SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1993
Commission file number 1-4929
COMSAT Corporation
(Exact name of registrant as specified in its charter)
District of Columbia 52-0781863
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6560 Rock Spring Drive
Bethesda, MD 20817
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (301) 214-3000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common Stock, without par value New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Aggregate market value of voting stock held by non-affiliates
of the Registrant was $1.069 billion based on a closing market
price of $26.75 per share on March 1, 1994, as reported on the
composite tape for New York Stock Exchange listed issues.
40,266,776 shares of Common Stock, without par value, were
outstanding on February 28, 1994.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference:
Part of the Form 10-K into which
Title the document is incorporated
COMSAT - Annual Meeting of Shareholders -
Notice and Proxy Statement - 1994 Part III
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PART I
Item 1. Business
GENERAL INFORMATION
Business Segments
COMSAT Corporation (COMSAT, the Corporation or Registrant) has
four business segments: International Communications, Mobile
Communications, Video Enterprises and Technology Services.
International Communications consists of COMSAT World Systems,
which provides satellite communications services using the
satellite system of the International Telecommunications Satellite
Organization (INTELSAT), and COMSAT International Ventures, which
invests in telecommunications opportunities internationally.
Mobile Communications consists of COMSAT Mobile Communications,
which provides satellite communications services using the
satellite system of the International Maritime Satellite
Organization (Inmarsat). Video Enterprises, which consists of
COMSAT Video Enterprises, Inc., and the Corporation's majority
ownership interest in On Command Video Corporation, provides
entertainment services to the hospitality industry throughout the
United States and domestic video distribution services to
television networks. Technology Services consists of COMSAT
Technology Services, which provides communications networks and
products, information services, and applied research and technology
throughout the world.
The Corporation also owns the Denver Nuggets, a franchise of
the National Basketball Association.
The revenues, operating income (loss) and assets of the
Corporation, by business segment, for each of the last three years
are shown in Note 13 to the 1993 Financial Statements.
The Corporation had 1,527 employees on December 31, 1993.
None of the employees is represented by a labor union.
Communications Satellite Act of 1962
COMSAT was incorporated in 1963 under District of Columbia
law, as authorized by the Communications Satellite Act of 1962 (the
Satellite Act). Effective June 1, 1993, COMSAT changed its
corporate name from "Communications Satellite Corporation" to
"COMSAT Corporation." COMSAT is not an agency or establishment of
the U.S. Government. The U.S. Government has not invested funds in
COMSAT, guaranteed funds invested in COMSAT or guaranteed the
payment of dividends by COMSAT.
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Although COMSAT is a private corporation, the Satellite Act
governs certain aspects of COMSAT's structure, ownership and
operations, most significantly the following: three of COMSAT's 15
directors are appointed by the President of the United States with
the advice and consent of the United States Senate; COMSAT's
issuances of capital stock and borrowings of money must be
authorized by the Federal Communications Commission (FCC); there
are limitations on the classes of persons that may hold shares of
COMSAT's Common Stock and on the number of shares a person or class
of persons may hold; and, on matters that may affect the national
interest and foreign policy of the United States, COMSAT's
representatives to INTELSAT and Inmarsat receive instructions from
the U.S. Government. Congress has reserved the right to amend the
Satellite Act, and amendments, if any, could materially affect the
Corporation.
Government Regulation
Under the Satellite Act and the Communications Act of 1934, as
amended (the Communications Act), COMSAT is subject to regulation
by the FCC with respect to its COMSAT World Systems and COMSAT
Mobile Communications communications services and the rates charged
for those services. FCC decisions and policies have had and will
continue to have a significant impact on the Corporation. For a
discussion of these matters, see Note 7 to the 1993 Financial
Statements.
INTERNATIONAL COMMUNICATIONS
The International Communications segment consists of the FCC-
rate-regulated business of COMSAT World Systems, and COMSAT
International Ventures.
COMSAT World Systems
Services. COMSAT World Systems provides telephone, data,
video and audio communications services between the United States
and the rest of the world using the global network of INTELSAT
satellites. COMSAT World Systems customers include U.S.
international communications common carriers, private network
providers, multinational corporations, U.S. and international
broadcasters, newsgathering organizations and digital audio
companies.
The largest portion of COMSAT World Systems revenues comes
from leasing full-time voice grade half-circuits (two-way
communications links between an earth station and an INTELSAT
satellite) to U.S. international communications common carriers.
The three largest carrier customers are American Telephone &
Telegraph Company (AT&T), MCI International Inc. (MCI) and Sprint
Communications Company (Sprint). COMSAT World Systems offers
significant discounts to customers entering into long-term
commitments for full-time voice-grade half-circuits. More than
95.5% of all eligible voice-grade half-circuits are now under such
commitments.
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COMSAT World Systems voice and data services are primarily
digital, which ensures high-quality transmissions. COMSAT World
Systems International Digital Route (IDR) service, for example,
makes it possible for communications carriers to provide digital
public-switched telephone network circuits. The carriers apply
techniques to such circuits that permit a single digital circuit to
handle multiple telephone calls simultaneously.
For private line customers, COMSAT World Systems offers an
all-digital International Business Service (IBS), as well as an
international VSAT (Very Small Aperture Terminal) service. IBS
offers customers high-speed, digital communications for voice,
data, facsimile and video-conferencing using on-premise earth
stations that eliminate the need for costly land-line connections.
At year-end 1993, approximately 58% of COMSAT World Systems IBS
traffic was covered by multi-year agreements.
In 1992, COMSAT World Systems established international VSAT
networks to both Latin America and Europe. Using on-premise
antennas as small as 1.8 meters in combination with the high-power
satellites in the INTELSAT network, international corporations can
deliver communications to multiple sites. Used primarily for data
transmissions, VSATs can also accommodate voice and video
communications.
To the growing international broadcasting community, COMSAT
World Systems provides both digital and analog transmission
services on a long-term, short-term or occasional as-needed basis.
With the launch in 1992 of the INTELSAT K satellite over the
Atlantic Ocean, COMSAT World Systems has expanded the availability
of high-power, flexible capacity for broadcasters and satellite
newsgatherers. In anticipation of the adoption of digital
compression in the broadcast industry, COMSAT World Systems
introduced a flexible digital television service and a digital
audio service in 1992, attracting new customers to satellite
broadcasting.
To maintain the quality of the INTELSAT network, COMSAT World
Systems provides tracking, telemetry, control and monitoring
services to INTELSAT and engages in a program of research and
development to ensure that the satellite system accommodates the
latest communications technologies, including both broadband and
integrated services digital networks (ISDN).
Tariffs and Revenues. Under the Satellite Act and the
Communications Act, COMSAT is subject to regulation by the FCC with
respect to COMSAT World Systems communications services, the rates
charged for those services and earnings levels. COMSAT World
Systems provides its services on a non-discriminatory basis to all
customers, either under tariffs filed with the FCC or on the basis
of inter-carrier contracts.
