SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 8, 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) Identification 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
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Item 7. Financial Statements and Exhibits
- -------------------------------------------
(a) Financial Statements
1. Supplemental Consolidated Financial Statements of
COMSAT Corporation
a. Independent Auditors Report
b. Supplemental Consolidated Financial Statements of
COMSAT Corporation and Subsidiaries
(i) Supplemental Consolidated Income Statements
for the Years Ended December 31, 1993, 1992
and 1991.
(ii) Supplemental Consolidated Balance Sheets as
of December, 31, 1993 and 1992.
(iii) Supplemental Consolidated Cash Flow
Statements for the Years Ended December
31, 1993, 1992 and 1991.
(iv) Supplemental Statements of Changes in
Consolidated Stockholders' Equity for the
Years Ended December 31, 1993, 1992 and 1991.
(v) Notes to Supplemental Consolidated Financial
Statements for Each of the Three Years in the
Period Ended December 31, 1993. Note 18
includes unaudited quarterly financial
information for the quarters ended March 31,
1994 and 1993, as restated for the merger of
the corporation and Radiation Systems, Inc.
This information satisfies the remaining
requirements for pro forma financial
information from Item 7(b) of the
corporation s current report on Form 8 K
filed on June 8, 1994.
(c) Exhibits (listed according to number assigned in Item 601 of
Regulation S-K)
Exhibit Description
------- -----------
20(a) Press Release dated June 8, 1994, incorporated
by reference from Form 8-K of the corporation,
filed on June 30, 1994.
20(b) Press Release dated June 29, 1994, incorporated
by reference from Form 8-K of the corporation,
filed on June 30, 1994.
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INDEPENDENT AUDITORS' REPORT
To the Shareholders of
COMSAT Corporation:
We have audited the accompanying supplemental consolidated
balance sheets of COMSAT Corporation and subsidiaries as of
December 31, 1993 and 1992, and the related supplemental
consolidated statements of income, stockholders equity and cash
flow for each of the three years in the period ended December
31, 1993. The supplemental consolidated financial statements
give retroactive effect to the merger of COMSAT Corporation and
subsidiaries and Radiation Systems, Inc. and subsidiaries on
June 3, 1994, which has been accounted for as a pooling-of-
interests as described in Note 2. These supplemental financial
statements are the responsibility of the Corporation s
management. Our responsibility is to express an opinion on
these supplemental financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the supplemental financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
supplemental 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 supplemental consolidated financial
statements present fairly, in all material respects, the
financial position of the corporation and its subsidiaries at
December 31, 1993 and 1992, and the results of their operations
and their cash flows for each of the three years in the period
ended December 31, 1993, after giving retroactive effect to the
merger between COMSAT Corporation and Radiation Systems, Inc. as
described in Note 2, in conformity with generally accepted
accounting principles.
As discussed in Note 12 to the supplemental 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 13 to the
supplemental consolidated financial statements, in 1993 the
corporation changed its method of accounting for income taxes to
conform with Statement of Financial Accounting Standards No.
109.
Deloitte & Touche
Washington, D.C.
June 24, 1994
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<TABLE>
<CAPTION>
COMSAT CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED INCOME STATEMENTS
For the Years Ended December 31, 1993, 1992, and 1991
(In thousands, except per share amounts)
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Revenues $ 754,285 $ 688,093 $ 651,211
--------- --------- ---------
Operating Expenses:
Cost of Operations 423,473 375,099 354,133
Depreciation and Amortization 142,111 130,760 113,318
Research and Development 15,302 17,123 18,666
General and Administrative 21,819 21,168 22,382
Provision for Restructuring - 38,961 -
--------- --------- ---------
Total Operating Expenses 602,705 583,111 508,499
--------- --------- ---------
Operating Income 151,580 104,982 142,712
Other Income (Expense), Net 8,310 3,138 (6,407)
Interest Income 1,455 1,454 2,192
Interest Cost (45,881) (46,792) (47,328)
Interest Capitalized 22,197 20,481 27,397
--------- --------- ---------
Income Before Taxes and Cumulative
Effect of Accounting Changes 137,661 83,263 118,566
Income Tax Expense (55,192) (29,971) (37,552)
--------- --------- ---------
Income Before Cumulative
Effect of Accounting Changes 82,469 53,292 81,014
Cumulative Effect of Accounting Change
for Postretirement Benefits, net of
$13,707 tax - - (26,607)
Cumulative Effect of Accounting Change
for Income Taxes 1,925 - -
--------- --------- ---------
Net Income $ 84,394 $ 53,292 $ 54,407
========= ========= =========
Earnings Per Share:
Primary:
Before Cumulative Effect of
Accounting $ 1.75 $ 1.16 $ 1.82
Cumulative Effect of Accounting
Changes 0.04 - (0.60)
--------- --------- ---------
Net Income $ 1.79 $ 1.16 $ 1.22
========= ========= =========
Fully Diluted:
Before Cumulative Effect of
Accounting $ 1.75 $ 1.16 $ 1.75
Cumulative Effect of Accounting
Changes 0.04 - (0.54)
--------- --------- ---------
Net Income $ 1.79 $ 1.16 $ 1.21
========= ========= ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
Page 4
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<TABLE>
<CAPTION>
COMSAT CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
December 31, 1993 and 1992
(In thousands)
1993 1992
---- ----
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 16,230 $ 11,777
Receivables 210,182 195,821
Inventories 19,328 13,859
Deferred Income Taxes 8,333 9,756
Other 19,873 17,747
---------- ----------
Total Current Assets 273,946 248,960
---------- ----------
Property and Equipment 1,332,432 1,267,530
Investments 19,493 14,838
Goodwill 35,957 26,685
Franchise Rights 41,084 43,049
Other Assets 70,601 53,923
---------- ----------
Total Assets $1,773,513 $1,654,985
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current Maturities of Long-Term Obligations $ 76,915 $ 3,452
Current Notes Payable 47,233 47,795
Accounts Payable and Accrued Liabilities 116,140 92,130
Due to Related Parties 56,601 34,101
Accrued Interest 5,231 5,746
Income Taxes Payable 1,518 3,622
---------- ----------
Total Current Liabilities 303,638 186,846
---------- ----------
Long-Term Debt 410,550 496,804
Deferred Income Taxes 81,468 63,144
Deferred Investment Tax Credits 22,151 27,201
Accrued Postretirement Benefit Costs 50,014 47,053
Other Long-Term Liabilities 120,879 117,448
Commitments and Contingencies (Notes 8, 9 and 16) - -
Minority Interest 21,373 14,197
Stockholders' Equity:
Common Stock, without par value 100,000 shares
authorized, 46,373 shares outstanding in 1993
and 45,842 in 1992 311,506 298,469
Preferred Stock, 5,000 shares authorized
no shares issued or outstanding - -
Retained Earnings 488,090 434,067
Treasury Stock, at cost 2,031 shares in 1993
and 2,408 in 1992 (21,473) (22,627)
Unearned Compensation, Key Employee Stock Plan (8,240) (2,897)
Minimum Pension Liability (2,301) -
Unearned Compensation, ESOP (2,651) (3,336)
Foreign Currency Translation Adjustment (1,491) (1,384)
---------- ----------
Total Stockholders' Equity 763,440 702,292
---------- ----------
Total Liabilities and Stockholders' Equity $1,773,513 $1,654,985
========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
Page 5
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<TABLE>
<CAPTION>
COMSAT CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED CASH FLOW STATEMENTS
For the Years Ended December 31, 1993, 1992, and 1991
(In thousands)
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 84,394 $ 53,292 $ 54,407
Adjustments for Noncash Expenses:
Depreciation and Amortization 142,111 130,760 113,318
Cumulative Effect of Accounting Changes,
net of tax (1,925) - 26,607
Provision for Restructuring - 38,961 -
Changes in Operating Assets and
Liabilities:
Receivables and Other Current Assets (21,047) (44,760) 19,190
Current Liabilities 38,363 (7,659) 11,902
Noncurrent Liabilities 26,117 44,091 35,358
Other (5,022) 2,930 14,200
--------- --------- ---------
Net Cash Provided by Operating Activities 262,991 217,615 274,982
--------- --------- ---------
Cash Flows from Investing Activities:
Purchase of Property and Equipment (234,552) (221,291) (264,261)
Decrease in INTELSAT Ownership 16,442 19,760 17,582
Decrease (Increase) in Inmarsat Ownership 4,771 886 (42)
Investments in Unconsolidated Businesses (8,639) (10,268) (21,335)
Purchase of Minority Shares of
Subsidiaries (12,606) - -
Purchase of Subsidiaries, net of cash
acquired of $8 in 1993, $11,655 in 1992
and $1,120 in 1991 (3,140) (5,321) (8,887)
Other 4,529 (7,920) (5,435)
--------- --------- ---------
Net Cash Used in Investing Activities (233,195) (224,154) (282,378)
--------- --------- ---------
Cash Flows from Financing Activities:
Common Stock Issued 7,952 16,514 4,689
Proceeds from Issuance of Subsidiary's
Common Stock 11,582 - -
Purchase of Treasury Stock (5,968) - -
Cash Dividends Paid (30,410) (27,837) (25,867)
Proceeds from Issuance of Long-Term Debt 32,745 207,013 77,506
Repayment of Long-Term Debt (40,481) (234,439) (3,259)
Net Short-Term Borrowings (Repayments) (562) 43,642 (37,247)
Other - (212) (850)
--------- --------- ---------
Net Cash Provided by (Used for) Financing
Activities (25,142) 4,681 14,972
--------- --------- ---------
Effect of Exchange Rate Changes on Cash (201) (1,057) 581
--------- --------- ---------
Net Increase (Decrease) in Cash and Cash
Equivalents 4,453 (2,915) 8,157
Cash and Cash Equivalents, Beginning of Year 11,777 14,692 6,535
--------- --------- ---------
Cash and Cash Equivalents, End of Year $ 16,230 $ 11,777 $ 14,692
--------- --------- ---------
Supplemental Cash Flow Information:
Interest Paid, net of amount capitalized $ 26,083 $ 30,376 $ 19,469
Income Taxes Paid $ 28,618 $ 26,409 $ 20,832
Noncash Financing of Inmarsat Satellites $ 6,200 $ 12,480 $ 24,268
The accompanying notes are an integral part of these financial statements.
