SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 1996
Commission File Number 1-4929
COMSAT CORPORATION
6560 Rock Spring Drive
Bethesda, MD 20817
(301) 214-3000
District of Columbia 52-0781863
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding twelve (12) months (or for such
shorter period that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past ninety (90)
days. Yes [X] No [ ]
48,586,000 shares of the Registrant's common stock were outstanding as of
September 30, 1996.
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PART I. FINANCIAL INFORMATION
ITEM 1. INTERIM FINANCIAL STATEMENTS FOR THE CORPORATION (UNAUDITED)
COMSAT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Income Statements
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Quarter Ended September 30, Nine Months Ended September 30,
---------------------------- --------------------------------
In thousands, except per share amounts 1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
REVENUES $ 229,804 $ 203,894 $ 707,776 $ 622,586
------------- ------------- ------------- -------------
Operating expenses:
Cost of services 133,056 121,195 431,051 347,628
Depreciation and amortization 58,616 51,868 166,702 148,099
Research and development 6,049 4,342 16,883 14,978
General and administrative 5,835 5,817 18,453 16,513
Provision for restructuring - 20,044 - 20,044
------------- ------------- ------------- -------------
Total operating expenses 203,556 203,266 633,089 547,262
------------- ------------- ------------- -------------
OPERATING INCOME 26,248 628 74,687 75,324
Interest and other income (expense), net 223 (6,082) (2,266) (3,310)
Interest expense, net of amounts capitalized (12,616) (10,377) (31,932) (29,626)
------------- ------------- ------------- -------------
Income (loss) before taxes 13,855 (15,831) 40,489 42,388
Income tax benefit (expense) (8,818) 208 (20,343) (21,426)
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ 5,037 $ (15,623) $ 20,146 $ 20,962
============= ============= ============= =============
EARNINGS (LOSS) PER SHARE $ 0.10 $ (0.33) $ 0.41 $ 0.44
============= ============= ============= =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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2
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COMSAT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
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September 30, December 31,
In thousands 1996 1995
- ------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 20,385 $ 124,156
Receivables 278,019 234,465
Inventories 38,761 26,851
Other 40,373 40,353
------------- -------------
Total current assets 377,538 425,825
------------- -------------
Property and equipment (net of accumulated depreciation
of $1,260,423 in 1996 and $1,156,518 in 1995) 1,560,248 1,528,053
Investments 120,395 88,378
Goodwill 69,670 67,569
Franchise rights 103,283 107,962
Other assets 181,575 96,479
------------- -------------
TOTAL ASSETS $ 2,412,709 $ 2,314,266
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current notes payable $ 81,637 $ 11,688
Accounts payable and accrued liabilities 165,376 164,801
Due to related parties 18,717 22,825
Other 14,253 5,155
------------- -------------
Total current liabilities 279,983 204,469
------------- -------------
Long-term debt 660,068 664,601
Deferred income taxes and investment tax credits 152,040 134,208
Accrued postretirement benefit costs 50,552 49,497
Other long-term liabilities 132,037 129,911
------------- -------------
Total liabilities 1,274,680 1,182,686
------------- -------------
Minority interest 91,643 92,147
------------- -------------
Preferred securities issued by subsidiary 200,000 200,000
------------- -------------
STOCKHOLDERS' EQUITY:
Common stock 330,703 324,074
Retained earnings 525,172 533,238
Treasury stock (4,233) (9,020)
Other (5,256) (8,859)
------------- -------------
Total stockholders' equity 846,386 839,433
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,412,709 $ 2,314,266
============= =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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COMSAT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Cash Flow Statements
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Nine Months Ended September 30,
-------------------------------
In thousands 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 20,146 $ 20,962
Adjustments for noncash expenses:
Depreciation and amortization 166,702 148,099
Provision for restructuring - 20,044
Changes in operating assets and liabilities (20,079) (10,471)
Other (1,542) 26,668
------------- -------------
Net cash provided by operating activities 165,227 205,302
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (254,096) (226,759)
Expenditures for film production cost (33,432) (11,719)
Decrease (increase) in INTELSAT ownership (1,238) 17,564
Decrease (increase) in Inmarsat ownership 5,746 (8,754)
Investments in unconsolidated businesses (35,858) (23,367)
Purchase of subsidiaries, net of cash acquired