Effective January 1, 1992, COMSAT World Systems introduced a
regional growth plan through which customers can benefit from rate
reductions as certain threshold traffic levels are attained in each
of four geographic regions: Europe, Latin America, Pacific and
Mid-East/Other. In addition, COMSAT World Systems reduced its
rates by 10% on 10- and 15-year IDR and Time Division Multiple
Access (TDMA) digital "base" circuits activated prior to January 1,
1992.
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In May 1992, rates for all multi-year "base" circuits with
transmissions between large Standard A earth stations were also
reduced by 10%. During 1992, COMSAT World Systems also introduced
rates for Digital Television Service coupled with transitional
rates for customers who commenced service in an analog mode and
opted to convert to digital modulation techniques within the same
lease period.
In January 1992, COMSAT World Systems filed a petition for
rulemaking with the FCC seeking incentive-based regulation of its
multi-year, switched-voice services for carriers. The petition
requests a regulatory framework to replace traditional rate-base
regulation and enable COMSAT World Systems to respond more
effectively to competitive market forces. This framework would
have three parts: (1) COMSAT World Systems would agree to cap its
prices for existing multi-year, switched-voice services at the
reduced rates that went into effect on January 1, 1992; (2) COMSAT
World Systems could lower its rates for these services on 14 days
notice, and those rates would be presumed lawful as long as they
were above its average variable costs; and (3) multi-year,
switched-voice services would no longer be subject to annual rate-
of-return reviews, although they would still be subject to review
in the event of a customer complaint. The FCC has not yet taken
action on this petition.
In 1993, COMSAT World Systems entered into new inter-carrier
contracts with each of its three largest customers, AT&T, MCI and
Sprint. Pursuant to those contracts, COMSAT World Systems further
reduced its rates for 10- and 15-year IDR and TDMA digital "base"
circuits activated prior to January 1, 1992, and also reduced its
rates beginning in 1996 for 7-year and longer IDR and TDMA circuits
activated after January 1, 1992. In addition, the contracts
provided AT&T and Sprint with leases and with options to lease
capacity from COMSAT World Systems in 36 MHz increments under
specified rates, terms and conditions.
Approximately 39% of the Corporation's consolidated revenues
in 1993 were derived from COMSAT World Systems services (45% in
1992, 47% in 1991). Approximately 13% of the Corporation's
consolidated revenues in 1993 were derived from COMSAT World
Systems services to AT&T. Also in 1993, COMSAT World Systems three
largest customers, AT&T, MCI and Sprint, were the source of approximately
34%, 18% and 9% respectively, of COMSAT World Systems revenue.
Competition. COMSAT World Systems competes with operators of
high capacity fiber-optic and other submarine cables in service
along major traffic routes worldwide. COMSAT World Systems' major
carrier customers (including its three largest customers, AT&T, MCI
and Sprint) are co-owners of submarine cables.
Under the Satellite Act and FCC orders, COMSAT is the only
U.S. entity that may provide international space segment services
to customers using INTELSAT satellites. In 1985 the FCC authorized
the establishment of separate international communications
satellite systems that would provide certain services in
competition with INTELSAT, subject to certain restrictions that are
being phased out. For a discussion of separate satellite systems
competition to COMSAT
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World Systems, see Management's Discussion and Analysis of Financial
Condition and Results of Operations and Note 7 to the 1993 Financial
Statements.
INTELSAT. INTELSAT is a 131-nation organization headquartered
in Washington, D.C. It operates under two agreements: (1) an
intergovernmental agreement; and (2) an operating agreement signed
by each nation's government or designated telecommunications entity
(Signatory). COMSAT is the U.S. Signatory. It represents the
United States in INTELSAT, subject to instructions from the
Department of State (in concert with the Department of Commerce and
the FCC) on matters that may affect the national interest and
foreign policy of the United States.
Each Signatory has rights and obligations in INTELSAT
analogous to those of a partner. Each owns an investment share,
makes proportionate contributions to INTELSAT's capital costs, and
receives proportionate distributions of INTELSAT's net revenues
after deductions for operating expenses. The investment shares are
readjusted as of March 1 of each year to approximate the
Signatories' respective portions of the total use of the INTELSAT
space segment for the previous six months. COMSAT's investment
share, the largest in INTELSAT, was 20.2% as of March 1, 1994
(21.8% as of March 1, 1993; 21.9% as of March 1, 1992).
Signatories also pay INTELSAT for their use of the satellite
system. Charges for such use are computed to provide a pretax
cumulative rate of return of between 16% to 18% on a Signatory's
capital used by another Signatory or from non-owners who use the
satellite system. COMSAT World Systems realized revenue from its
INTELSAT ownership, net of use charges paid, of $26 million in
1993. This net revenue is reflected in COMSAT World Systems
revenue requirements for ratemaking purposes.
At December 31, 1993, total INTELSAT Owners' Equity was
approximately $1,687 million, and INTELSAT's outstanding
contractual commitments totaled approximately $1,725 million.
In each of 1989 through 1993, the Corporation entered into
agreements with INTELSAT to place COMSAT World Systems FM, digital
bearer, IBS and video traffic on the INTELSAT system under long-
term commitments.
Under the INTELSAT agreements, the member nations that authorize
international satellite systems separate from INTELSAT are required
to ensure that such systems are technically compatible with the
INTELSAT system and will not cause significant economic harm to the
INTELSAT system. During 1990, INTELSAT initiated certain reforms to
its process for coordinating with these separate satellite systems,
which reforms were superseded in November 1992. Under the streamlined
procedures approved in 1992, carriage by separate systems of any amount of
traffic or services not interconnected to the public switched
network and of up to 1,250 circuits of public switched traffic per
satellite is presumed not to cause significant economic harm to the
INTELSAT system. In addition, the recommendations approved called
for
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further liberalization of coordination procedures with a view
toward eliminating the economic harm test in the 1996-98 timeframe.
For a discussion of separate satellite systems competition to COMSAT
World Systems, see Management's Discussion and Analysis of Financial
Condition and Results of Operations and Note 7 to the 1993 Financial
Statements.
COMSAT International Ventures
COMSAT International Ventures (CIV) forms venture companies
with strategic and operating partners to provide a variety of
telecommunications services and equipment, and also operates
overseas companies that are wholly or majority owned. These
companies provide international and domestic (non-U.S.) private-
line voice and data services, including IBS, VSAT and single
channel per carrier services, as well as equipment leasing and
technical services. Customers for these services include U.S. and
foreign multinational corporations, and domestic (non-U.S.)
companies operating in their own countries.
CIV continued to develop new investment opportunities around
the world in 1993. CIV ventures are providing services in the
Latin American countries of Chile, Argentina, Bolivia, Colombia and
Guatemala. A CIV operating unit in Argentina is wholly owned.
During 1993, CIV formed a joint venture company in Brazil and its
new Venezuelan company continued to explore opportunities to
provide communications services in that country. CIV also expanded
its European and Middle Eastern presence by investing in a U.S.
company providing communications services in Russia and other newly
independent states. This venture joins CIV's existing operations
in Turkey. CIV continues to expand its investments to other
regions of the world besides Latin America, and several new
investments are expected to start operations during 1994.
The level of competition in each of the joint ventures in
which CIV invests varies considerably from country to country. In
some countries there is full competition, and in others competition
is limited. The competitive conditions faced by each joint venture
are the result of differing regulatory policies, as well as
economic and market conditions, in the particular country in which
that joint venture operates.
