SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 18, 1996
----------------
COMSAT Corporation
--------------------------------------------------
(Exact name of Registrant as specified in Charter)
District of Columbia 1-4929 52-0781863
------------------------- ------------ --------------
(State or other juris- (Commission (IRS Employer
diction 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
Not applicable.
--------------------------------------------------------------
(Former name or former address, if changed since last report).
<PAGE>
Item 5. Other Events
- ---------------------
Attached to this report as Exhibit 99.1, and incorporated by reference
in this item, is a Press Release of the Corporation, distributed on October
18, 1996, announcing third quarter 1996 operating results and announcing
the Corporation's intent to divest its interest in Ascent Entertainment
Group, Inc. through a sale, spin-off or other transaction.
Item 7. Financial Statements and Exhibits
- ------------------------------------------
(c) Exhibits (listed according to the number assigned in Item 601 of
Regulation S-K).
Exhibit No. Description
- ---------- -----------
99.1 Press Release dated October 18, 1996.
<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: /s/ Alan G. Korobov
-------------------
Alan G. Korobov
Controller
Date: October 25, 1996
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ---------- -----------
99.1 Press Release dated October 18, 1996
<PAGE>
EXHIBIT NO. 99.1
COMSAT CORPORATION NEWS RELEASE
FROM: COMSAT Corporation
6560 Rock Spring Drive
Bethesda, MD 20817
PHONE: 301 214 3442
FAX: 301 214 7130
DATE: October 18, 1996
For Immediate Release
- ---------------------
COMSAT REPORTS THIRD QUARTER RESULTS
-- Announces Intent to Divest Ownership in Ascent Entertainment --
Bethesda, Md. -- COMSAT Corporation today announced third quarter 1996
net income of $5.0 million, or 10 cents per share, on consolidated revenues
of $229.8 million which were $25.9 million higher than the same period last
year. For the year to date, net income was $20.1 million, or 41 cents per
share, on revenues of $707.8 million, an $85.2 million improvement over
last year.
Excluding the impact of a $20-million pre-tax restructuring
charge that the company took in the third quarter of 1995, COMSAT's third
quarter net income this year was $7.5 million or 15 cents per share higher
than the comparable period a year earlier. On the same basis, year-to-date
net income was $14.0 million or 30 cents per share lower than the first
three quarters of 1995. Included in the third quarter 1996 results were
royalties of $7.8 million on a pre-tax basis resulting from a licensing
agreement that resolved patent infringement disputes with certain
manufacturers of television encryption and decryption equipment.
COMSAT also announced that it intends to divest its 80-percent
ownership interest in Ascent Entertainment Group, Inc., through a sale,
spin-off or other transaction. The corporation has engaged Morgan Stanley &
Co. Incorporated to act as its financial advisor for the divestiture.
"Clearly, divestiture is in the best interests of both COMSAT and
Ascent," said COMSAT President and Chief Executive Officer Betty C.
Alewine. "These two businesses have very different financial profiles and
are judged differently by the capital markets. The pressure created on
COMSAT's balance sheet by Ascent's need for capital to fund continued
growth is constraining our ability to expand our core international
telecommunications and ventures businesses."
-- more --
COMSAT and (graphic trademark) are the registered trademark of COMSAT
Corporation.
<PAGE>
3RD Quarter 1996 -- Page 2
"The recent acquisition by Ascent of Spectravision underscores the
distinction and our need to restructure the balance sheet," Alewine said.
"As a result of the Spectravision transaction, the deconsolidation of On
Command Corporation for tax purposes and Ascent's anticipated operating
results, COMSAT now expects to report a net operating loss in the fourth
quarter."
A number of factors could cause the corporation's operating results to
differ materially from those projected, including, but not limited to, the
operating performance of the corporation's business segments, unanticipated
costs associated with integration of Spectravision's and On Command Video
Corporation's businesses, the timing and method selected to effect the
proposed divestiture of the corporation's interest in Ascent and other
market conditions.
"COMSAT's decision to divest its interest in Ascent confirms the
company's unequivocal commitment to growing our international
telecommunications and ventures businesses," Alewine continued. "We plan to
expand those businesses in which we believe our competitive strengths and
the potential for growth are the greatest."
While expressing dissatisfaction with third quarter earnings, Alewine
said she was optimistic about the firm's prospects based on market
opportunities and steps the company is taking to improve its position.