of $3,029 in 1996 and $2,988 in 1995 314 (77,601)
Insurance proceeds from satellite launch failure 54,443 -
Other 5,311 (4,404)
------------- -------------
Net cash used in investing activities (258,810) (335,040)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued 9,505 7,623
Proceeds from issuance of preferred securities of subsidiary - 200,000
Cash dividends paid (28,212) (27,614)
Proceeds from issuance of long-term debt - 81,986
Repayment of long-term debt (8,809) (9,906)
Net short-term borrowings (repayments) 68,000 (115,357)
Company-owned life insurance policies borrowings
(repayments) (51,443) 2,270
Other 771 (11,400)
------------- -------------
Net cash provided by (used for) financing activities (10,188) 127,602
------------- -------------
Net decrease in cash and cash equivalents (103,771) (2,136)
Cash and cash equivalents, beginning of period 124,156 18,658
------------- -------------
Cash and cash equivalents, end of period $ 20,385 $ 16,522
============= =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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COMSAT CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared by COMSAT Corporation (COMSAT or the corporation)
pursuant to the rules and regulations of the Securities and Exchange
Commission (the SEC). These financial statements should be read in the
context of the financial statements and notes thereto filed with the SEC in
the corporation's 1995 Annual Report on Form 10-K. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such regulations. The accompanying
condensed consolidated financial statements reflect all adjustments and
disclosures which, in the opinion of management, are necessary for a fair
presentation. All such adjustments are of a normal recurring nature. The
results of operations for the interim periods are not necessarily
indicative of the results of the entire year.
2. INTELSAT AND INMARSAT SHARE CHANGES
The corporation's ownership share of INTELSAT has increased slightly
since December 31, 1995.
The corporation received cash proceeds of $5.7 million for a reduction
in its ownership share in Inmarsat from 24.0% at December 31, 1995 to 23.0%
as of September 30, 1996.
3. INVENTORIES
Inventories, stated at the lower of cost (first-in, first-out) or
market, consist of the following:
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September 30, December 31,
In thousands 1996 1995
- -----------------------------------------------------------------------------------------------
Finished goods $ 15,369 $ 8,137
Work in progress 13,820 10,260
Raw materials 9,572 8,454
------------ -----------
Total $ 38,761 $ 26,851
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4. INVESTMENTS
As discussed in Notes 7 and 10 to the 1995 financial statements, the
corporation and Inmarsat have committed to invest in I-CO Global
Communications (Holdings) Limited (ICO). As of September 30, 1996, the
corporation has made capital contributions to ICO totaling $40.6 million,
and the corporation's share of Inmarsat's investment in ICO totaled $13.6
million. The corporation has committed to invest an additional $73.3
million in two installments due in December 1996 and December 1997. The
corporation's share of Inmarsat's future commitments to ICO totaled $22.2
million as of September 1996. See Note 7 of this Form 10-Q and Outlook
below for a further discussion of ICO matters.
5
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5. SATELLITE LAUNCH FAILURE
On February 14, 1996, the launch of the INTELSAT 708 satellite failed.
The corporation's share of the construction and capitalized interest costs
was fully insured. Insurance proceeds totaling $54.4 million were received
in the second quarter of 1996.
6. DENVER ARENA DEVELOPMENT PROJECT
On March 28, 1996, Ascent Entertainment Group Inc. (Ascent), an 80.67%
owned subsidiary of COMSAT, entered into an agreement with The Anschutz
Corporation (TAC), with which Ascent had been jointly developing a proposed
arena project in Denver, Colorado, to purchase TAC's interests and assets
related to the project. Ascent paid TAC $6.6 million in cash. Ascent also
agreed to pay an additional $5.0 million and granted a paid-up suite
license, both contingent on the construction and occupancy of the proposed
arena. As part of the agreement, TAC agreed to use reasonable efforts to
facilitate the development of the proposed arena. In connection with this
agreement, Ascent also purchased TAC's limited partnership interest in New
Elitch Gardens, Ltd. (Elitch Gardens), which owns an amusement park in
downtown Denver, for $4.1 million. This purchase increased Ascent's
ownership interest in Elitch Gardens from 13% to 26%. In September 1996,
Ascent recorded a $1.8 million reserve on its limited partnership
investment in Elitch Gardens, based on the announced sale of the amusement
park to Premier Parks, Inc. The company's share of proceeds from the sale,
which closed on October 30, 1996, may be subject to certain adjustments,
including future contingencies.