MOBILE COMMUNICATIONS
The Mobile Communications segment consists of the FCC-
regulated business of COMSAT Mobile Communications.
COMSAT Mobile Communications
COMSAT Mobile Communications provides satellite
telecommunications services for maritime, aeronautical and land
mobile applications, using the Inmarsat satellites and COMSAT's
land earth stations in Connecticut, California and Turkey, which
serve the Atlantic, Pacific and Indian Ocean Regions, respectively.
These stations enable COMSAT Mobile Communications to offer global
coverage for its services. There are currently more than 34,000
mobile terminals operating in the Inmarsat system. As described
below, COMSAT Mobile Communications
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provides a full range of voice, facsimile, data and telex services,
as well as certain value-added services.
Maritime Services. COMSAT Mobile Communications provides
satellite services for communications to and from ships and other
vessels. Customers for these services include transport ship
operators, cruise ships and their passengers, fishing vessel
operators, oil and mining interests, pleasure boat operators, U.S.
Navy ships and foreign telecommunications administrations.
Services include group call messaging to a fleet of ships, an
electronic mail service, a direct-dial telephone service for
passengers and crew on board ships, a news summary distribution
service, access to data bases through personal computers and other
office communications services for facsimile transmissions,
worldwide teleconferencing and current financial news reports.
In 1992, COMSAT Mobile Communications initiated its two new
digital services, Inmarsat-B and Inmarsat-M, in the Atlantic and
Pacific Ocean Regions. These services provide more efficient use
of the Inmarsat satellite capacity, help to significantly lower the
cost of using satellite communications, and expand the potential
customer base for maritime and land mobile services. COMSAT Mobile
Communications also introduced a multi-channel version of Inmarsat-
M service that will allow cruise ships and other high-volume users
to increase their channel capacity and offer lower rates to their
customers. In 1993, COMSAT Mobile Communications announced plans
for a new land earth station in Malaysia to provide these new
digital services to the Indian Ocean Region. The Malaysian earth
station is expected to be operational in 1994.
Aeronautical Services. COMSAT Mobile Communications provides
satellite telecommunications services for aeronautical
applications, including airline operational and administrative
communications, passenger telephone service and, prospectively, air
traffic control.
By an FCC Report and Order issued in 1989, COMSAT was
authorized (1) to be the sole U.S. provider of Inmarsat space
segment capacity for aeronautical services; (2) to provide ground
segment aeronautical services in connection with the Inmarsat space
segment on a nonexclusive basis; and (3) to provide such
aeronautical services only to aircraft engaged in international
flights, including international flights over U.S. airspace.
Another entity, the American Mobile Satellite Corporation (AMSC),
was designated as the sole provider of certain domestic
aeronautical satellite services. However, COMSAT Mobile
Communications has been authorized by the FCC to provide domestic
aeronautical satellite services on an interim basis until the
deployment of AMSC's satellite, which AMSC expects to occur in late
1994 or early 1995.
Customers of COMSAT Mobile Communications for aeronautical
services include airline service providers, commercial airlines,
government aircraft and owners and operators of corporate aircraft.
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COMSAT Mobile Communications began providing aeronautical
services in 1990 with a data service for cockpit communications on
commercial flights under a 10-year agreement with Aeronautical
Radio, Inc., an airline-owned service organization. In 1991,
COMSAT Mobile Communications began providing aeronautical voice
services in the Atlantic and Pacific Ocean Regions through its
earth stations at Southbury, Connecticut and Santa Paula,
California. There are currently more than 300 aircraft equipped to
use the Inmarsat aeronautical system, equally split between voice
and data services.
A service agreement with Kokusai Denshin Denwa Co., Ltd.
(KDD), the Japanese Signatory to Inmarsat, provides that COMSAT
Mobile Communications may use KDD's ground earth station serving
the Indian Ocean Region to serve COMSAT Mobile Communications'
aeronautical customers. COMSAT Mobile Communications may serve
KDD's customers flying in the Atlantic Ocean Region, and COMSAT
Mobile Communications and KDD will provide mutual back-up in the
Pacific Ocean Region for aeronautical customers of both companies.
Service agreements with GTE Airfone, Incorporated, Claircom
and In-Flight Phone, Inc., all of which are providers of air-to-
ground passenger telephone service using terrestrial facilities,
enable these providers to extend their current service to
transoceanic flights by acquiring satellite and ground earth
station services from COMSAT Mobile Communications.
In 1993, COMSAT signed a service agreement with United
Airlines to provide satellite communications services for
passengers, including telephone, fax and data transmission on
approximately 74 aircraft, once such aircraft are equipped with
satellite terminals.
Land Mobile Services. COMSAT Mobile Communications provides
telecommunications services for international land mobile
applications, using mobile and portable terminals located outside
of the United States. Customers for these services include
broadcasters, foreign telecommunications authorities and U.S. and
foreign corporations and government agencies.
COMSAT Mobile Communications land mobile services are
currently available using transportable versions of Inmarsat's
Standard-A mobile earth station (telephone, facsimile, data, and
telex), a briefcase-size Inmarsat-M terminal and a smaller data-
only Standard-C terminal through COMSAT Mobile Communications' C-
Link(sm) service. The briefcase-size Inmarsat-M terminals provide
a more portable and less expensive telephone service for
international travelers, the news media, government officials and
others who travel to remote parts of the world where reliable
communications services are often not available. C-Link service is
a low-cost text messaging service that permits smaller vessels and
land mobile units to use the global satellite network. COMSAT
Mobile Communications is continuing to modify its land earth
stations to interconnect this service with public and private data
networks.
COMSAT is not generally authorized to provide domestic land
mobile services directly to end users. However, it is providing
Inmarsat satellite capacity to AMSC, the authorized U.S. domestic
land mobile entity, for an interim service pending the launch of
AMSC's own satellite,
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and it is providing interim domestic service to certain other end users
under special temporary authority from the FCC.
Revenues. Approximately 30% of the Corporation's consolidated
revenues in 1993 were derived from COMSAT Mobile Communications
(28% in 1992, 24% in 1991). No single customer of COMSAT Mobile
Communications provided more than 10% of the Corporation's
consolidated revenues in 1993.
Competition. Under the Satellite Act and FCC orders, COMSAT
is the only U.S. entity that may provide space segment services to
customers using the Inmarsat satellites. COMSAT Mobile
Communications competes for maritime, land mobile and aeronautical
communications business with other Inmarsat Signatories operating
land earth stations and with IDB Aero-Nautical Communications, Inc.
(IDB), another U.S. carrier which provides maritime, land mobile
and aeronautical services through its own U.S. coast earth
stations, using Inmarsat satellite capacity obtained from COMSAT
Mobile Communications. COMSAT Mobile Communications also competes
for maritime communications business with operators of cellular
radio services, high frequency radio services and fixed C-band
satellites, domestic and international. These competitive forces
continue to exert downward pressure on COMSAT Mobile
Communication's pricing for services provided through the Inmarsat
system.