</TABLE>
Page 6
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<TABLE>
<CAPTION>
COMSAT CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL STATEMENTS OF CHANGES IN CONSOLIDATED STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1993, 1992, and 1991
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unearned Foreign
Minimum Compensation Unearned Currency
Shares Shares Common Retained Treasury Pension Key Employee Compensation Translation
Issued Outstanding Stock Earnings Stock Liability Stock Plan ESOP Adjustment
----------------------------------------------------------------------------------------------------
Balance at
December 31, 1990 47,774 44,037 $ 280,227 $ 380,072 $ (34,580) $ - $ (1,836) $ (4,733) $ -
Net Income 54,407
Cash Dividends (25,867)
Exercise of Stock Options and
Restricted Stock Units 74 210 1,402 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
Reduction of guaranteed ESOP Debt 676
Translation Adjustment 1,074
Balance at ------- ------- -------- -------- -------- ------- ------- ------- ------
December 31, 1991 48,073 44,606 286,118 408,612 (32,036) - (1,928) (4,057) 1,074
Net Income 53,292
Cash Dividends (27,837)
Exercise of Stock Options and
Restricted Stock Units 11 1,002 5,161 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
Tax Benefit on Exercise
of Stock Options 348
Reduction of guaranteed ESOP Debt 721
Translation Adjustment (2,458)
Balance at ------ ------ ------- ------- -------- ------- ------- ------- -------
December 31, 1992 48,250 45,842 298,469 434,067 (22,627) - (2,897) (3,336) (1,384)
Net Income 84,394
Cash Dividends (30,410)
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
Tax Benefit Associated with dividends
on unallocated ESOP shares 39
Minimum Pension
Liability Adjustment (2,301)
Purchase of Treasury Stock (378) (5,968)
Reduction of guaranteed ESOP Debt 685
Translation Adjustment (107)
Balance at -------- ------- --------- --------- --------- --------- --------- --------- ---------
December 31, 1993 48,404 46,373 $ 311,506 $ 488,090 $ (21,473) $ (2,301) $ (8,240) $ (2,651) $ (1,491)
======== ======= ========= ========= ========= ========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
Page 7
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COMSAT CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL 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 6) 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
long-term product, system integration and related 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.
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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 7). 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
10). The weighted average number of shares for each year is:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
In thousands 1993 1992 1991
- -----------------------------------------------------------
Primary 47,095 45,875 44,556
Fully Diluted 47,157 47,291 49,254
</TABLE>
Goodwill
- --------
The balance sheet includes goodwill related to the acquisitions
of OCV, the Nuggets and other ventures. Goodwill is amortized
over 15 to 25 years. Accumulated goodwill amortization was
$4,513,000 and $2,698,000 at December 31, 1993 and 1992,
respectively.
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 and $33,350,000 at December 31, 1993
and 1992, 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.
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.
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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. The
effect of adopting this statement is not material to the
corporation.
Statement Presentation
- ----------------------
The accompanying supplemental financial statements have been
restated for the merger accounted for as a pooling of interests
as discussed in Note 2. These supplemental financial statements
will become the primary historical financial statements of the
corporation upon issuance of financial statements which include
financial results subsequent to the consummation of the merger.
2. MERGER WITH RADIATION SYSTEMS, INC.
Effective June 3, 1994, the corporation consummated its merger
with 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.
Each share of RSi s common stock was converted into 0.780 of a
share of the corporation s common stock. A total of 6,147,000
shares of the corporation s common stock were issued for RSi s
common stock. The January 1994 merger agreement stipulated that
each share of RSi's common stock would 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.
The agreement also provided that in no event would a share of RSi
common stock be exchanged for less than 0.638 or more than 0.780
of a share of the corporation's common stock. The transaction
costs associated with the merger which are expected to be
approximately $5,000,000 (consisting primarily of investment
banking and legal fees) will be reported as a charge to operating
results in the second quarter of 1994.
The merger has been accounted for as a pooling of interests.