On March 28, 1996, Ascent entered into an agreement with Southern
Pacific Transportation Company (SPT) to purchase land in downtown Denver
for $20.0 million for the proposed arena site. Pursuant to the agreement,
the closing was to have occurred on or before June 28, 1996 but did not
take place, and the agreement terminated. The corporation has been advised
by Ascent that the agreement may be reinstated. If the agreement is
reinstated, consummation of the transaction is subject to several
conditions including obtaining reasonable financing, reaching agreements
with the city and county of Denver regarding the construction of the
proposed arena and the release of the Denver Nuggets and Colorado Avalanche
from their current leases at McNichols Arena. The agreement also provides
for SPT to effect a state- approved environmental clean-up plan and provide
continuing indemnification for certain environmental liabilities.
7. REGULATORY MATTERS AND CONTINGENCIES
INVESTMENT IN ICO. As discussed in Note 10 to the 1995 financial
statements, the corporation has applied to the FCC for authority to
participate as a direct and indirect (through Inmarsat) investor in ICO.
The application does not request authority to be a service provider; that
application will be filed at a later date. In acting on the application,
which is opposed by ICO's competitors, the FCC will determine whether the
corporation satisfies the requisite legal and policy criteria to
participate in ICO. The corporation believes that all necessary operating
authorizations with respect to ICO will be obtained, although the FCC may
condition the use of ICO telephones in the U.S. on reciprocal access by
ICO's U.S. competitors to foreign markets. In addition, the provision of
ICO service in the U.S. may be subject to the availability of adequate
spectrum on an economic basis.
6
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INMARSAT SATELLITES. As discussed in Note 11 to the 1995 financial
statements, the corporation has received FCC authorization to participate
in the procurement of five third- generation Inmarsat satellites. The first
two Inmarsat-3 satellites were successfully launched in April and September
1996 and have been placed in service. In May 1996, the corporation received
authorization to provide communications services, including its Planet 1SM
and other land mobile services outside of North America, over the
Inmarsat-3 satellites. The corporation has applied to the FCC for
authorization to offer Planet 1SM and other land mobile services in the
U.S.
LITIGATION. As discussed in Note 11 to the 1995 financial statements,
the corporation is defending an antitrust suit brought by PanAmSat. In
September 1996, the U.S. District Court for the Southern District of New
York granted COMSAT's motion for summary judgment and dismissed the
complaint in its entirety. In October 1996, PanAmSat filed an appeal with
the U.S. Court of Appeals for the Second Circuit, which is pending before
the court.
In May 1996, TRW, Inc. filed a lawsuit against ICO in the U.S.
District Court for the Central District of California seeking injunctive
relief and unspecified monetary damages. The lawsuit, as recently amended,
alleges that the proposed ICO satellite system would infringe two certain
patents held by TRW. The corporation has been advised by ICO that it
intends to vigorously defend the lawsuit.
8. BUSINESS COMBINATION AND RELATED DEBT FINANCINGS
As of October 8, 1996, Ascent, through its newly formed subsidiary, On
Command Corporation (OCC), consummated the acquisition of the assets, and
assumed certain liabilities of SpectraVision, Inc. (SpectraVision), which
was operating under Chapter 11 bankruptcy protection. OCC acquired all of
the outstanding capital stock of SpectraDyne, Inc., the primary operating
subsidiary of SpectraVision, together with certain other assets of
SpectraVision and its affiliates. On Command Video Corporation (OCV), an
approximately 79% owned indirect subsidiary of Ascent, was merged into a
subsidiary of OCC and became a wholly-owned subsidiary of OCC. In
connection with the merger, Ascent received approximately 57.2% of the 30
million initial outstanding shares of OCC common stock. OCV minority
shareholders received approximately 15.3% of OCC's initial outstanding
shares. In exchange for the SpectraVision assets, approximately 26.8% of
the initial outstanding OCC common stock was issued to SpectraVision's
bankruptcy estate for distribution to creditors. Additionally,
approximately 0.7% of the initial outstanding OCC common stock is being
held in reserve for potential adjustments pursuant to the acquisition
agreement. The reserved stock will either be distributed to Ascent and the
former OCV minority stockholders or to the SpectraVision bankruptcy estate.
In connection with the merger and SpectraVision asset acquisition, OCC
also issued seven-year warrants to purchase an additional 7.5 million
shares (20% of the outstanding OCC common stock, after exercise of the
warrants) at $15.27 per share. Ascent, former minority OCV shareholders and
the SpectraVision estate received warrants to purchase approximately 3%,
0.8% and 7% of OCC's common stock, respectively (after exercise of the
warrants). In addition, warrants to purchase approximately 9.2% of OCC's
common stock (after exercise of the warrants) were issued to OCC's
investment advisors in consideration of certain investment banking and
advisory services provided in connection with the transactions.
