
-------- -------- --------
Total $402,402 $486,383 $382,764
======== ======== ========
</TABLE>
The corporation redeemed its 11.625% debentures
($92,935,000) in March 1992, using cash on hand and
commercial paper proceeds. In April 1992, the corporation
issued $160,000,000 of 8.125% debentures due April 1, 2004.
The corporation used $110,000,000 of the proceeds to redeem
its 7.75% convertible subordinated debentures in April 1992.
The balance of the proceeds was used to repay outstanding
commercial paper borrowings.
In August 1992, INTELSAT issued $200,000,000 of 7.375%
Eurobonds. Interest is payable annually in August, and the
bonds are due August 6, 2002. The corporation received its
share of the proceeds and recorded long-term debt totalling
$43,685,000.
PAGE 13
<PAGE>
In January 1993, INTELSAT issued $150,000,000 of 6.75%
Eurobonds. Interest is payable annually in January, and the
notes are due January 19, 2000. The corporation received
its share of the proceeds and recorded long-term debt. The
corporation's share of this debt at December 31, 1993 was
$31,344,000. The corporation prepaid $30,000,000 of its
9.55% notes with the proceeds. The remaining $70,000,000
balance of the 9.55% notes is due in April 1994 and has
been classified as a current liability on the December 31,
1993 balance sheet.
The principal amount of debt (excluding the Inmarsat lease
financing obligation) maturing over the next five years is
$71,204,000 in 1994, $817,000 in 1995, $208,000 in 1996 and
none in 1997 or 1998.
Inmarsat Lease Financing Obligations
Inmarsat borrowed 140,400,000 pounds sterling under a capital
lease agreement to finance the construction of second-
generation Inmarsat satellites. Inmarsat also entered into
another capital lease arrangement to finance the
construction costs of its third-generation satellites. As
of December 31, 1993, 65,500,000 pounds sterling of the
197,000,000 pounds sterling available for this purpose has been
borrowed. The corporation's share of these lease
obligations is included in long-term debt. Inmarsat has
hedged its obligations through various foreign exchange
transactions to minimize the effect of fluctuating interest
and exchange rates (see Note 14).
The corporation's share of the payments under these lease
obligations for each of the next five years from 1994
through 1998 is $9,166,000, $11,486,000, $12,490,000,
$13,637,000 and $14,895,000 and $87,451,000 thereafter.
These payments include interest totalling $50,466,000 and
current maturities of $3,700,000.
6. COMMITMENTS AND CONTINGENCIES
Property and Equipment
As of December 31, 1993, the corporation had commitments to
acquire property and equipment totalling $379,649,000. Of
this total, $353,371,000 is payable over the next three
years. These commitments are related principally to the
purchase of INTELSAT and Inmarsat satellites.
Employment and Consulting Agreements
The Nuggets have employment and consulting agreements with
certain officers, coaches and players. Virtually all of
these agreements provide for guaranteed payments. Other
contracts provide for payments contingent upon the
fulfillment of certain terms and conditions. Amounts
required to be paid under such agreements total $17,682,000
in 1994, $17,906,000 in 1995, $18,243,000 in 1996,
$14,158,000 in 1997, $10,484,000 in 1998 and $4,536,000
thereafter.
PAGE 14
<PAGE>
Leases
As discussed in Note 4, the corporation has a 15-year lease
which started April 1993 on its new headquarters building in
Bethesda, Maryland, and the corporation has a ten-year lease
ending in 1996 on its former headquarters building in
Washington, D.C. The corporation also has leases of other
property and equipment. Annual rent expense was $6,600,000
in 1993, $3,000,000 in 1992 and $2,900,000 in 1991. These
amounts are net of the $3,921,000 annual amortization of the
deferred gain from the sale and leaseback of the Washington,
D.C. building in 1986. Annual rental income from
noncancelable subleases totals approximately $3,800,000.
The corporation's payments under all operating leases for
1994 through 1998 are $12,747,000, $12,418,000, $11,877,000,
$5,186,000, $5,259,000 and thereafter, $45,697,000.