With the exception of its mobile communications business, all of
COMSAT's communications businesses reported strong revenue growth in the
quarter. The mobile communications business continued to experience
competitive pricing pressure. "COMSAT is responding to the competitive
challenge by simplifying prices, increasing marketing and promotional
activities and improving the quality of its products," said Alewine. "In
addition, we expect the introduction of COMSAT's new Planet 1SM service in
the fourth quarter after customer testing is completed to increase market
demand for portable satellite communications service."
Alewine expressed continued confidence in the market opportunities for
the company's fast-growing international ventures business. With regard to
COMSAT RSI, she said: "COMSAT is taking a hard look at its manufacturing
operation to find ways to improve margins and to uncover opportunities that
should be more fully developed."
"In COMSAT World Systems, our largest business of providing
international satellite communications on the INTELSAT system, the most
important priority is to successfully negotiate the restructuring of the
intergovernmental organization," said Alewine. "Technology developed by
COMSAT Laboratories can be exploited in the future in a more commercially
advantageous way than in the past," she added.
-- more --
<PAGE>
3rd Quarter 1996 -- Page 3
In other news, COMSAT received approval this week from the Federal
Communications Commission (FCC) for a decrease in its interest coverage
ratio to 1.9 to 1.0 and an increase in its short-term debt limit to $325
million. This relief is in effect until the FCC acts on the corporation's
1997 capital plan, which is expected to be submitted to the FCC by April
1997.
COMSATs Board of Directors declared its 105th regular quarterly
dividend of 19.5 cents, payable December 9, 1996 to shareholders of record
November 8, 1996.
A more complete description of COMSATs financial performance during
the third quarter and the year to date in 1996 is contained in the attached
financial highlights.
Many of the statements in this release are forward-looking and relate
to anticipated future operating results. Statements which look forward in
time are based on managements current expectations and assumptions, which
may be affected by subsequent developments and business conditions, and
necessarily involve risks and uncertainties. Therefore, there can be no
assurance that actual future results will not differ materially from
anticipated results.
Readers should refer to the Corporations disclosure documents filed
with the Securities and Exchange Commission, including the Corporations
1995 Form 10-K and the Form 10-Q for the first and second quarters of 1996,
for a more complete discussion of some of the important factors that might
affect these trends.
COMSAT Corporation (NYSE: CQ) is a global provider of communications
services and products.
# # #
CONTACT: Janet Dewar Vice President, Corporate Affairs (301) 214-3442
Allen Flower Chief Financial Officer (301) 214-3660
<PAGE>
COMSAT Corporation
Page 1 of 5
Financial Highlights
Third Quarter 1996
SUMMARY
- -------
Consolidated revenues for the third quarter were $229.8 million which was
$25.9 million better than last year. Year-to-date revenues were $707.8
million, a $85.2 million improvement over last year. Included in third
quarter revenues were royalties of $7.8 million related to a licensing
agreement that resolved patent infringement disputes with certain
manufacturers of television encryption and decryption equipment. Net income
for the third quarter was $5.0 million ($0.10 per share), $20.7 million
higher than for the same period last year. Net income for the first nine
months of 1996 was $20.1 million ($0.41 per share), $0.8 million below the
comparable period of last year. During the third quarter of 1995 the
Corporation took actions to restructure elements of all its business
segments and recorded a pre-tax $20.1 million provision.
Telecommunications Businesses
- -----------------------------
Revenues for the third quarter were $195.9 million, a 18% increase over the
third quarter of 1995. Year-to-date revenues were $555.2 million, a
14% improvement over last year.
World Systems revenues for the third quarter and year-to-date were
$67.1 million and $200.2 million, respectively, 7% and 6% increases
over the same periods of last year. This was primarily a result of
improvements in VSAT leases, INTELSAT system revenues, IBS traffic and
Wide-band Mobile.
Mobile Communications revenues were $38.4 million in the third
quarter, 19% lower than the third quarter of last year. Year-to-date
revenues were $120.3 million, 14% lower than last year. The lower
revenues in both periods were primarily the result of decreases in
both analog telephone and telex revenues, expiration of the AMSC
service contract and lower volume in our bulk service contract with
IDB. The decline in analog revenues was as a result of continued
competitive pressures while digital telephone revenues have improved
33% over last year.
International Ventures reported revenues of $15.5 million for the
third quarter and $39.8 million year-to-date, 61% and 54% higher than
last year, respectively. The growth was driven by improvements in the
Latin American companies which have exhibited strong growth this year.
Year-to-date revenues in Argentina of $20.2 million are 49% higher
than the same period last year. Brazils revenues for the first nine
months of 1996 of $11.8 million are up over 260% as compared to 1995.