Accordingly, the accompanying financial statements have been
retroactively restated for all periods presented to include the
results of operations, balance sheets and cash flows of RSi.
Prior to the merger, RSi reported on a June 30 fiscal year basis.
Accordingly, the accompanying
Page 10
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financial statements include RSi's financial statements restated
on a calendar year basis. In addition, the accompanying
financial statements reflect certain adjustments to conform
the period in which SFAS No. 109 was adopted. There were no
significant intercompany transactions between the two companies.
In 1993, COMSAT acquired 404,500 shares of RSi common stock for
$5,098,000 and RSi repurchased 80,000 shares of its own common stock
for $870,000. These shares have been accounted for as treasury stock.
Operating results of the separate companies for each year are as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
In thousands,
except per share amounts 1993 1992 1991
- ----------------------------------------------------------------------
Revenues:
Previously Reported $ 640,390 $ 563,615 $ 522,850
RSi 113,895 124,478 128,361
---------- ---------- ----------
$ 754,285 $ 688,093 $ 651,211
========== ========== ==========
Income Before Cumulative Effect
of Accounting Changes:
Previously Reported $ 74,044 $ 42,924 $ 71,424
RSi 8,425 10,368 9,590
---------- ---------- ----------
$ 82,469 $ 53,292 $ 81,014
========== ========== ==========
Net Income:
Previously Reported $ 75,282 $ 42,924 $ 44,817
RSi 9,112 10,368 9,590
---------- ---------- ----------
$ 84,394 $ 53,292 $ 54,407
========== ========== ==========
Primary Earnings Per Share:
Income Before Cumulative Effect
of Accounting Changes
Previously Reported $ 1.82 $ 1.09 $ 1.88
As Restated $ 1.75 $ 1.16 $ 1.82
Net Income
Previously Reported $ 1.85 $ 1.09 $ 1.18
As Restated $ 1.79 $ 1.16 $ 1.22
Fully Diluted Earnings Per Share:
Income Before Cumulative Effect
of Accounting Changes
Previously Reported $ 1.82 $ 1.09 $ 1.80
As Restated $ 1.75 $ 1.16 $ 1.75
Net Income
Previously Reported $ 1.85 $ 1.09 $ 1.17
As Restated $ 1.79 $ 1.16 $ 1.21
</TABLE>
Prior to the merger, the corporation paid dividends of $0.74, $0.70
and $0.67 per share in 1993, 1992 and 1991, respectively. In addition,
RSi paid dividends of $0.10, $0.09 and $0.07 per share of RSi's common
stock in 1993, 1992 and 1991, respectively.
Page 11
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3. RECEIVABLES
Receivables at each year end are composed of:
<TABLE>
<CAPTION>
<S> <C> <C>
In thousands 1993 1992
- ---------------------------------------------------------------------
Commercial Receivables $ 121,391 $ 116,399
Receivables Under Long-Term Contracts:
United States Government:
Amounts Billed 13,946 14,501
Unbilled Costs and Accrued Profits 47,651 40,471
Commercial Customers:
Amounts Billed 7,639 7,822
Unbilled Costs and Accrued Profits 24,765 19,862
Related Party Receivables 3,846 4,736
Other 3,782 3,010
---------- ----------
Total 223,020 206,801
Less Allowance for Doubtful Accounts (12,838) (10,980)
---------- ----------
Net $ 210,182 $ 195,821
========== ==========
</TABLE>
Unbilled amounts represent accumulated costs and accrued profits
which will be billed at future dates in accordance with contract
terms and delivery schedules. Substantially all of these amounts
are expected to be collected within one year.
Unbilled amounts are net of progress payments of $42,616,000 in
1993 and $60,668,000 in 1992.
4. INVENTORIES
Inventories, stated at the lower of cost (first-in, first-
out) or market, consist of the following at each year end.
<TABLE>
<CAPTION>
<S> <C> <C>
In thousands 1993 1992
- ---------------------------------------------------------------------
Finished Goods $ 4,705 $ 3,209
Work in Progress 8,346 6,757
Raw Materials 6,277 3,893
-------- --------
Total $ 19,328 $ 13,859
======== ========
</TABLE>
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5. PROPERTY AND EQUIPMENT
Property and equipment include the corporation's shares of
INTELSAT, Inmarsat and MARISAT property and equipment.
<TABLE>
<CAPTION>
<S> <C> <C>
In thousands 1993 1992
- --------------------------------------------------------------------
Property and Equipment at Cost:
Satellites $1,182,924 $1,116,953
Furniture, Fixtures and Equipment 538,774 500,609
Buildings and Improvements 122,369 93,901
Land 7,059 5,985
---------- ----------
Total 1,851,126 1,717,448
Less Accumulated Depreciation (858,008) (783,561)
---------- ----------
Net Property and Equipment In Service 993,118 933,887
Property and Equipment Under Construction:
INTELSAT Satellites 222,223 218,455
Inmarsat Satellites 66,962 47,284
Other 50,129 67,904
---------- ----------
Total $1,332,432 $1,267,530
========== ==========
</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 3 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.