Environmental Issue
The corporation is engaged in a program to monitor a toxic
solvent spill of limited scope that occurred in 1986 at the
site of its former manufacturing subsidiary in California.
The corporation believes that it has complied with
remediation requirements. Management believes that the
corporation has sufficient accruals to cover the monitoring
costs.
7. REGULATORY ENVIRONMENT AND LITIGATION
Regulatory Environment
Under the Communications Act of 1934 and the Satellite Act,
the corporation is subject to regulation by the FCC with
respect to communications services provided through the
INTELSAT and Inmarsat systems and the rates charged for
those services.
In 1993, the FCC initiated an audit of the corporation's
role as the United States signatory to Inmarsat and as a
provider of international mobile satellite services. In the
opinion of management, the ultimate outcome of the audit will
not have a material effect on the accompanying financial
statements.
Until 1985, the corporation was, with minor exceptions, the
sole United States provider of international satellite
communications services using the INTELSAT system. Since
then, the FCC has authorized several international satellite
systems separate from INTELSAT. These U.S. separate systems
currently compete against the corporation for voice, video
and data traffic. In 1993, the FCC substantially eliminated
prior restrictions on the ability of separate systems to offer
public switched telephony services, thereby potentially
increasing competition to the corporation in the voice
market. The United States government has established a goal
to eliminate all restrictions on competitive systems by
1997.
PAGE 15
<PAGE>
Litigation
In 1989, Pan American Satellite (PanAmSat) filed an
antitrust suit against the corporation alleging interference
with PanAmSat's efforts to compete in the international
satellite communications market and seeking trebled damages
of approximately $1.5 billion. In 1991, a United States Court
of Appeals ruled that the corporation is immune from
antitrust suits in its role as a signatory to INTELSAT. In
February 1992, the United States Supreme Court denied
PanAmSat's request for a review of the lower court's
decision. An amended complaint was filed alleging that the
corporation violated antitrust laws in its business
activities purportedly outside of its role as a signatory to
INTELSAT. In March 1993, a Federal district court denied
the corporation's motion to dismiss the amended complaint
and allowed PanAmSat to proceed with discovery. A U.S.
magistrate has extended the discovery process from November
1993 to June 1994. In February 1994, PanAmSat submitted
a report estimating its alleged damages (before trebling)
at a 1994 present value of $227,436,000. Also in February
1994, PanAmSat filed a motion with the district court for
acceptance of a third amended and supplemental complaint
that would add 15 new defendants to the suit, primarily as
alleged co-conspirators with the corporation. Generally,
the 15 proposed defendants are international
telecommunications companies or telecommunications entities
owned by foreign governments. The corporation has opposed
the motion which is pending before the court. 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 effect on the corporation's
financial statements.
The corporation is defending an intellectual property
infringement suit brought by Spectradyne, Inc. against its
COMSAT Video Enterprises, Inc. and On Command Video
Corporation subsidiaries. The initial patent claims were
dismissed. However, Spectradyne amended its complaint to
substitute new patent infringement claims along with claims
that the corporation's subsidiaries induced unnamed third
parties to infringe a copyrighted software interface.
Subsequently, Spectradyne further amended its complaint by
substituting direct copyright infringement claims for the
inducement to infringe claims. Spectradyne is seeking
damages in an unspecified amount and injunctive relief. The
corporation believes that these claims are without merit and
that the ultimate disposition of this matter will not have a
material effect on the corporation's financial statements.
8. STOCKHOLDERS' EQUITY
Effective June 1, 1993, the corporation's Articles of
Incorporation were amended to increase the number of
authorized shares of the corporation's common stock from
40,000,000 shares to 100,000,000 shares and to split each
share of common stock outstanding on June 1, 1993 into two
shares of common stock. Earnings per share and share
amounts for all prior periods have been restated to reflect
this stock split. The corporation's Articles of
Incorporation were also amended to increase the number of
authorized shares of the corporation's preferred stock from
1,000 shares to 5,000,000 shares and to permit preferred
stock to be convertible into any other class of stock. No
preferred stock is currently outstanding.