In November 1993, the FCC authorized AT&T to provide shore-to-
ship Inmarsat service under an agreement with COMSAT Mobile
Communications whereby COMSAT Mobile Communications is indicated in
AT&T's tariff as a "participating carrier" and pursuant to which
COMSAT Mobile Communications reduced its charge for space and
ground segment to AT&T by more than 20%. In December 1993, AT&T
filed a new application to provide "branded end-to-end" Standard A
mobile satellite service in the ship-to-shore direction. In
February 1994, COMSAT opposed this application, arguing that it is
contrary to the Satellite Act. The FCC has not acted on this
matter.
In March 1993, the FCC granted COMSAT's petition seeking
waivers of the structural separation requirements, subject to
COMSAT's establishing certain accounting and non-structural
safeguards. This relief allows COMSAT to provide equipment,
software and value-added services to customers directly through
COMSAT Mobile Communications, rather than through a separate
subsidiary that would require substantial duplication of personnel
and other costs. In satisfaction of conditions placed on COMSAT by
the FCC in granting the COMSAT application, in January 1994, COMSAT
filed with the FCC its new Cost Allocation Manual, and in February
1994, COMSAT filed its plan for implementing certain non-structural
safeguards desired by the FCC. Both filings are subject to FCC
approval before the FCC waivers take effect.
Inmarsat. Inmarsat is a 72-nation organization headquartered
in London, England. It operates under two agreements: (1) an
intergovernmental convention; and (2) an operating agreement signed
by each nation's government or designated telecommunications entity
(Signatory). COMSAT is the U.S. Signatory. It represents the
United States in Inmarsat, subject
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to instructions from the Department of State (in concert with the
Department of Commerce and the FCC) on matters that may affect the
national interest and foreign policy of the United States.
Each Signatory has rights and obligations in Inmarsat
analogous to those of a partner. Each owns an investment share,
makes proportionate contributions to Inmarsat's capital costs, and
receives proportionate distributions of Inmarsat's space segment
charges after deductions for operating expenses. The investment
shares are readjusted as of February 1 of each year to approximate
the Signatories' respective portions of the total use of the
Inmarsat space segment for the previous year. COMSAT's investment
share, the largest in Inmarsat, was 22.5% as of February 1, 1994
(23.1% as of February 1, 1993; 25.0% as of February 1, 1992).
At December 31, 1993, total Inmarsat Owners' Equity was
approximately $672 million, including undistributed compensation
for use of capital totaling approximately $136 million, and
Inmarsat's outstanding contractual commitments totaled
approximately $380 million.
VIDEO ENTERPRISES
The Video Enterprises segment consists of COMSAT Video
Enterprises, Inc. (CVE), a wholly owned subsidiary of the
Corporation, and On Command Video Corporation (OCV), a California-
based company that developed and markets a proprietary video
entertainment system to hotels. CVE is the majority owner of OCV.
This segment provides entertainment services to the hospitality
industry throughout the United States, as well as domestic video
distribution services to television networks.
CVE and OCV services to hotels consist of pay-per-view feature
films, free-to-guest programming (such as Showtime, HBO, ESPN, The
Disney Channel, CNN and TBS, among others), and pay-per-view sports
and entertainment special events. OCV's pay-per-view film service
is on-demand and its system also provides interactive in-room
services such as folio review and guest check out. At December 31,
1993, CVE and OCV had a customer base installed or under contract
of approximately 2,200 hotels and approximately 490,000 rooms,
including hotels in each major hospitality chain.
In 1993, CVE raised its ownership of OCV from 65.7% to 73.5%
through purchases of common stock from minority stockholders and of
additional common stock from OCV. Beginning with the third quarter
of 1992, OCV's financial results have been consolidated with CVE.
Previously, this investment was accounted for using the equity
method. For a further discussion of this investment, see Note 4 to
the 1993 Financial Statements.
In COMSAT's 1992 restructuring, the Corporation's video
distribution business was transferred to CVE, which allowed CVE to
capitalize on certain operational synergies. CVE management's focus
was directed to rapidly install upscale hotel properties using the
OCV product. This refocus rendered significant property and equipment
obsolete which had been purchased for CVE's mid-priced hotel business and
this property and equipment was written
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down in the restructuring charges. For a further discussion of
the restructuring, see Note 12 to the 1993 Financial Statements.
All of the Corporation's domestic video distribution services
and products have been consolidated within CVE. This includes the
distribution of network television programming of the National
Broadcasting Company (NBC) via satellite to NBC affiliate stations
nationwide pursuant to a service contract which runs to 1999.
CVE operates in a highly competitive and rapidly changing
environment in which the principal methods of competition are
service, product features and price. Several competing companies,
principally Spectradyne, Inc., provide hotels with in-room video
entertainment.
TECHNOLOGY SERVICES
The Technology Services segment consists of COMSAT Technology
Services (CTS), which was created in 1992 by restructuring the
former COMSAT Systems Division and combining its activities with
those of COMSAT Laboratories, the Corporation's research and
development organization. For a discussion of the restructuring,
see Note 12 to the 1993 Financial Statements. CTS provides turnkey
voice, video and data communications networks and products,
information services and applied research and technology worldwide.
CTS's services include: information systems design,
development, engineering, installation, testing and operations and
maintenance; program management, applications engineering and
software; integrated voice, video and data networks; and systems
engineering and technical assistance services. CTS's customers
include the U.S. Government, foreign governments and a variety of
commercial customers.
Major new CTS contracts awarded or begun in 1993 include: a
contract with the Cote d'Ivoire (Ivory Coast) government to provide
a national television and radio distribution system for Radio
Television Ivorian; a contract with the Guatemalan telephone
company (Guatel) to provide a VSAT network for rural telephony
voice service; and contracts to provide various systems and
services for U.S. government classified customers.
On-going contracts being implemented in 1993 included: a
contract with the Defense Information System Agency for a
commercial satellite communications study; a contract to provide
earth station management services to the Saudi Arabian government;
a contract with a government agency in Korea to install earth
stations to connect with the Inmarsat Indian Ocean Region
satellites; contracts to provide consulting services for Koreasat
and Asiasat satellite construction and launches; a contract with
the Voice of America for earth station implementation; and
contracts to provide various systems and services for government
agencies in Italy, Korea, Japan and Turkey.
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COMSAT Laboratories, part of CTS, conducts research and
development on a broad range of telecommunications devices,
subsystems, transmission systems, technologies and techniques in
support of CTS and other COMSAT businesses, as well as for outside
customers. Customers include U.S. and foreign government agencies,
commercial entities, INTELSAT and Inmarsat. COMSAT Laboratories
also licenses new technology it develops to other companies for
commercialization of such technology.
During 1993, COMSAT Laboratories successfully delivered its
portion of NASA's Advanced Communications Technology Satellite
(ACTS) and is currently providing operations and maintenance
support. The ACTS satellite was launched in 1993 and NASA is
currently conducting its experiments program. COMSAT Laboratories
also continued work under a subcontract with Magnavox Electronic
Systems Company to develop satellite communications control
software and a computer interface to a new satellite ground
terminal system for the U.S. Army.