6. 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.
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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 8).
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.
7. 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 14
<PAGE>
Commercial Paper
- ----------------
The corporation has a $200,000,000 commercial paper program.
Throughout 1993 and 1992, 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.
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. The corporation had notes
payable outstanding of $4,000,000 at December 31, 1993 under a
separate credit agreement which was terminated in connection with
the merger discussed in Note 2.
Long-Term Debt
- --------------
Long-term debt at each year-end consists of:
<TABLE>
<CAPTION>
<S> <C> <C>
In thousands 1993 1992
- ---------------------------------------------------------------------
8.125% Notes Due 2004 $ 160,000 $ 160,000
8.95% Notes Due 2001 75,000 75,000
9.55% Notes Due 1994 70,000 100,000
7.375% INTELSAT Eurobonds Due 2002 41,793 43,685
6.75% INTELSAT Eurobonds Due 2000 31,344 -
Inmarsat Financing Obligations 98,659 102,346
Adjustable Interest Rate Note
(4.95% at December 31, 1993), payable
quarterly through 1997 3,500 4,500
7.00% Industrial Revenue Bonds, principal
payable in 1993 through 2003 3,508 3,927
ESOP Debt 2,651 3,336
Other, net of discounts on notes payable 1,010 7,462
---------- ----------
487,465 500,256
Less Current Maturities (76,915) (3,452)
---------- ----------
Total Long-Term Debt $ 410,550 $ 496,804
========== ==========
</TABLE>
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.
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.
Page 15
<PAGE>
The corporation received its share of the proceeds and recorded
long-term debt. 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
$73,215,000 in 1994, $3,509,000 in 1995, $2,716,000 in 1996,
$1,120,000 in 1997 and $420,000 in 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 16).
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 a current maturity of
$3,700,000.
ESOP Debt
- ---------
As discussed in Note 12, the corporation has an Employee Stock
Ownership Plan (ESOP). The ESOP has bank notes payable
outstanding which are guaranteed by the corporation.
Accordingly, these notes are reported as long-term debt of the
corporation. The ESOP debt includes an 8.75% note with quarterly
principal and interest payments through 1996 and a 10.95% note
with quarterly principal and interest payments through 1997.
8. 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
Page 16
<PAGE>
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.
Leases
- ------
As discussed in Note 6, 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 $7,993,000 in 1993, $4,253,000 in 1992
and $3,692,000 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 $13,901,000, $13,230,000, $12,376,000,
$5,527,000, $5,595,000 and thereafter, $45,697,000.
Government Contracts
- --------------------
The corporation is subject to routine audit and investigation by
various agencies which oversee contract performance in connection
with the corporation s contracts with the U.S. Government.
Management believes that potential claims from such
investigations will not have a material adverse effect on the
consolidated financial statements.
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.
9. 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.
Page 17
<PAGE>
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.
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. 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 several new claims and 15 new defendants to the suit,
primarily as alleged co-conspirators with the corporation. In
June 1994, the court denied PanAmSat s motion and ruled that
discovery is to be completed in September 1994. 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.
In February 1994, two shareholder class action lawsuits were
filed in Nevada state court challenging the proposed merger
between RSi and the corporation. In May 1994, the suits were
Page 18
<PAGE>
consolidated. The defendants in the suit are RSi, its directors
and the corporation. The suit alleges, among other things, that
the proposed merger consideration was unfair and inadequate. The
suit seeks, among other things, to recover damages resulting from
the consummation of the merger. All of the defendants have filed
motions to dismiss which are pending before the court.
Management believes that the lawsuit is without merit and that
the ultimate disposition of this matter will not have a material
effect on the corporation s financial statements.
10. 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.
11. 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.
Page 19
<PAGE>
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>
<S> <C> <C>
In thousands, Number of Exercise
except per share amounts Shares Price Range
- -----------------------------------------------------------------
Balance at January 1, 1991 2,164 $7.15-19.22
Options Granted 530 5.97-19.23
Options Exercised (251) 7.15-16.97
Options Cancelled (187) 5.97-18.42
------ -----------
Balance at December 31, 1991 2,256 5.97-19.23
Options Granted 464 9.72-23.08
Options Exercised (1,032) 5.97-19.22
Options Cancelled (22) 5.97-13.94
------ -----------
Balance at December 31, 1992 1,666 5.97-23.08
Options Granted 1,288 16.99-30.31
Options Exercised (408) 5.97-18.42
Options Cancelled (27) 5.97-27.03
------ ------------
Balance at December 31, 1993 2,519 $5.97-30.31
======
Options Exercisable at December 31, 1993 866 $5.97-23.08
======
</TABLE>
The corporation is recognizing an expense over three years equal
to the exercise price of certain 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.