PAGE 16
<PAGE>
9. INCENTIVE STOCK PLANS
The corporation has stock plans for officers, directors and
employees. These plans provide for the issuance of
restricted stock awards, stock appreciation rights,
restricted stock units and stock options. Under the
current plans, grants for up to 5,550,000 shares may be
made. As of December 31, 1993, 5,589,000 shares of the
corporation's authorized common stock were reserved for
these plans. As of December 31, 1993, no stock appreciation
rights were outstanding.
Restricted Stock Awards
Restricted stock awards are shares of stock that are subject
to restrictions on their sale or transfer. These
restrictions are lifted over six years. During 1993, 1992
and 1991, respectively, 348,000, 68,000 and 134,000
restricted stock awards were granted, net of awards
forfeited.
Restricted Stock Units
Restricted stock units entitle the holder to receive a
combination of stock and cash equal to the market price of
common stock for each unit, when vested. These units vest
over three years. During 1993, 1992 and 1991, respectively,
49,000, 42,000 and 56,000 restricted stock units were
granted. At December 31, 1993, 124,000 partially vested
restricted stock units were outstanding.
Stock Options
Under the current plans, the exercise price for stock
options may not be less than 50% of the fair market value of
the stock when granted. Options vest over three years and
expire after 15 years. Stock option activity was as
follows:
<TABLE>
<CAPTION>
In thousands, Number of Option Price
except per share amounts Shares Per Share Total
-----------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, 1991 2,035 $ 8.89-19.22 $28,789
Options Granted 310 5.97- 8.70 1,872
Options Exercised (140) 8.89-16.97 (1,830)
Options Cancelled (187) 5.97-18.42 (2,630)
----- ------------ -------
Balance at December 31, 1991 2,018 5.97-19.22 26,201
Options Granted 388 9.72-10.66 3,819
Options Exercised (1,021) 5.97-19.22 (14,458)
Options Cancelled (22) $ 5.97-13.94 (178)
----- ------------ -------
Balance at December 31, 1992 1,363 5.97-18.42 15,384
Options Granted 1,180 25.41-30.31 31,110
Options Exercised (408) 5.97-18.42 (4,819)
Options Cancelled (18) 5.97-27.03 (230)
----- ------------ -------
Balance at December 31, 1993 2,117 5.97-30.31 $41,445
Options Exercisable at
December 31, 1993 629 $ 5.97-18.22 $7,757
</TABLE>
PAGE 17
<PAGE>
The corporation is recognizing an expense over three years
equal to the exercise price of the 1991 and 1992 options,
since they were granted at 50% of the market price. The
exercise price for options awarded in 1993 is equal to the
fair market value on the grant date.
Employee Stock Purchase Plan
Employees may purchase stock at a discount through the
corporation's Employee Stock Purchase Plan. The purchase
price of the shares is the lower of 85% of the fair market
value of the stock on the offering date, or 85% of the fair
market value of the stock on the last business day of each
month throughout the following year. The offering date for
1994 purchases was November 19, 1993, when 85% of the fair
market value was $25.87.
A total of 2,426,000 shares of the corporation's unissued
common stock has been reserved for this plan.
10. PENSION AND OTHER BENEFIT PLANS
The corporation has a non-contributory, defined benefit
pension plan which covers substantially all of its
employees. Pension benefits are based on years of service
and compensation prior to retirement. The corporation's
funding policy is to make the contributions when required by
law.
The net pension expense for each year includes the following
components:
<TABLE>
<CAPTION>
In thousands 1993 1992 1991
--------------------------------------------------------------
<S> <C> <C> <C>
Service Cost for Benefits
Earned During the Year $ 3,087 $ 3,583 $ 3,249
Interest Cost on Projected
Benefit Obligation 7,044 6,556 5,723
Actual Return on Pension
Plan Assets (Gain) (13,010) (5,197) (16,534)
Net Amortization and
Deferral 5,427 (2,697) 9,210
------- ------- -------
Net Pension Expense $ 2,548 $ 2,245 $ 1,648
======= ======= =======
</TABLE>
In September 1992, the corporation offered an early
retirement program to certain employees in connection with
its restructuring of certain operations (see Note 12). This
program provided enhanced retirement benefits and an option
for a lump sum payment of all benefits. The additional
pension expense for this program was $6,582,000 and is
included in the provision for restructuring in the
accompanying income statement.