Support of COMSAT Laboratories from outside sources was 46% of
total funding in 1993. The Corporation's total expenditures for
research and development were $13 million in 1993, $15 million in
1992, and $18 million in 1991.
CTS also includes the activities of COMSAT General Corporation
(COMSAT General), a wholly owned subsidiary of the Corporation.
COMSAT General owns an 86.3% interest in and manages the MARISAT
Joint Venture, which owns and operates three satellites and leases
capacity in the satellites to Inmarsat and the U.S. Navy. In
addition, CTS manages the Corporation's minority investment in
Plexsys International Corporation, a manufacturer of cellular
telephone equipment.
Effective December 31, 1993, the Microwave Electronics
Division (MED) of CTS, which designs and manufactures certain
electronic components primarily for use in satellite communications
systems, was sold to AMP Incorporated.
No material portion of CTS's business is subject to
renegotiation of profits or termination of contracts or
subcontracts with the U.S. Government.
CTS competes with major companies around the world in the
broad areas of systems engineering and integration of
telecommunications and information systems and services. CTS
competes principally on the basis of service, product, price,
reputation and capabilities.
In January 1994, the Corporation entered into a definitive
agreement to acquire Radiation Systems, Inc. (RSi), a company which
designs, manufactures and integrates satellite earth stations,
advanced antennas and other turnkey systems for telecommunications,
radar, air traffic control and military uses, by merging RSi with
a wholly owned subsidiary of the Corporation. Following the
merger, the Corporation expects to combine CTS with RSi. For a
further discussion of the acquisition of RSi, see Note 15 to the
1993 Financial Statements.
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INVESTMENTS
The Corporation owns a limited partnership which owns the
Denver Nuggets, a franchise of the National Basketball Association.
As a result of the Corporation's acquiring all of the remaining
interests in the partnership in 1992, the partnership's financial
results have been consolidated with the Corporation's financial
statements beginning with the third quarter of 1992. Previously,
this investment was accounted for using the equity method.
For a further discussion of the Corporation's investments, see
Note 4 to the 1993 Financial Statements.
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
ANALYSIS OF OPERATIONS
Consolidated Operations
Consolidated revenues totaled $640 million, an increase of $77
million above record 1992 revenues and $118 million above 1991.
Revenue increases in 1993 resulted from improved operating performance,
particularly in COMSAT Mobile Communications, which had higher
traffic volumes, and in COMSAT Video Enterprises, where On Command
Video product installations grew rapidly. In addition, 1993 revenues
rose due to the consolidation of Denver Nuggets results for the
full year, versus the six months' revenues included in 1992. Growth in
1992 revenues of $41 million over 1991 was primarily attributable to
improved operating performance, particularly in COMSAT Mobile
Communications, and the consolidation of results of both On Command
Video and the Denver Nuggets beginning in the third quarter of 1992.
Operating income in 1993 was $138 million, an improvement of $50
million over 1992 ($11 million, excluding restructuring charges)
and $11 million better than 1991. Results from operations improved
over 1992 based on the strong performance from COMSAT Mobile
Communications and on cost benefits resulting from the
restructuring in 1992. The Corporation announced a restructuring of
its systems integration and video distribution businesses in 1992. This
restructuring included a $13 million charge for staff reductions and a
$26 million charge for property, equipment and other items. The
restructuring formed COMSAT Technology Services and consolidated video
entertainment and distribution services within COMSAT Video Enterprises.
Some of this improvement was offset by the inclusion of a full year of
consolidated losses from the Denver Nuggets. Operating income in 1992 was
$39 million below 1991, but excluding the 1992 restructuring charges,
operating income was the same in 1992 and 1991.
Other income improved in 1993 due to proceeds from company-
owned life insurance policies, inclusion of profits from equity
investments, and the inclusion of the Denver Nuggets losses in
other income in the first half of 1992. Improvements in other income
in 1992 over 1991 was mainly a result of including only six months
of the Denver Nuggets losses in 1992 compared to the full year included
in 1991.
Interest costs in 1993 declined slightly from the levels of the prior
two years on lower borrowings and lower interest rates. Interest costs
in 1992 were flat compared to 1991 as increased borrowings were offset
by lower interest rates. Capitalized interest increased over 1992, but
remained below the 1991 level, as plant under-construction balances have
continued to increase following the heavy satellite launch schedule in
1990 and 1991.
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The corporation adopted Statement of Financial Accounting
Standards (SFAS) No. 109 in 1993. The new standard requires that
deferred tax assets and liabilities be adjusted to reflect current
tax rates. The cumulative effect of adopting this standard was to
increase income by $1 million in 1993. In addition, the corporation
recorded a charge to income tax expense of $3 million under the new
standard to reflect the impact on the prior year's deferred tax
accounts of the recent change in Federal income tax rate to 35%
from 34%.
The corporation adopted SFAS No. 106 in 1991, which required
recognition of $27 million in expenses after taxes for the expected
cost of postretirement benefits.
Net income in 1993 was a record $75 million, a 13% increase over 1992
excluding restructuring charges. Primary earnings per share were
$1.85, a 9% increase over 1992, excluding the effects of restructuring.
Net income was $43 million in 1992 compared to $45 million in 1991, and
primary earnings per share were $1.09 and $1.18, respectively.
Operating Results
International Communications
In millions 1993 1992 1991
- ------------------------------------------------------------
Revenues $ 250 $ 253 $ 245
Operating Income $ 89 $ 89* $ 92
*Includes restructuring charges of $7 million.
International Communications includes the FCC-regulated and
non-regulated businesses of COMSAT World Systems (CWS), as well as
COMSAT International Ventures (CIV). CWS provides international
voice, data, video and audio communications. Revenues declined
slightly, but the business continued its solid performance as
demand for services remained strong. CIV invests in
telecommunications opportunities internationally.
CWS revenues in 1993 declined by 3% from 1992 levels and were flat
compared to 1991. Revenues for full-time voice circuits declined
11% in 1993 due to the anticipated conversion from analog circuits to more
efficient digital service. Additionally, in 1993 CWS entered into new long-
term carrier agreements with ATT, MCI and Sprint, its three major
international carrier customers, that provide significant rate
reductions in exchange for additional service commitments. CWS
share of revenues from the INTELSAT system declined as expected
with the 1% reduction in the corporation's ownership share in 1993.
Revenues from full-time leased television services in 1993 increased
over 50% as customers benefitted from implementing highly efficient
networks with smaller, less expensive antennas that operate with
the high-power INTELSAT-K and INTELSAT VI satellites.
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Growth in 1992 revenues over 1991 resulted from CWS' share
of higher INTELSAT system revenues and increased digital circuit growth,
offset by digital tariff rate reductions in 1992 and a decrease in
analog circuits.
Operating income for CWS in 1993 declined 5% from 1992 results, before
charges for restructuring, and were about the same as 1991 results.
The decrease from 1992 is due to the reduction in revenues.
Operating expenses for CWS in 1993 were below 1992 levels (before
restructuring charges) due to cost controls and lower INTELSAT
system expenses resulting from the lower ownership share. This was
partially offset by higher depreciation expense. CWS 1992 operating
income, excluding restructuring charges, grew 5% over 1991. Despite a
$7 million increase in depreciation in 1992, operating expenses (before
restructuring charges in 1992) increased by only $6 million over 1991.