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In conjunction with the SpectraVision acquisition, OCC obtained a $125
million bank credit facility. The OCC credit facility consists of (i) a
one-year revolving credit and competitive advance facility, which is
renewable for up to four additional one-year periods subject to certain
conditions, and (ii) a five-year revolving credit and competitive advance
facility. Revolving loans extended under the credit facility generally will
bear interest at the London Interbank Offering Rate (LIBOR) plus a spread
that may range from 0.50% to 0.75% depending on certain operating ratios of
OCC. The OCC credit facility requires OCC to comply with certain financial
covenants, which, among other matters, limit OCC's ability to incur
indebtedness or pay dividends (other than cash dividends on its common
stock). Upon consummation of the SpectraVision acquisition, OCC borrowed
$92 million under the credit facility to payoff certain obligations of
SpectraVision's estate pursuant to the bankruptcy plan, intercompany
obligations to Ascent and other expenses.
In addition, Ascent entered into a new credit agreement that provides
for borrowings of up to $200 million under a one-year secured revolving
credit facility, which is renewable for up to two additional one-year
periods (subject to certain conditions). Revolving loans under the Ascent
facility generally will bear interest at LIBOR plus a spread that may range
from 2.0% to 2.5% depending on certain operating ratios at Ascent. The
Ascent facility requires Ascent to maintain compliance with certain
financial covenants, limits Ascent's ability to incur other indebtedness
and precludes Ascent from paying cash dividends on its common stock. Upon
consummation of the SpectraVision acquisition, Ascent borrowed $110 million
under its new credit facility to repay outstanding borrowings of $145
million under its previous $175 million credit facility. Ascent will record
an extraordinary charge of approximately $0.5 million related to
termination of its previous credit facilities in the fourth quarter.
9. NEW ACCOUNTING PRONOUNCEMENT
As discussed in Note 1 to the corporation's 1995 financial statements,
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation" was issued in 1995 and became effective beginning
January 1, 1996. SFAS No. 123 requires expanded disclosures of stock-based
compensation arrangements with employees and encourages (but does not
require) compensation cost to be measured based on the fair value of the
equity instrument awarded. Companies are permitted, however, to continue to
apply APB Opinion No. 25, "Accounting for Stock Issued to Employees," which
recognizes compensation based on the intrinsic value of the equity
instrument awarded. The corporation has elected to continue to account for
its stock-based compensation awards to employees under APB Opinion No. 25
and will disclose the required pro forma effect on net income and earnings
per share in the corporation's 1996 annual financial statements.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1996
ANALYSIS OF OPERATIONS
CONSOLIDATED OPERATIONS
Consolidated revenues for the third quarter of 1996 were $229.8
million, an increase of $25.9 million over the third quarter of 1995. The
majority of the increase came from growth within the Technology Services
segment. All business units reported increases in third quarter revenues
over the same period of last year, except COMSAT Mobile Communications
(CMC) and Ascent Entertainment Group Inc. (Ascent). 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.
Year-to-date revenues were $707.8 million, an increase of $85.2 million
over the same period last year, which reflects improvements in all business
units except CMC.
Operating income in the third quarter was $26.2 million, an increase
of $25.6 million over the prior 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 for restructuring.
Excluding the provision for restructuring, the increase over the third
quarter of 1995 was $5.5 million. For the first nine months of 1996,
operating income was $74.7 million or $0.6 million below the comparable
period in 1995. Excluding the provision for restructuring, operating income
decreased $20.7 million for the first nine months of the year as compared
to last year. The primary causes of the decline in operating income,
excluding the provision for restructuring, were increased operating losses
at Ascent and lower operating results in both CMC and COMSAT World Systems
(CWS).
Interest and other income (expense) for the third quarter improved
$6.3 million over the same period last year principally due to the minority
interest in Ascent's losses and a gain on the sale of a portion of an
investment at Ascent. Year-to-date interest and other income (expense)
improved by $1.0 million primarily for the same reasons, offset by dividend
payments in the first half of 1996 on Monthly Income Preferred Securities
(MIPS), which were issued in the third quarter 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 due to the completion of
several satellite construction projects.
The tax provision for the third quarter of 1996 reflects an increase
in the corporation's effective tax rate due to non-deductible losses. The
year-to-date accrual rate is approximately the same as last year.