PAGE 18
<PAGE>
The following table shows the pension plan's
obligations and assets as well as the amount recognized
in the corporation's balance sheets at each year end.
<TABLE>
<CAPTION>
In thousands 1993 1992 1991
-----------------------------------------------------------------
<S> <C> <C> <C>
Actuarial Present Value of
Benefit Obligations:
Accumulated Benefit Obligation,
including vested benefits of
$88,271 in 1993, $80,774 in
1992 and $60,961 in 1991 $ 90,981 $83,026 $63,937
======== ======= =======
Projected Benefit Obligation
for Service Rendered to Date $109,543 $99,198 $80,268
Pension Plan Assets at Fair
Value, primarily equity
securities, corporate and
U.S. Government bonds
and short-term investments 99,070 94,877 92,051
-------- ------- -------
Pension Plan Assets in Excess of
(Less than) Projected Benefit
Obligation (10,473) (4,321) 11,783
Unrecognized Net Loss (Gain) 12,116 3,248 (2,185)
Unrecognized Transition Asset at
January 1, 1986 being amortized
over 11 years (6,026) (7,884) (9,200)
--------- ------- -------
Net Pension Asset (Liability) $ (4,383) $ (8,957) $ 398
========= ======== ========
Assumed Discount Rate 7% 8% 8%
Assumed Rate of Compensation
Increase 5% 6% 6%
Expected Rate of Return on
Pension Plan Assets 9% 9% 9%
</TABLE>
The corporation made a $4,100,000 cash contribution to the
plan in 1993. No contributions were required in 1992
and 1991.
Supplemental Executive Retirement Plan
The corporation has an unfunded supplemental pension plan
for executives. The expense for this plan was $2,058,000,
$1,917,000 and $4,243,000 for 1993, 1992 and 1991,
respectively.
As of December 31, 1993, the corporation recorded an
additional minimum liability of $5,740,000 for this plan.
This amount is the excess of the accumulated benefit
obligation over the previously recorded plan liability. The
corporation also recorded an intangible asset of $2,128,000
which represents the unrecognized transition obligation and
a charge of stockholders equity of $2,301,000, net of tax.
The corporation's accrued liabilities for this plan were
$15,679,000, $10,661,000 and $9,814,000 at December 31,
1993, 1992 and 1991, respectively. As of December 31, 1993,
the accumulated benefit obligation was approximately
$15,679,000, and the projected benefit obligation was
approximately $16,449,000, assuming a discount rate of 7%
and future salary increases of 5%.
PAGE 19
<PAGE>
401(k) Plan
The corporation has a 401(k) plan for qualifying employees.
A portion of employee contributions is matched by the
corporation. The corporation's matching contributions for
the years ended December 31, 1993, 1992 and 1991 were
$3,237,000, $2,860,000 and $2,585,000, respectively.
Postretirement Benefits
The corporation provides health and life insurance benefits
to employees and retirees. Effective January 1, 1991, the
corporation adopted the provisions of SFAS No. 106, which
requires that the expected cost of these benefits be
recognized during the years in which employees render
service. Prior to 1991, the cost of such benefits was
expensed as paid by the corporation. The corporation
recognized the full obligation attributable to the cost of
prior years' service in 1991. The cumulative effect to
January 1, 1991 was $40,314,000, less taxes of $13,707,000,
and is shown separately in the 1991 income statement.
The net postretirement benefit expense for each year
included the following components:
<TABLE>
<CAPTION>
In thousands 1993 1992 1991
----------------------------------------------------------------
<S> <C> <C> <C>
Service Cost for Benefits
Earned During the Year $1,898 $2,157 $1,433
Interest Cost on
Accumulated Postretirement
Benefit Obligation 3,518 3,762 2,947
Net Amortization and Deferral (321) 232 -
------ ------ ------
Net Postretirement Benefit
Expense $5,095 $6,151 $4,380
====== ====== ======
</TABLE>
The early retirement program discussed earlier in this note
resulted in an additional postretirement benefit expense of
$2,107,000 in 1992.