CIV has business interests in eight countries in Central
America, South America, Eastern Europe and the Commonwealth of
Independent States. CIV continues to screen new opportunities
carefully as it manages its existing portfolio of operating
ventures and investments. Revenues from owned or controlled
ventures were consolidated for the first time in 1993, adding 2% to
segment revenues. As anticipated, CIV incurred operating losses of
$6 million in 1993. Results in 1992 were $2 million better than in
1993, and included a $2 million gain from the sale of a venture in
Venezuela. In 1991, results were the same as 1992.
Mobile Communications
In millions 1993 1992 1991
- -----------------------------------------------------------------
Revenues $ 190 $ 158 $ 128
Operating Income $ 48 $ 34* $ 40
*Includes restructuring charges of $3 million.
COMSAT Mobile Communications (CMC) provides maritime, aeronautical
and land mobile communications services. CMC's 1993 revenues and
operating income grew in excess of 20% over 1992 levels.
The maritime business remains strong while undergoing a
transition to less expensive, more efficient digital service.
Digital Standard-M terminals currently represent only about 3% of
commissioned telephony terminals. However, the lower cost
associated with digital service versus comparable analog terminals
has produced significant increases in traffic volume on passenger
ships. Continued significant traffic growth is expected as the
digital Standard-M dominates new terminal commissionings over the
next few years.
Overall, CMC 1993 revenues grew by slightly better than 20% over 1992.
Demand continued to be strong for telephone service, particularly in
the land mobile and government market segments, while the fishing and
offshore oil segments declined. Telex revenue in 1993
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declined from 1992 levels, but this decline was mostly offset by revenue
growth from smaller, less expensive Standard-C digital terminals.
Aeronautical communication services have continued to develop slowly due
to airline industry conditions, with 1993 revenues remaining even with
1992 levels. With several airlines already having committed to install
aircraft terminals, it is anticipated that this market will begin to grow
in the near future.
Operating income improved year to year by almost 30% over 1992,
excluding 1992 restructuring charges. Operating expenses in 1993 increased
17% as higher satellite use charges associated with higher traffic
volumes were only partially offset by a reduced share of Inmarsat
system revenues and expenses. Depreciation on new earth station and
satellite equipment installed to meet traffic demand increased 1993
expenses by $5 million.
CMC 1992 revenues grew approximately 24% over 1991, but costs
increased 43%, resulting in an earnings decline of $6 million, including
1992 restructuring charges. Capital investment in new satellites and
earth stations to accommodate traffic growth and new state-of-the-art
services increased depreciation by $9 million in 1992. Additionally, higher
satellite use charges due to higher traffic volume as well as increased
sales and marketing costs also offset the increased revenues.
Video Enterprises
In millions 1993 1992 1991
- -----------------------------------------------------------------
Revenues $ 96 $ 78 $ 82
Operating Income $ 10 $ (8)* $ 3
*Includes restructuring charges of $14 million.
COMSAT Video Enterprises (CVE) provides video distribution and
on-demand video entertainment services to the hospitality industry
and video distribution services to television networks.
The corporation increased its ownership of On Command Video
Corporation (OCV) to 74% from 66% during 1993, and has consolidated
OCV results since July 1992. Through the investment in OCV, CVE has
grown to become the major supplier of on-demand video entertainment
to the hospitality industry.
Revenues from video programming provided to the hospitality
industry grew by almost 34% in 1993 over 1992, as OCV and CVE continued
to equip existing and new hotel rooms with on-demand video systems
from OCV. A revenue decline in 1993 of almost 11% in CVE's mid-priced hotel
market from 1992 was more than offset by a six-fold increase in revenues
from OCV 's upscale hotels and from CVE hotels converted to the OCV
system during the same period. In 1992, revenues declined from 1991
levels because diminished revenues in the mid-priced hotel market more
than offset smaller 1992 OCV revenue gains. During 1993, OCV
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tripled the number of rooms equipped, and increased the backlog of rooms
to be installed by 290%. Demand remains high for this state-of-the-art
product.
Revenue in 1993 from the video distribution services provided to the
National Broadcasting Corporation (NBC) remained flat compared to 1992, as
did operating income. Revenue and operating income for 1992 for these
services improved slightly over 1991.
Operating income in 1993 improved by 76% over 1992, excluding
charges for restructuring. While the CVE hotel business continued
to incur modest losses, these were more than offset by operating
income from OCV. CVE improved performance over 1992 due to lower
costs achieved through the restructuring and to improved performance
from rooms converted to the OCV system. Operating income in 1992,
excluding charges for restructuring, improved over 1991. This is
attributable to increased revenues and margins from video distribution
services and decreased video programming revenues being offset somewhat
by cost controls. In addition, 1992 operating income includes the
consolidation of six months of OCV profits.
Technology Services
In millions 1993 1992 1991
- -----------------------------------------------------------------
Revenues $ 88 $ 81 $ 93
Operating Income (Loss) $ 1 $ (13)* $ -
*Includes restructuring charges of $10 million.
COMSAT Technology Services (CTS) provides turnkey voice, video
and data communications networks and products, technology
consulting services and applied research services.
Revenues in 1993 increased by 9% over 1992. Improvements came
from new infrastructure programs such as a major VSAT rural
telephony program in Guatemala and a television and radio
distribution network in Cote d'Ivoire (Ivory Coast), as well as
from new consulting programs. The significant decline in this
division's 1992 revenues and operating profit as compared to 1991
was due to the failure to win sufficient outside contracts. This
prompted an effort to cut costs and to restructure the business to
reposition it within markets, particularly international areas, in
which it has a competitive advantage.
Reductions in overhead and refocused marketing efforts which
followed the 1992 restructuring have helped make 1993 operating income
positive. This represents an improvement of $4 million over 1992
operating losses, before restructuring charges.
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Corporate
In millions 1993 1992 1991
- -----------------------------------------------------------------
Revenues* $ 30 $ 11 $ 3
Operating Loss $ (10) $ (13)* $ (8)
*Revenues exclude elimination of intra-company revenues. The 1992
operating loss includes $4 million of restructuring charges.
Revenues increased in 1993 due to the Denver Nuggets' improved
attendance, ticket sales and sponsor revenues, and a full year of
consolidation versus six months in 1992.
Revenues in 1991 came primarily from office space sub-leased
by the corporation at its former headquarters building in
Washington. These rents have increased only slightly since 1991.
Operating losses for all years include costs for proprietary
research programs undertaken by COMSAT Laboratories. In 1992,
losses for the Denver Nuggets were included for half the year,
while in 1993 a full year is reflected. Increases in operating
losses of $1 million in 1993 compared to 1992, excluding
restructuring charges, were attributable to the full year of
consolidated Denver Nugget losses. Increased operating losses in
1992 compared to 1991 were attributable to six months of
consolidated Denver Nuggets losses starting in the third quarter of
1992.