In addition, one of our newest companies, COMSAT Venezuela, is showing
strong growth after a slow start earlier this year. The following
chart shows COMSATs share of revenues and operating income for its
international ventures.
<PAGE>
International Ventures Summary
------------------------------
Nine Months Ending September 30, 1996
($millions, unaudited proportional operating data)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Revenues Operating Income (Loss)
----------------- -----------------------
Ventures 1996 1995 1996 1995
- ---------------------- ----------------- -----------------------
Americas (1) $32.9 $17.3 $4.0 $0.9
Europe (2) 9.4 8.3 (7.4) (7.2)
Asia/Pacific (3) 5.4 7.0 0.4 (2.8)
----------------- -----------------------
Existing Venture Total 47.7 32.6 (3.0) (9.1)
New Ventures (4) 3.1 0.8 (3.3) (0.8)
----------------- -----------------------
Total $50.8 $33.4 ($6.3) ($9.9)
================= =======================
Note: This information was developed by taking COMSAT's ownership
percentage of each Venture multiplied by total venture revenues
and operating income/loss.
1. Americas: Argentina, Bolivia, Brazil and Guatemala."
2. Europe: BelCom (Russia), Viatel and Turkey (IBS)."
3. Asia/Pacific: PhilCom.
4. Includes ventures less than 24 mos. old: Colombia, Venezuela, China, India and Turkey (VSAT)."
</TABLE>
Technology Services revenues for the third quarter were $83.0 million,
a 63% improvement over last year. Year-to-date revenues were $215.0
million, 47% better than the same period of 1995. Included in third
quarter revenues were royalties of $7.8 million related to a licensing
agreement that resolved patent infringement disputes with certain
manufacturers of television encryption and decryption equipment. The
primary causes for the increase were the consolidation of revenues
from JEFA Wireless Systems, purchased in September 1995 to participate
in the build-out of the domestic wireless and intelligent
transportation markets, improvements from the Commercial Satellite
Communications Initiative (CSCI) contract with the U.S. Department of
Defense and shipments of wireless antennas and cellular switch
products mostly for the U.S. PCS and cellular markets.
Cost of services was $110.5 million for the third quarter and $313.6
million for the first nine months of 1996, which were 19% and 24%
higher than the respective periods last year. The increase in costs
was primarily attributable to increased sales in Technology Services
and CIV, and the contingency reserve established in the regulated
business.
Page 2 of 5
<PAGE>
Depreciation and Amortization was $41.6 million in the third quarter and
$117.8 million for the first three quarters which was 12% and 9%,
respectively, higher than the comparable periods of last year. These
increases relate to increased depreciation associated with satellites
placed in service during the past 12 months in the Inmarsat and
INTELSAT systems and the continued expansion in International
Ventures.
Operating Income for the telecommunications businesses for the third
quarter was $33.4 million which was 23% higher than last year,
excluding the third quarter 1995 restructure reserve. For the first
nine months of 1996 operating income for the telecommunications
businesses was $92.9 million or 6% below the same period last year,
excluding the third quarter restructuring reserve. The improvement in
the third quarter was primarily related to improvements in CIV and
Technology Services and included royalties of $7.8 million resulting
from a patent agreement. These improvements were offset in part by
lower operating income in Mobile Communications and World Systems.
Mobile Communications decrease was primarily the result of lower
revenues and World Systems decline was due to the lower rate base as a
result of the launch failure of the INTELSAT 708 satellite. The
year-to-date decrease was caused by declines in Mobile Communications
and World Systems partially offset by improvements in Technology
Services and International Ventures.
Ascent Entertainment Group (Ascent)
- -----------------------------------
Ascent will release its operating results on Friday, October 18th and will
include the following:
Revenues for the third quarter were $33.9 million as compared to $37.5
million for the same period last year. For the first nine months of
1996, revenues were $152.6 million, an increase of $18.3 million over
last year.
EBITDA for the third quarter was $9.8 million, $2.8 million above the
third quarter of 1995. Year-to-date EBITDA was $30.7 million, $3.0
million below the comparable period last year.
COMSAT Consolidated
- -------------------
General and Administrative expenses for the third quarter were $5.8 million
or 2.5% of revenues, as compared to 2.9% for the comparable period of
last year. For the year-to-date, general and administrative expenses
were $18.4 million or 2.6% of revenues, as compared to 2.7% for the
same period of 1995.