The following table shows the plan's obligations as well as
the liability recognized in the corporation's balance sheet
at each year end.
<TABLE>
<CAPTION>
In thousands 1993 1992 1991
--------------------------------------------------------------
<S> <C> <C> <C>
Accumulated Postretirement
Benefit Obligation:
Retirees $25,258 $22,665 $21,245
Fully Eligible Active
Participants 3,826 13,106 3,829
Other Active Participants 14,846 18,368 15,558
------- ------- -------
43,930 54,139 40,632
Unrecognized Gain from Plan
Changes 12,873 - -
Unrecognized Net Loss (6,789) (7,086) (286)
Net Postretirement Benefit
Liability $50,014 $47,053 $40,346
Assumed Discount Rate 7% 8% 8%
Assumed Rate of Compensation
Increase 5% 6% 6%
</TABLE>
PAGE 20
<PAGE>
In 1993, the corporation made several modifications to its
postretirement benefits program including higher participant
premium payments, higher deductibles and out-of-pocket
maximums and reduced benefits for certain participants.
Additionally, the corporation implemented a managed health
care program to better control costs. These changes, which
are effective January 1, 1994, resulted in a reduction in
the accumulated postretirement benefit obligation and an
unrecognized gain of $12,873,000 as of December 31, 1993.
An 11% increase in health care costs was assumed for 1993
with the rate decreasing 0.5% each year to an ultimate rate
of 6%. Increasing the assumed trend rate by 1% each year
would have increased the accumulated postretirement benefit
obligation as of December 31, 1993 by $6,115,000 and the
benefit expense for 1993 by $900,000.
11. INCOME TAXES
The corporation adopted SFAS No. 109, "Accounting for Income
Taxes," effective January 1, 1993. This accounting
statement changed the method for the recognition and
measurement of deferred tax assets and liabilities. The
cumulative effect of adopting SFAS No. 109 on the
corporation's financial statements was to increase income by
$1,238,000 ($.03 per share) and was recorded in the first
quarter of 1993. Prior year financial statements have not
been restated.
The components of income tax expense for each year are:
<TABLE>
<CAPTION>
In thousands 1993 1992 1991
-------------------------------------------------------------
<S> <C> <C> <C>
Federal:
Current $26,793 $21,028 $13,863
Deferred 21,221 3,680 6,154
Investment Tax Credits (3,627) (3,943) (3,968)
State and Local 6,054 3,074 1,893
------- ------- -------
Total $50,441 $23,839 $17,942
</TABLE>
The difference between tax expense computed at the statutory
Federal tax rate and the corporation's effective tax rate
is:
<TABLE>
<CAPTION>
In thousands 1993 1992 1991
-------------------------------------------------------------
<S> <C> <C> <C>
Federal Income Taxes
Computed at the Statutory
Rate $43,570 $22,699 $21,338
Reduction Under Gross
Change Tax Method - (2,694) (3,964)
Investment Tax Credits (3,627) (3,943) (3,968)
Dispositions of Assets - 2,913 1,925
State Income Taxes -
net of Federal income
tax benefit 3,935 2,126 1,348
Rate Increase on Prior
Year Deferred Taxes 2,977 - -
Goodwill 531 589 225
Other 3,055 2,149 1,038
------- ------- -------
Income Tax Expense $50,441 $23,839 $17,942
======= ======= =======
</TABLE>
PAGE 21
<PAGE>
SFAS No. 109 requires that deferred tax liabilities and
assets be adjusted for the effect of a change in tax laws or
rates. Accordingly, the corporation recorded a charge to
income tax expense of $2,977,000 in the third quarter of
1993 to adjust prior years' deferred tax assets and
liabilities for an increase in the Federal income tax rate
from 34% to 35%.