12. PENSION AND OTHER BENEFIT PLANS
The corporation has a non-contributory, defined benefit pension
plan which covers substantially all of its employees except those
who were employees of RSi immediately prior to the merger.
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.
Page 20
<PAGE>
The net pension expense for each year includes the following
components:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
In thousands 1993 1992 1991
- -----------------------------------------------------------------------
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
Credit for Actual Return on Pension
Plan Assets (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 14). 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.
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>
<S> <C> <C>
In thousands 1993 1992
- ---------------------------------------------------------------------
Actuarial Present Value of Benefit
Obligations:
Accumulated Benefit Obligation,
including vested benefits of $88,271
in 1993, $80,774 in 1992 $ 90,981 $ 83,026
========= =========
Projected Benefit Obligation for Service
Rendered to Date $ 109,543 $ 99,198
Pension Plan Assets at Fair Value,
primarily equity securities, corporate
and U.S. Government bonds and short-term
investments 99,070 94,877
--------- ---------
Excess of Projected Benefit Obligation over
Plan Assets (10,473) (4,321)
Unrecognized Net Loss 12,116 3,248
Unrecognized Transition Asset at
January 1, 1986 being amortized over
11 years (6,026) (7,884)
--------- ---------
Net Pension Liability $ (4,383) $ (8,957)
========= =========
Assumed Discount Rate 7% 8%
Assumed Rate of Compensation Increase 5% 6%
Expected Rate of Return on Pension Plan
Assets 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.
Page 21
<PAGE>
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 to stockholders
equity of $2,301,000, net of tax.
The corporation's accrued liabilities for this plan were
$15,679,000 and $10,661,000 at December 31, 1993 and 1992,
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%.
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.
Employee Stock Ownership Plan
- -----------------------------
The corporation has an Employee Stock Ownership Plan (ESOP) which
was established in 1988 by RSi for the benefit of eligible
employees. The ESOP has acquired 714,000 shares of common stock
with bank loan proceeds. The corporation makes periodic
contributions to the ESOP at least sufficient to make principal
and interest payments as they are due. Contributions to the ESOP
charged to expense totaled $1,049,000 in 1993, $1,026,000 in
1992, and $958,000 in 1991.
The corporation has guaranteed the ESOP s bank notes payable and
has reported the unpaid balance of these loans as a liability of
the corporation (see Note 7). An unearned ESOP compensation
amount, which is equal to the unpaid bank loans, has been
reported as a reduction of stockholder's equity.
Postretirement Benefits
- -----------------------
The corporation provides health and life insurance benefits to
retirees except those who retire from RSi. 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
Page 22
<PAGE>
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>
<S> <C> <C> <C>
In thousands 1993 1992 1991
- -------------------------------------------------------------------------
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>
<S> <C> <C>
In thousands 1993 1992
- ---------------------------------------------------------------------
Accumulated Postretirement Benefit
Obligation:
Retirees $ 25,258 $ 22,665
Fully Eligible Active Participants 3,826 13,106
Other Active Participants 14,846 18,368
-------- --------
43,930 54,139
Unrecognized Gain from Plan Changes 12,873 -
Unrecognized Net Loss (6,789) (7,086)
-------- --------
Net Postretirement Benefit Liability $ 50,014 $ 47,053
======== ========
Assumed Discount Rate 7% 8%
Assumed Rate of Compensation Increase 5% 6%
</TABLE>
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.
Page 23
<PAGE>
13. 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 $1,925,000 ($0.04 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>
<S> <C> <C> <C>
In thousands 1993 1992 1991
- --------------------------------------------------------------------
Federal:
Current $32,646 $25,349 $18,960
Deferred 19,419 3,682 5,911
Investment Tax Credits (3,627) (3,943) (3,968)
State and Local 6,754 4,883 2,942
------- ------- -------
Total $55,192 $29,971 $23,845
======= ======= =======
</TABLE>
The difference between tax expense computed at the statutory Federal
tax rate and the corporation's effective tax rate is:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
In thousands 1993 1992 1991
- ---------------------------------------------------------------------
Federal Income Taxes Computed at the
Statutory Rate $48,182 $28,309 $26,606
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 4,326 2,547 1,927
Rate Increase on Prior Year Deferred
Taxes 2,977 - -
Goodwill 670 707 317
Other 2,664 2,132 1,002
------- ------- -------
Income Tax Expense $55,192 $29,971 $23,845
======= ======= =======
</TABLE>
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%.