Page 3 of 5
<PAGE>
Research and Development expenses for the third quarter were $6.1 million
or 2.6% of revenues, as compared to 2.1% for the comparable period of
last year. For the year-to-date, research and development expenses
were $16.9 million or 2.4% of revenues, which percentage is unchanged
from 1995.
Interest and Other Income/Expense for the third quarter was $6.3 million
better than the same period last year principally due to the minority
interest in Ascents losses, a gain on the partial sale of an
investment at Ascent and non-recurring charges in the third quarter of
1995. Year-to-date interest and other income (expense) was improved by
$1.0 million primarily for the reasons stated for the quarterly
variance offset by dividend payments in the first half of 1996 on the
Monthly Income Preferred Securities (MIPS). The MIPS were not issued
until the second half of 1995.
Interest Expense, Net of Amounts Capitalized for the third quarter and
first nine months of 1996 was $2.2 million and $2.3 million worse than
the comparable periods of last year, respectively, primarily as a
result of a reduction in the amount of interest capitalized on
satellite projects. This was caused by the completion of several
satellite projects.
Income Tax Expense in the third quarter was adjusted to a higher accrual
rate to reflect an increase in non-deductible expenses. The
year-to-date accrual rate is unchanged as compared to last year.
Net Income for the third quarter was $5.0 million which was $20.7 million
higher than for the same period last year. Year-to-date net income was
$20.1 million, $0.8 million below last year. Excluding the provision
for restructuring recorded in the third quarter of 1995, income for
third quarter improved $7.5 million and income for the first nine
months of 1996 declined $14.0 million.
Earnings per Share for the third quarter were $0.10, which was $0.43 better
than the same period last year. Year-to-date earnings per share were
$0.41 versus $0.44 for last year. Excluding the provision for
restructuring, earnings per share for the third quarter were $0.15
better than last year and year-to-date earnings per share were $0.30
below the comparable period of last year.
Weighted Average Shares Outstanding at the end of the third quarter were
49.1 million, approximately 1.7 million higher than the end of the
third quarter of 1995.
Page 4 of 5
<PAGE>
CASH AND LIQUIDITY
- ------------------
Cash and Equivalents decreased $104 million during the first nine months of
1996. Cash was used primarily for capital expenditures and
investments.
ShortTerm Borrowings and current maturities of long-term debt increased
$70 million during the first nine months of 1996 and were primarily
used by Ascent to fund installation of new hotel room entertainment
systems at On Command Video, movie production costs at Beacon
Communications and working capital needs.
Long Term Debt has declined slightly during the first nine months of 1996.
Telecom EBITDA Summary
($ millions, unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1996 1995
---- ----
1st Qtr 2nd Qtr 3rd Qtr 1st Qtr 2nd Qtr 3rd Qtr
--------------------------------- ---------------------------------
World Systems $47.2 $46.9 $47.7 $49.5 $48.5 $48.9
Mobile 23.3 22.2 18.9 22.0 27.7 23.7
Ventures (0.9) (1.5) 0.3 (1.8) (2.7) (5.1)
Technology 5.3 6.9 15.4 4.3 8.2 2.6
Other (8.1) (5.6) (7.3) (5.8) (7.0) (6.0)
--------------------------------- ---------------------------------
Telecom EBITDA $66.8 $68.9 $75.0 $68.2 $74.7 $64.1
================================= =================================
Note: Third quarter 1995 is exclusive of restructuring charges.