The net current and net non-current components of deferred
tax accounts as shown on the balance sheet at December 31,
1993 are:
<TABLE>
<CAPTION>
In thousands 1993
-----------------------------------------------------
<S> <C>
Current Deferred Tax Asset $ 8,769
Non-current Deferred Tax Liability (79,990)
--------
Net Liability $(71,221)
========
</TABLE>
The deferred tax assets and liabilities at December 31, 1993
are:
<TABLE>
<CAPTION>
In thousands 1993
-----------------------------------------------------
<S> <C>
Assets
Postretirement Benefits $ 20,902
Accrued Expenses 31,937
ITC Carryforward 13,115
Alternative Minimum Tax Credit 32,368
Contract Revenue 7,135
Other 2,381
--------
Total Deferred Tax Assets 107,838
--------
Liabilities
Property and Equipment (177,928)
Other (1,131)
--------
Total Deferred Tax Liabilities (179,059)
--------
Net Liability $ (71,221)
</TABLE>
The corporation s investment tax credit carryforwards expire
in years 2002 through 2007.
The Internal Revenue Service (IRS) is currently examining
Federal income tax returns for 1990 and 1991 and has
completed examinations of the Federal income tax returns of
the corporation through 1989. The corporation has also
amended its returns and filed claims for refunds for 1979
through 1987. The IRS has denied these claims. The
corporation is contesting this denial by the IRS and other
adjustments proposed by the IRS on the 1980 through 1987
income tax returns. In the opinion of the corporation,
adequate provision has been made for income taxes for all
periods through 1993.
PAGE 22
<PAGE>
12. PROVISION FOR RESTRUCTURING
In September 1992, the corporation recorded a $38,961,000
charge for restructuring costs. At that time, the
corporation announced its plans to realign business
activities, downsize certain functions, and reposition
COMSAT Video Enterprises, Inc. to capitalize on the growing
market for on-demand entertainment. The restructuring costs
relate to headcount reductions throughout the corporation and
the elimination of the former COMSAT Systems Division and the
consolidation of its operations with those of COMSAT
Laboratories into a new division, COMSAT Technology
Services, as well as the transfer of television distribution
services from COMSAT Systems Division to CVE. This charge
consists of $12,644,000 for early retirement and reduction
in force costs related to the reorganization, and
$26,317,000 for equipment, property and other items.
13. BUSINESS SEGMENT INFORMATION
The corporation reports operating results and financial data
in four business segments: International Communications,
Mobile Communications, Video Enterprises and Technology
Services. The International Communications segment
consists of activities undertaken by the corporation in its
COMSAT World Systems business, including INTELSAT services.
This segment also includes the activities of the
corporation's international ventures, which are accounted
for as consolidated subsidiaries. The Mobile Communications
segment consists of activities undertaken by the corporation
in its COMSAT Mobile Communications (CMC) business,
including Inmarsat services. The Video Enterprises segment
includes entertainment services provided to the hospitality
industry as well as video distribution services to
television networks. The Technology Services segment
includes voice and data communications networks and
products, systems integration services, and applied research
and technology services. The financial results of the
Denver Nuggets Limited Partnership are included in Other
Corporate activities.
The corporation has redefined its reporting segments. Prior
to 1993, CMC was included in the International
Communications segment. In the first quarter of 1993, the
operations of the corporation's earth stations in
Connecticut and California were transferred from the
Technology Services segment to the Mobile Communications
segment. As discussed in Note 12, business activities
within the Technology Services and Video Enterprises
segments were realigned in 1992. The financial results
presented below for prior periods have been restated
consistent with these changes.