Net income for the third quarter was $5.0 million, which was $20.7
million higher than 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 the third
quarter improved $7.5 million and income for the first nine months of 1996
declined
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$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 the first nine months of 1995. 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.
SEGMENT OPERATING RESULTS
The corporation reports operating results in three segments:
International Communications, Technology Services and Entertainment. The
International Communications segment includes CWS, CMC and COMSAT
International Ventures (CIV).
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RESULTS BY SEGMENT:
Quarter Ended Nine Months Ended
September 30, September 30,
------------------------------ ---------------------------------
In millions 1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
REVENUES
International Communications:
World Systems $ 67.1 $ 62.9 $ 200.2 $ 188.6
Mobile Communications 38.4 47.5 120.3 140.7
International Ventures 15.5 9.7 39.8 25.8
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Total International Communications 121.0 120.1 360.3 355.1
Technology Services 83.0 50.9 215.0 145.8
Entertainment 33.9 37.6 152.6 134.3
Eliminations and other (8.1) (4.7) (20.1) (12.6)
---------- ---------- ---------- ----------
Total revenues $ 229.8 $ 203.9 $ 707.8 $ 622.6
========== ========== ========== ==========
OPERATING INCOME (LOSS)
International Communications:
World Systems $ 24.2 $ 26.8 $ 73.6 $ 81.1
Mobile Communications 7.2 13.3 32.1 43.5
International Ventures (3.7) (7.0) (12.1) (15.0)
---------- ---------- ---------- ----------
Total International Communications 27.7 33.1 93.6 109.6
Technology Services 13.5 0.6 22.0 9.7
Entertainment (7.1) (6.4) (18.2) (3.3)
---------- ---------- ---------- ----------
Total segment operating income 34.1 27.3 97.4 116.0
General and administrative expenses (5.8) (5.8) (18.4) (16.5)
Provision for restructuring - (20.1) - (20.1)
Other (2.1) (0.8) (4.3) (4.1)
---------- ---------- ---------- ----------
Total operating income $ 26.2 $ 0.6 $ 74.7 $ 75.3
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INTERNATIONAL COMMUNICATIONS
Revenues in the International Communications segment in the third
quarter were $121.0 million and for the first nine months were $360.3
million, slightly improved over the same periods of last year. Operating
income for the third quarter was $27.7 million and for the year-to-date was
$93.6 million, approximately 15% lower than the same periods of 1995.
CWS's third quarter and year-to-date revenues were $67.1 million and
$200.2 million, respectively, 7% and 6% increases over the same periods of
last year. The improvement in revenues was the result of increases in VSAT
leases, INTELSAT system revenues, IBS traffic and Wide-band Mobile
revenues. Operating income for the third quarter was $24.2 million and for
the first nine months of 1996 was $73.6 million, which was 10% and 9%,
respectively, below the comparable periods last year. The decrease in
operating income was a result of the lower rate base in CWS, which was due
to the insurance proceeds received from the February 1996 launch failure of
the INTELSAT 708 satellite.
Revenues in CMC 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 the same period last year. The lower revenues were
primarily the result of decreases in analog telephone and telex revenues,
expiration of the AMSC service contract in 1995 and lower volume in the
bulk service contract with IDB. The decline in analog revenues was a result
of continued competitive pressures. Digital telephone revenues have
improved 33% over last year. Operating income for the first quarter and
year-to-date was $7.2 million and $32.1 million, respectively, 46% and 26%
less than the comparable periods of 1995. This was primarily the result of
the decline in revenues offset in part by cost savings from the third
quarter 1995 restructuring.
CIV reported revenues of $15.5 million for the third quarter and $39.8
million year-to-date, 61% and 54% higher than the same periods last year,
respectively. The growth was driven by improvements in CIV's Latin American
companies, which have exhibited strong growth this year. Year-to-date
revenues in Argentina were 49% higher than last year, and in Brazil were up
over 260% over the same period in 1995. The operating losses for CIV's
first quarter and year-to-date were $3.7 million and $12.1 million or $3.4
million and $2.9 million better than the comparative periods last year,
respectively.
TECHNOLOGY SERVICES
This segment includes COMSAT RSI, Inc. (CRSI) and COMSAT Laboratories.
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,
a 47% improvement over the same period 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. The primary causes for the
balance of the increase were the consolidation of revenues from JEFA
Wireless Systems, a wireless and intelligent transportation systems
integrator purchased in September 1995, 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. Operating
income for the third quarter and year-to-date was $13.5 million and $22.0
million, respectively, or $12.9 million and $12.3 million higher than the
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comparative 1995 periods. This was a result of the revenues related to the
license agreement as well as other improvements in revenue.