Outlook
The corporation has advocated the privatization of both
INTELSAT and Inmarsat. Privatization would change these treaty-
based international organizations into commercial enterprises that
are responsive to marketplace forces and accountable to
shareholders. The corporation believes that the existing
organizational structures of INTELSAT and Inmarsat are ill-suited
to the competitive, fast-paced marketplace of today, and supports
the transfer of ownership holdings at market valuations.
Privatization would represent a fundamental change in how the
corporation operates in a regulated environment. The corporation
will continue to pursue its advocacy of privatization for each of
these organizations, but does not expect to see major changes
implemented in the near term.
COMSAT World Systems continues to adjust to an increasingly
competitive environment. In late 1993, the Federal Communications
Commission (FCC) substantially eliminated prior restrictions on
access of separate system satellite operators to the public
switched telephone network. This action, along with the FCC's
stated goal of eliminating all restrictions on separate satellite
systems by 1997, will increase competition for the provision of
satellite services and result in some loss of market share.
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During 1994, two new satellites scheduled to be launched by
PanAmSat will offer additional competition for INTELSAT and CWS.
Increased satellite competition and continued competition from
fiber optic cables will put increased pressure on service revenues
and operating margins.
CWS is well-positioned with new long-term agreements with the
major international carriers to provide new cost-competitive
services for bulk usage beyond the year 2000. In addition, several
emerging markets are expected to continue growing, including
international television distribution, international VSAT and
digital audio services.
INTELSAT currently has 13 satellites on order. The first
satellite in the INTELSAT VII series, launched in the fourth
quarter of 1993, was placed in service early in 1994. There are
three more INTELSAT VII launches planned for 1994. The new INTELSAT
VII satellites, along with the INTELSAT VIII series satellites,
will offer new higher-power capabilities, enabling CWS to remain
competitive in an increasingly crowded international
telecommunications market.
COMSAT International Ventures anticipates strong traffic
growth and expansion of business from its existing ventures and
will continue efforts to expand to new markets internationally.
Existing ventures as a group are expected to reach profitability by
the end of 1994. However, CIV anticipates incurring small
additional losses for 1994 due to management and administrative
costs and losses from new start-up ventures.
COMSAT Mobile Communications will continue to expand its
service offerings to meet customer needs. An increasing number of
digital terminals with improved operating efficiency and reduced
service charges should keep traffic growth strong. Smaller digital
terminals should facilitate growth in the land mobile, small
commercial and pleasure boat, and business traveler markets.
Additionally, CMC has signed agreements to provide multi-channel
terminals to major airline customers to help expand aeronautical
service.
CMC is facing competitive changes that will increase pressure
on service prices and operating margins. AT&T has petitioned the
FCC to allow competitive service offerings for ship-to-shore
traffic which, if approved, could lead to lower CMC rates for those
services. In early 1994, CMC reached agreement with AT&T to lower
the rates the corporation charges AT&T for shore-to-ship traffic
and the rates AT&T charges the corporation for ship-to-shore
traffic termination. It is anticipated that these new CMC rates
will be offered to all long distance carriers. These new agreements
could lead to slower revenue growth in the future. The impact on
future revenues and expenses will depend on the volume of calls
generated and the percentage of that traffic committed to the
corporation by the carriers. CMC entered into a carrier agreement
with Sprint International. The agreement provides for the exchange
of traffic and is expected to lead to additional traffic in the
future.
In 1993, the FCC initiated an audit of the corporation's role
as the United States signatory to Inmarsat and of CMC's earnings as
a provider of international mobile services. Although the
corporation cannot predict the ultimate disposition of this audit,
it believes the impact on service
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rates, if any, would be prospective and should not be materially
different from anticipated rate actions required to respond to market
pressure and competition.
CMC is studying alternatives for providing new worldwide,
satellite-delivered, hand-held telephony services by the end of the
decade. These services would be provided by technically complex
global systems that would have to compete with existing cellular
services, as well as with planned satellite systems such as the
Iridium system to be built by Motorola. The corporation has not yet
determined the best technical or business approach to this new
expanded opportunity, but anticipates that decisions will be made
in 1994 and preliminary expenditures could begin before year end.
COMSAT Video Enterprises, Inc. will continue efforts to
convert existing qualified customers to the OCV product and to
retain hotel customers whose contracts expire in 1994. OCV will
continue to install new systems, working to address a rapidly
growing backlog that, at year end, exceeded its installed base.
Continued revenue and income growth is expected as a result of the
increasing market share.
CVE's video distribution business is expected to remain
stable with little change to the NBC services. As in prior years,
earnings in 1994 are expected to come primarily from the television
network distribution business, with an increasingly larger part
from the hospitality industry video distribution business.
COMSAT Technology Services emerged from the 1992 restructuring
as a more competitive business and entered 1994 with a substantial
improvement in its backlog compared to the beginning of 1993. In
January 1994, the corporation announced an agreement to acquire, by
means of merger, Radiation Systems, Inc. (RSi). RSi designs,
manufactures and integrates satellite earth stations, advanced
antennas and other turnkey systems for telecommunications, radar,
air traffic control and military uses. If approved by RSi's
shareholders, the corporation will exchange newly issued common
stock for RSi's outstanding common stock, at an exchange value of
about $18.25 per RSi share. Each share of RSi common stock will be
exchanged for a portion of COMSAT common stock determined by
dividing $18.25 by the average closing price of COMSAT stock for
the 20 days ending five trading days prior to the effective date of
the merger. The exchange ratio shall not be less than 0.638 or
greater than 0.780. The transaction will have a total value of
approximately $150 million, and is expected to be completed in the
second quarter of 1994. Following the merger, which is expected to
be treated as a pooling of interests, CTS will be combined with RSi
to form a wholly owned subsidiary of the corporation. The new
subsidiary, COMSAT RSI, will pursue opportunities in the high-
growth wireless communications market by offering integrated
systems and products. COMSAT RSI will target international and
domestic markets that include cellular, personal communications
systems and VSAT antenna technologies. The corporation expects that
COMSAT RSI operations, while profitable, may have a small dilutive
effect on earnings in 1994, excluding the non-recurring transaction
costs. The newly combined entity plans to leverage the technical
expertise of COMSAT Laboratories and to maintain the competitive
cost structure that prevails in RSi.
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The corporation anticipates continued improvement in the
financial performance of the Denver Nuggets, and expects that the
team will reach break-even in 1994.
The corporation will adopt SFAS No. 112, "Employer's
Accounting for Postemployment Benefits," in 1994. This statement
requires that the estimated cost of benefits provided to former or
inactive employees be accrued over their active service lives. The
effect of adopting the statement is not expected to have a material
effect on the corporation's 1994 financial results.
The corporation will also adopt SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," 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 expected to be material to the
corporation as of December 31, 1993.
ANALYSIS OF BALANCE SHEETS
Assets
The corporation ended 1993 with $1,653 million of assets, an
increase of $110 million over 1992 and $283 million over 1991.
International Communications
In millions 1993 1992 1991
- -----------------------------------------------------------------
Assets $ 827 $ 803 $ 765
Property and Equipment Additions $ 117 $ 121 $ 174
Property and equipment additions are almost exclusively
related to COMSAT World Systems' share of INTELSAT's satellite
programs for the VII, VII A and VIII series of satellites. These
new satellites will offer higher power and deliver greater
performance characteristics to meet increasing demand from
customers worldwide.