PAGE 23
<PAGE>
<TABLE>
<CAPTION>
In thousands 1993 1992 1991
-----------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
International Communications $ 249,935 $ 253,308 $ 245,390
Mobile Communications 190,040 158,031 127,767
Video Enterprises 95,805 78,393 82,163
Technology Services (1) 88,266 81,021 93,062
Eliminations and Other Corp 16,344 (7,138) (25,532)
---------- ---------- ----------
Total $ 640,390 $ 563,615 $ 522,850
========== ========== ==========
Operating Income (Loss) (2):
International Communications $ 88,956 $ 89,164 $ 92,059
Mobile Communications 48,096 33,936 39,992
Video Enterprises 10,475 (8,191) 2,969
Technology Services 735 (13,301) 199
Other Corporate (10,164) (13,103) (7,746)
---------- ---------- ----------
Net $ 138,098 $ 88,505 $ 127,473
========== ========== ==========
Identifiable Assets as of
December 31:
International Communications $ 826,574 $ 803,113 $ 765,384
Mobile Communications 403,615 396,734 320,248
Video Enterprises (3) 186,731 121,504 120,338
Technology Services 45,915 49,074 61,758
Corporate and Other Assets 189,680 172,418 101,818
---------- ---------- ----------
Total $1,652,515 $1,542,843 $1,369,546
========== ========== ==========
Property and Equipment Additions:
International Communications $ 116,652 $ 120,833 $ 173,859
Mobile Communications 50,586 83,099 90,085
Video Enterprises 64,093 17,700 8,814
Technology Services 3,157 9,635 7,111
Corporate and Other Assets 4,067 1,404 2,332
---------- ---------- ----------
Total $ 238,555 $ 232,671 $ 282,201
========== ========== ==========
Depreciation and Amortization:
International Communications $ 73,636 $ 70,967 $ 64,203
Mobile Communications 32,772 27,304 17,405
Video Enterprises 21,905 17,578 16,684
Technology Services 4,164 7,108 9,225
Corporate and Other Assets 5,882 4,380 2,743
---------- ---------- ----------
Total $ 138,359 $ 127,337 $ 110,260
========== ========== ==========
</TABLE>
(1) Technology Services segment revenues include intersegment
sales totalling $10,132,000 in 1993, $19,500,000 in 1992
and $29,780,000 in 1991.
(2) Operating results for 1992 are net of the $38,961,000
provision for restructuring (see Note 12). The amounts
recorded in each segment were International Communications -
$6,955,000; Mobile Communications - $3,332,000; Video
Enterprises - $14,146,000; Technology Services -
$10,240,000; and Other Corporate - $4,288,000.
(3) The identifiable assets of the Video Enterprises segment
include the corporation's equity investment in On Command
Video Corporation totalling $13,655,000 at
December 31, 1991.
PAGE 24
<PAGE>
Related Party Transactions and Significant Customers
The corporation provides support services to INTELSAT and
support services and satellite capacity to Inmarsat. The
revenues from these services were $23,190,000 in 1993,
$21,477,000 in 1992 and $24,000,000 in 1991. These revenues
were recorded primarily in the International Communications
and Technology Services segments.
A significant amount of the corporation's revenues were
received from AT&T. These revenues totalled $117,036,000 in
1993, $134,293,000 in 1992 and $148,525,000 in 1991.
Substantially all of these revenues were generated by the
International Communications and Mobile Communications
segments.
14. FINANCIAL INSTRUMENTS AND OFF BALANCE SHEET RISKS
SFAS No. 107, which became effective in 1992, requires
disclosures about the fair value of financial instruments.
In these disclosures, fair values are estimates and do not
necessarily represent the amounts that would be received or
paid in an actual sale or settlement of the financial
instruments.
At December 31, 1993, the corporation was contingently
liable to banks for $8,533,000 for outstanding letters of
credit securing performance of certain contracts. As
discussed in Note 4, the corporation has guaranteed
repayment of the construction loan related to its
headquarters building. The corporation has other financial
guarantees totalling approximately $3,000,000 as of December
31, 1993. The estimated fair value of these instruments is
not significant.
Inmarsat has entered into foreign currency contracts
designed to minimize exposure to exchange rate fluctuations
on foreign currency transactions. At December 31, 1993,
Inmarsat had several contracts maturing in 1994 to purchase
12,500,000 pounds sterling for a total of $18,392,000. The
corporation's share of the estimated fair value of these
contracts, as determined by a bank, is an unrealized gain of
approximately $13,000 at December 31, 1993.