Page 24
<PAGE>
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>
<S> <C>
In thousands 1993
- ---------------------------------------------------------------
Current Deferred Tax Asset $ 8,333
Non-current Deferred Tax Liability (81,468)
---------
Net Liability $ (73,135)
=========
</TABLE>
The deferred tax assets and liabilities at December 31, 1993
are:
<TABLE>
<CAPTION>
<S> <C>
In thousands 1993
- ---------------------------------------------------------------
Assets
Postretirement Benefits $ 20,902
Accrued Expenses 32,291
ITC Carryforward 13,115
Alternative Minimum Tax Credit 32,368
Contract Revenue 7,135
Other 2,486
---------
Total Deferred Tax Assets 108,297
Liabilities ---------
Property and Equipment (179,376)
Other (2,056)
--------
Total Deferred Tax Liabilities (181,432)
--------
Net Liability $(73,135)
========
</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.
14. 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. (CVE) 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
Page 25
<PAGE>
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.
15. 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
the design and manufacture of voice and data communications
networks and products, systems integration services, and applied
research and technology services and includes the operations of
RSi (see Note 2). 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 14, 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. Additionally, segment information for all periods has
been restated for the merger with RSi as discussed in Note 2.
RSi s results are included in the Technology Services segment.
Operating Income (Loss) for each segment has been further
restated to reallocate indirect expenses.
Page 26
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
In thousands 1993 1992 1991
- ------------------------------------------------------------------------------
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) 202,161 205,499 221,423
Eliminations and Other Corporate 16,344 (7,138) (25,532)
----------- ----------- -----------
Total $ 754,285 $ 688,093 $ 651,211
=========== =========== ===========
Operating Income (Loss) (2):
International Communications $ 89,795 $ 89,552 $ 91,846
Mobile Communications 48,766 34,086 40,695
Video Enterprises 10,839 (8,084) 2,981
Technology Services 12,109 2,252 14,938
Other Corporate (9,929) (12,824) (7,748)
----------- ----------- -----------
Total $ 151,580 $ 104,982 $ 142,712
=========== =========== ===========
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 165,011 155,862 156,757
Corporate and Other Assets 191,582 177,772 106,789
----------- ----------- -----------
Total $ 1,773,513 $ 1,654,985 $ 1,469,516
=========== =========== ===========
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 7,468 11,458 13,396
Corporate and Other Assets 4,067 1,404 2,332
----------- ----------- -----------
Total $ 242,866 $ 234,494 $ 288,486
=========== =========== ===========
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 7,916 10,531 12,283
Corporate and Other Assets 5,882 4,380 2,743
----------- ----------- -----------
Total $ 142,111 $ 130,760 $ 113,318
=========== =========== ===========
(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. On October 3, 1992, the corporation sustained tornado
damage at its Largo, Florida facility. Revenues reported for the
Technology Services segment include business interruption insurance
proceeds of $3,021,000 in 1993 and $1,572,000 in 1992.
(2) Operating results for 1992 are net of the $38,961,000 provision for
restructuring (see Note 14). 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.
</TABLE>
Page 27
<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.
Customers comprising 10% or greater of the corporation's
revenues are:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
In thousands 1993 1992 1991
- ---------------------------------------------------------------
U.S. Government $ 115,446 $ 117,245 $ 98,620
AT&T $ 117,582 $ 135,499 $148,902
</TABLE>
16. 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 $11,813,000 for outstanding letters of
credit securing performance of certain contracts. As
discussed in Note 6, 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 9.0% 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,
Page 28
<PAGE>
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.
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>
<S> <C> <C>
December 31, 1993
-------------------------
In thousands Book Amount Fair Value
- ------------------------------------------------------------------
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
7.00% Industrial Revenue Bonds $ 3,508 $ 3,462
ESOP Debt $ 2,651 $ 2,774
</TABLE>
The fair values of the corporation's other financial instruments are
approximately equal to their carrying values.
17. SUBSEQUENT EVENTS
Debt
- ----
In March 1994, INTELSAT issued $200,000,000 of 6.625% notes
due March 22, 2004. Interest is payable annually in
arrears. The corporation has recorded its $40,400,000 share
of the long-term debt.
In April 1994, the corporation used commercial paper
borrowings to pay the $70,000,000 balance of its 9.55%
notes. This amount was classified as a current liability on
the December 31, 1993 balance sheet.
INTELSAT and Inmarsat Share Changes
- -----------------------------------
The corporation decreased its ownership share of INTELSAT
during the first quarter of 1994 from 20.9% at December 31,
1993 to 20.2% as of March 31, 1994. This resulted in
decreases in assets of $15,500,000 and liabilities of
$3,400,000.
The corporation also decreased its ownership share of
Inmarsat during the first quarter of 1994 from 23.0% at
December 31, 1993 to 22.4% as of March 31, 1994. The
Page 29
<PAGE>
corporation recorded decreases in assets and liabilities of
$6,000,000 and $3,000,000, respectively.
Equity Investment
- -----------------
The corporation has an agreement in principle to acquire a
minority interest in Philippine Global Communications, Inc.,
a provider of international communications services in the
Philippines, for $42,000,000. The transaction is expected
to be consummated in 1994.