CIV invested $7 million for new communications plant and
equipment in 1993. The majority of the investments are to meet
specific customer requirements for technologically advanced
applications in developing countries. The corporation anticipates
investing up to an additional $15 million in 1994 to meet demand in
existing ventures, and may invest additional amounts if warranted
by new opportunities.
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Mobile Communications
In millions 1993 1992 1991
- -----------------------------------------------------------------
Assets $ 404 $ 397 $ 320
Property and Equipment Additions $ 51 $ 83 $ 90
Property and equipment were added to provide needed capacity
for CMC worldwide services.
Ground station plant and equipment were improved in 1993 to be
able to handle traffic volumes in all four service regions. A
second CMC ground station in the Indian Ocean region was begun in
Malaysia to provide digital Standard-M and -B service. The station
is expected to be operational in the second quarter of 1994.
Stations in California and Connecticut were also upgraded to handle
digital traffic under the new digital standards for Inmarsat M, B
and C terminals. Assets of $16 million were transferred to this
business from CTS in the first quarter of 1993 as part of the
restructuring effort begun in 1992; assets for prior years have
been restated. The transferred assets are facilities and equipment
at the earth stations in California and Connecticut.
The first of the Inmarsat III series satellites, currently
under construction, is scheduled for launch in 1996. These
satellites will provide increased capacity to meet growing demand
for all services in all four service regions.
Video Enterprises
In millions 1993 1992 1991
- -----------------------------------------------------------------
Assets $ 187 $ 122 $ 120
Property and Equipment Additions $ 64 $ 18 $ 9
The additions to property and equipment are primarily
installations of video entertainment systems for new hotel
customers. OCV has a large backlog of hotels waiting to have
systems installed. The corporation is expected to make additional
investments in these systems during 1994 for new hotel
installations. The corporation will also continue to purchase video
entertainment systems from OCV for installation in a limited number
of hotels in CVE's existing hotel base. The business reduced some
asset balances as a result of the 1992 restructuring.
Technology Services
In millions 1993 1992 1991
- -----------------------------------------------------------------
Assets $ 46 $ 49 $ 62
Property and Equipment Additions $ 3 $ 10 $ 7
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Property and equipment additions for 1992 and 1993 were
primarily purchases of test equipment for research and development
work by COMSAT Laboratories and equipment to support CTS' work in
communication systems design, demonstration and installation.
Requirements for new capital in 1994 are expected to be minimal.
Corporate
In millions 1993 1992 1991
- -----------------------------------------------------------------
Assets $ 189 $ 172 $ 102
Property and Equipment Additions $ 4 $ 1 $ 2
Assets increased in 1993 primarily due to the purchase of RSi
equity shares and increases in the cash value of company-owned life
insurance policies. The purchase of the remaining share and
subsequent consolidation of the Denver Nuggets in 1992 was the
primary cause of the increase in assets over 1991.
Liabilities
During 1993, the corporation's share of long-term debt issued
by INTELSAT increased by $31 million as INTELSAT issued 6.75%
Eurobonds due in January 2000. Proceeds from this issue were used
to prepay $30 million of the corporation's 9.55% notes; $70 million
remains due in April 1994.
The corporation redeemed its 11.625% unsecured debentures in
March 1992. In April 1992 the corporation issued $160 million of
new debentures at 8.125% due in April 2004. The proceeds were used
to redeem its 7.75% convertible subordinated debentures and to
repay commercial paper.
ANALYSIS OF CASH FLOWS
Operating Activities
CWS generated the majority of the corporation's cash from
operations. The corporation made interest payments of $25 million
and tax payments of $22 million.
Investing Activities
The corporation made cash investments of $230 million for
property and equipment in 1993. Of this, $117 million was invested
by the International Communications businesses, $46 million by CMC
and $60 million by CVE and OCV.
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The corporation received approximately $16 million when its
share of INTELSAT declined from 21.8% to 20.9% in 1993. The
corporation expects its share of INTELSAT to decrease slightly
during 1994. The corporation received approximately $5 million when
its share of Inmarsat declined from 24.6% to 23.0% in 1993. The
corporation's share of Inmarsat declined to 22.5% in February 1994.
A total of $14 million was used to purchase equity interests,
principally shares of RSi and the CIV ventures. An additional $13
million was used to purchase shares of OCV from minority
shareholders. The corporation increased its ownership share of OCV
to 73.5% at December 31, 1993.
The corporation's investment in property and equipment in 1994
will be somewhat higher than in 1993. Investments in INTELSAT
satellites, international ventures, aeronautical service equipment
and OCV systems will increase over 1993 levels.
Financing Activities
Quarterly dividends were $.18-1/2 per share in 1993, compared
to $.17-1/2 per share in 1992. The corporation received in early 1993
$33 million in proceeds from long-term debt issued by INTELSAT, all of
which was used to redeem or repay other debt obligations. INTELSAT
intends to issue bonds in the first quarter of 1994. The corporation
will record its share of the borrowings as long-term debt of approximately
$42 million. INTELSAT will use the proceeds to redeem or repay their
short-term debt obligations. The corporation currently anticipates that
it will issue additional long-term debt during 1994 which will reduce
commercial paper obligations.
Liquidity and Capital Resources
The corporation's working capital deficit increased by $95 million
in 1993 principally due to the current maturity of the remaining $70
million of 9.55% notes due in April 1994. The corporation plans to fund
the maturing long-term debt with commercial paper. In addition, amounts
due to related parties increased by $23 million. This is primarily
attributable to advances from INTELSAT funded by INTELSAT commercial
paper. These advances will be reduced as a result of the 1994 INTELSAT
bond issue discussed above under Financing Activities.
The corporation's working capital deficit improved by $51 million
in 1992 over 1991. This was mostly due to the redemption of $93 million of
11.625% notes in March 1992, offset by a $48 million increase in commercial
paper borrowings outstanding at year end 1992.
The corporation enjoys access to short- and long-term financing at
favorable rates. A $125 million commercial paper program has $43 million
of borrowings outstanding at an average interest rate of 3.4%. The
corporation will seek to increase this commercial paper program to
$200 million in the first quarter of 1994. A $200 million revolving
credit agreement with a
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group of banks is currently not being utilized and extends to 1998. This
facility is a back-up to the corporation's commercial paper program.
The corporation enjoys access to capital markets at favorable
costs with an A rating from Standard and Poor's and an A-2 from
Moody's.
The corporation's funding activities, as regulated by the FCC,
allow long-term financing up to 45% of total capital, as well as
$200 million of short-term borrowings.
The corporation expects operations to fund almost all 1994
cash requirements. Any additional working capital requirements will
be funded using commercial paper.
Taxes
Taxes were paid on an Alternative Minimum Tax basis due to a
net operating loss carryforward from the 1987 discontinued
operations.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
COMSAT CORPORATION
(Registrant)
Date: March 31, 1994 By /s/ ALLEN E. FLOWER
--------------------------------------
(Allen E. Flower, Controller
and Chief Accounting Officer
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