</TABLE>
Page 5 of 5
<PAGE>
COMSAT CORPORATION
CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
(In millions, except per share amounts)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
For the Quarters Ended For the Nine Months Ended
September 30, September 30,
---------------------- -------------------------
1996 1995 1996 1995
------ ------ ------ ------
Revenues $229.8 $203.9 $707.8 $622.6
------ ------ ------ ------
Operating expenses:
Cost of services 133.1 121.2 431.1 347.6
Depreciation and amortization 58.6 51.9 166.7 148.1
Research and development 6.1 4.3 16.9 15.0
General and administrative 5.8 5.8 18.4 16.5
Merger and integration costs - - - -
Provision for restructuring - 20.1 - 20.1
------ ------ ------ ------
Total operating expenses 203.6 203.3 633.1 547.3
------ ------ ------ ------
Operating income 26.2 0.6 74.7 75.3
Gain on sale of minority interest - - - -
Interest and other income (expense), net 0.2 (6.0) (2.3) (3.3)
Interest expense, net of amounts capitalized (12.6) (10.4) (31.9) (29.6)
------ ------ ------ ------
Income (loss) before taxes 13.8 (15.8) 40.5 42.4
Income tax benefit (expense) (8.8) 0.2 (20.4) (21.4)
------ ------ ------ ------
Net income (loss) $5.0 ($15.6) $20.1 $21.0
====== ====== ====== ======
Earnings (loss) per share $0.10 ($0.33) $0.41 $0.44
====== ====== ====== ======
Average shares 49.1 47.5 49.0 47.9
</TABLE>
<PAGE>
COMSAT CORPORATION
OPERATING RESULTS BY BUSINESS SEGMENT (UNAUDITED)
(In millions)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 1996
---------------------------------------- --------------------------------
QTR 1 QTR 2 QTR 3 QTR 4 TOTAL QTR 1 QTR 2 QTR 3 TOTAL
---------------------------------------- --------------------------------
Revenues
- --------
International Communications
World Systems $62.7 $63.0 $62.9 $66.1 $254.7 $65.6 $67.5 $67.1 $200.2
Mobile Communications 47.1 46.1 47.5 39.7 180.4 42.6 39.3 38.4 120.3
International Ventures 7.9 8.2 9.7 11.9 37.7 11.9 12.4 15.5 39.8
---------------------------------------- --------------------------------
Total International Communications 117.7 117.3 120.1 117.7 472.8 120.1 119.2 121.0 360.3
Technology Services 46.8 48.1 50.9 60.1 205.9 61.6 70.4 83.0 215.0
Entertainment 47.4 49.3 37.6 57.2 191.5 69.6 49.1 33.9 152.6
Eliminations and other (4.0) (3.9) (4.7) (5.5) (18.1) (5.6) (6.4) (8.1) (20.1)
---------------------------------------- --------------------------------
Total revenues $207.9 $210.8 $203.9 $229.5 $852.1 $245.7 $232.3 $229.8 $707.8
======================================== ================================
1995 1996
---------------------------------------- --------------------------------
QTR 1 QTR 2 QTR 3 QTR 4 TOTAL QTR 1 QTR 2 QTR 3 TOTAL
---------------------------------------- --------------------------------
Operating income (loss)
- -----------------------
International Communications
World Systems $27.6 $26.7 $26.8 $27.5 $108.6 $25.4 $24.0 $24.2 $73.6
Mobile Communications 12.6 17.6 13.3 10.0 53.5 13.7 11.2 7.2 32.1
International Ventures (3.4) (4.6) (7.0) (5.7) (20.7) (3.8) (4.6) (3. (12.1)
---------------------------------------- --------------------------------
Total International Communications 36.8 39.7 33.1 31.8 141.4 35.3 30.6 27.7 93.6
Technology Services 2.6 6.5 0.6 4.3 14.0 3.4 5.1 13. 22.0
Entertainment (3.2) 6.3 (6.4) (12.1) (15.4) (4.2) (6.9) (7.1 (18.2)
---------------------------------------- --------------------------------
Total segment operating income 36.2 52.5 27.3 24.0 140.0 34.5 28.8 34.1 97.4
General and administrative expenses (4.9) (5.8) (5.8) (3.4) (19.9) (7.1) (5.5) (5.8) (18.4)
Merger and integration costs - - - - - - - - -
Provision for restructuring - - (20.1) - (20.1) - - - -
Other (1.5) (1.8) (0.8) (0.3) (4.4) (1.6) (0.6) (2.1) (4.3)
---------------------------------------- --------------------------------
Total operating income $29.8 $44.9 $0.6 $20.3 $95.6 $25.8 $22.7 $26 $74.7
======================================== ================================
</TABLE>
<PAGE>
COMSAT CORPORATION
CONDENSED BALANCE SHEETS (UNAUDITED)
(In millions)
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, December 31,
1996 1995
------------- ------------
Current assets:
Receivables $278.0 $234.5
Other current assets 99.5 191.3
-------- --------
Total current assets 377.5 425.8
-------- --------
Property in service, net 1,312.9 1,165.8
Property under construction 247.4 362.3
Other assets 474.9 360.4
-------- --------
Total assets $2,412.7 $2,314.3
======== ========
Current liabilities:
Current notes payable $81.6 $11.7
Other current liabilities 198.4 192.8
-------- --------
Total current liabilities 280.0 204.5
-------- --------
Long-term debt 660.1 664.6
Other noncurrent liabilities 334.6 313.7
Minority interest 291.6 292.1
Stockholders' equity 846.4 839.4
-------- --------
Total liabilities & stockholders' equity $2,412.7 $2,314.3
======== ========
</TABLE>