18. QUARTERLY INFORMATION (UNAUDITED)
The condensed income statements for the quarters ended March
31, 1994 and 1993 as restated for the merger (see Note 2)
are:
<TABLE>
<CAPTION>
<S> <C> <C>
In thousands, except per share amounts 1994 1993
- ---------------------------------------------------------------------------
Revenues $ 200,495 $ 194,681
--------- ---------
Operating Expenses
Cost of Operations 114,735 110,343
Depreciation and Amortization 40,279 34,589
Research and Development 3,243 3,675
General and Administrative 5,364 5,248
--------- ---------
Total Operating Expenses 163,621 153,855
--------- ---------
Operating Income 36,874 40,826
Other Income (Expense), net 1,237 (943)
Interest Expense, net of amount capitalized (6,152) (7,000)
-------- ---------
Income Before Taxes and Cumulative Effect of
Accounting Change 31,959 32,883
Income Tax Expense (11,778) (12,376)
-------- ---------
Income Before Cumulative Effect of
Accounting Change 20,181 20,507
Cumulative Effect of Accounting Change for
Income Taxes - 1,925
-------- --------
Net Income $ 20,181 $ 22,432
======== ========
Primary Earnings Per Share:
Income Before Cumulative Effect of
Accounting Change $ 0.43 $ 0.44
Cumulative Effect of Accounting Change
for Income Taxes - 0.04
-------- --------
Net Income $ 0.43 $ 0.48
======== ========
</TABLE>
Page 30
<PAGE>
Separate results of the combining entities are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
In thousands, except per share amounts 1994 1993
------------------------------------------------------------
Revenues:
Previously Reported $169,529 $166,283
RSi 30,966 28,398
-------- --------
$200,495 $194,681
======== ========
Income Before Cumulative Effect of
Accounting Change:
Previously Reported $ 18,293 $ 18,313
RSi 1,888 2,194
-------- --------
$ 20,181 $ 20,507
======== ========
Net Income:
Previously Reported $ 18,293 $ 19,551
RSi 1,888 2,881
-------- --------
$ 20,181 $ 22,432
======== ========
Earnings Per Share:
Income Before Cumulative Effect of
Accounting Change:
Previously Reported $ 0.45 $ 0.45
RSi $ 0.43 $ 0.44
Net Income:
Previously Reported $ 0.45 $ 0.48
RSi $ 0.43 $ 0.48
</TABLE>
The condensed cash flow statements for the quarters ended
March 31, 1994 and 1993 as restated for the merger are:
<TABLE>
<CAPTION>
<S> <C> <C>
In thousands 1994 1993
--------------------------------------------------------------------
Cash Flows from Operating Activities:
Net Income $ 20,181 $ 22,432
Adjustment for Noncash Expenses-
Depreciation and Amortization 40,279 34,589
Changes in Operating Assets and Liabilities (29,455) 1,802
-------- --------
Net Cash Provided by Operating Activities 31,005 58,823
-------- --------
Cash Flows from Financing Activities:
Purchase of Property and Equipment (85,877) (45,067)
Other, Net (7,617) 10,330
-------- --------
Net Cash Used in Investing Activities (93,494) (34,737)
-------- --------
Cash Flows from Financing Activities:
Proceeds from Issuance of Long-Term Debt 40,421 32,747
Repayment of Long-Term Debt (1,796) (31,363)
Net Short-Term Borrowings (Repayments) 32,505 (14,305)
Other, Net (3,243) (4,650)
-------- --------
Net Cash Provided by (Used for) Financing
Activities 67,887 (17,571)
-------- --------
Effect of Exchange Rate Changes on Cash (4) (54)
-------- --------
Net Increase in Cash and Cash Equivalents 5,394 6,461
Cash and Cash Equivalents, Beginning of Period 16,230 11,777
-------- --------
Cash and Cash Equivalents, End of Period $ 21,624 $ 18,238
======== ========
</TABLE>
Page 31
<PAGE>
The condensed balance sheet for the quarter ended March 31,
1994 as restated for the merger is:
<TABLE>
<CAPTION>
<C>
<S>
In thousands 1994
-----------------------------------------------------------
Assets:
Receivables $ 213,192
Other Current Assets 70,539
----------
Total Current Assets 283,731
Property and Equipment, Net 1,357,929
Other Assets 186,180
----------
Total Assets $1,827,840
==========
Liabilities and Shareholders Equity:
Current Liabilities $ 289,979
Long-Term Debt 444,982
Other Non-Current Liabilities 290,184
Minority Interest 23,213
Shareholders Equity 779,482
Total Liabilities and Shareholders ----------
Equity $1,827,840
==========
</TABLE>
Page 32
<PAGE>
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: _______________________________
Allen E. Flower
Controller
Date: July 8, 1994
Page 33