Inmarsat has entered into interest rate and foreign currency
swap arrangements to minimize the exposure to interest rate
and foreign currency exchange fluctuations related to its
satellite financing obligations. Inmarsat borrowed and is
obligated to repay pounds sterling. The pounds sterling
borrowed were swapped for U.S. dollars with an agreement to
exchange the dollars for pounds sterling in order to meet
the future lease payments. Inmarsat pays interest on the
dollars at an average fixed rate of 9.00% and it receives
variable interest on the sterling amounts based on short-
term LIBOR rates. The differential to be paid or received
is accrued as interest rates change and is recognized over
the life of the agreements. The currency swap arrangements
have been designated as hedges and any gains or losses are
included in the measurement of the debt. The effect of
these swaps is to change the sterling lease obligation into
fixed interest rate dollar debt. As of December 31, 1993,
Inmarsat had $352,327,000 of swaps to be exchanged for
211,400,000 pounds sterling at various dates through 2005.
Inmarsat is exposed to loss if one or more of the
counterparties defaults. However, Inmarsat does not
anticipate non-performance by the counterparties as they are
major financial institutions. The corporation's share of
the estimated fair value of these swaps is an unrealized
loss of $18,500,000 at December 31, 1993. The fair value
was estimated by computing the present value of the dollar
obligations using current rates available for issuance of
debt with similar terms, and the current value of the
sterling at year-end exchange rates.
PAGE 25
<PAGE>
The fair value of long-term debt (excluding capitalized
leases) was estimated by computing present values of the
related cash flows using risk adjustments to Treasury rates
obtained from investment bankers.
<TABLE>
<CAPTION>
December 31, 1993
------------------------
In thousands Book Amount Fair Value
------------------------------------------------------
<S> <C> <C>
8.125% Notes $160,000 $178,061
8.95% Notes 75,000 86,534
7.375% INTELSAT Eurobonds 41,793 45,046
6.75% INTELSAT Eurobonds 31,344 32,906
</TABLE>
The fair values of the corporation's other financial
instruments are approximately equal to their carrying
values.
15. SUBSEQUENT EVENTS
Merger Agreement: In January 1994, the corporation entered
into a definitive merger agreement for the acquisition of
Radiation Systems, Inc. (RSi), based in Sterling, Virginia.
RSi designs, manufactures and integrates satellite earth
stations, advanced antennas and other turnkey systems for
telecommunications, radar, air traffic control and military
uses. Following the merger, the corporation expects to
combine its existing systems integration business, COMSAT
Technology Services, with RSi.
Under the merger agreement, RSi will be merged into a
wholly owned subsidiary of the corporation, and each share
of RSi's common stock will be exchanged for $18.25 in the
corporation's common stock, based on the average closing
price of the corporation's stock during the 20 trading days
ending five trading days before the closing of the
transaction. However, in no event will a share of RSi
common stock be exchanged for less than 0.638 or more than
0.780 shares of the corporation's common stock. RSi has
approximately eight million shares outstanding. During
1993, the corporation purchased 404,500 shares of RSi on the
open market for $5,098,000. The corporation's ownership
represented 4.9% of RSi stock with a market value of
$6,042,000 at December 31, 1993.
The merger is subject to the approval of RSi's shareholders,
receipt of all required government approvals and compliance
with other customary conditions. RSi shareholders are
expected to vote on the merger during the second quarter of
1994. It is a condition of the merger that it be treated as
a pooling of interests for accounting purposes. The merger
is expected to be completed in 1994.
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In February 1994, two shareholder class-action
lawsuits were filed in Nevada state court challenging the
merger. Plaintiffs in the lawsuits allege, among other
things, that the proposed merger consideration is unfair and
inadequate. The lawsuits seek, among other things, to
enjoin the merger and, in the event the merger is
consummated, to recover damages. Management believes that
the lawsuits are without merit and that the ultimate
disposition of these matters will not have a material effect
on the merger or on the corporation's financial statements.
Debt: INTELSAT intends to issue $200 million of bonds in the
first quarter of 1994. INTELSAT will use the proceeds to
repay its short-term borrowings. The corporation will record
its share of the borrowings as long-term debt of approximately
$42 million when the bonds are issued.
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