ENTERTAINMENT
The Entertainment segment is comprised of COMSAT's 80.67% ownership
interest in Ascent. Revenues for the third quarter were $33.9 million,
which was $3.6 million below the third quarter of last year. Third quarter
1995 revenues included $6.4 million of revenues from the Satellite Cinema
business, which ceased operations in December 1995. Excluding this item,
Ascent reported a $2.8 million increase in revenues which was primarily the
result of improvements at OCV. Year-to-date revenues of $152.6 million were
$18.3 million above the same period of 1995. This increase was primarily
attributable to improved revenues at OCV. Year-to-date 1996 revenues
include $24.2 million related to the Colorado Avalanche which were not
included in Ascent's results until the second half of 1995. Included in the
year-to-date 1995 revenues was $20.2 million in revenues associated with
the discontinued Satellite Cinema business.
Operating losses in the Entertainment segment during the third quarter
were $7.1 million as compared to a loss of $6.4 million for the third
quarter of 1995. Year-to-date the operating loss was $18.2 million, $14.9
million greater than last year. The increase in the comparative
year-to-date operating losses is primarily attributable to losses incurred
by the sports teams and Beacon Communication Corp., offset in part, by
improvements resulting from the discontinuance in December 1995 of the
unprofitable Satellite Cinema business.
OUTLOOK
MANY OF THE STATEMENTS THAT FOLLOW ARE FORWARD-LOOKING AND RELATE TO
ANTICIPATED FUTURE OPERATING RESULTS. STATEMENTS THAT LOOK FORWARD IN TIME
ARE BASED ON MANAGEMENT'S 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. ALTHOUGH THE CORPORATION HAS ATTEMPTED TO IDENTIFY
SOME OF THE IMPORTANT FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE ANTICIPATED, THOSE FACTORS SHOULD NOT BE VIEWED AS
THE ONLY FACTORS WHICH MAY AFFECT FUTURE OPERATING RESULTS.
In the first quarter of 1996, the corporation retained an investment
banker to assess strategic alternatives for enhancing shareholder value and
to analyze the capital needs of its businesses for continued expansion,
while permitting COMSAT as a parent organization to reduce debt, strengthen
its balance sheet and improve liquidity. The corporation has been actively
considering the alternatives encompassed by this study with the objective
of prioritizing those options in light of strategic, operational and market
conditions. As part of that process, the corporation announced in October
1996 that it intends to divest its 80.7% ownership interest in Ascent
through a sale, spin-off or other transaction, and that it has engaged
Morgan Stanley & Co., Incorporated to act as its financial advisor for the
divestiture. In October 1996, the corporation also confirmed that it is
considering a reduction of its direct investment in ICO while pursuing a
national wholesaler role in the development of the U.S. Market for ICO's
planned hand held global satellite communication service.
12
<PAGE>
CWS's operating results are expected to remain steady for the
remainder of 1996. CWS is expected to face increasing competition over the
longer term from competitors with substantially greater financial resources
than the corporation. Several recently announced planned acquisitions, if
consummated, are expected to significantly increase the competition for
international satellite telecommunications services, including (i) the
planned acquisition of PanAmSat Corporation by Hughes Electronics
Corporation, a unit of General Motors Corporation; (ii) Loral Space &
Communications Ltd.'s planned purchase of AT&T Corporation's Skynet
satellite system; and (iii) British Telecommunications PLC's planned
acquisition of MCI Communications Corp.
Operating income in CMC for the fourth quarter of 1996 is expected to
be lower as CMC seeks to respond to competition by lowering several service
prices. In addition, the introduction of Planet 1SM in the fourth quarter
will result in increased start-up costs.
Despite anticipated continued revenue growth, CIV expects to incur
another loss in the fourth quarter of 1996. Projected losses at BelCom and
CIV's newer ventures are expected to offset anticipated improvements in
operating income in CIV's ventures in Argentina and Brazil. In the third
quarter of 1996, the corporation increased its ownership interest in BelCom
from 72% to 99.4% of BelCom's outstanding voting stock due primarily to the
conversion of certain BelCom indebtedness into equity. Accordingly, the
corporation will recognize a larger portion of BelCom's projected losses in
the fourth quarter.
Revenues and operating income in Technology Services are expected to
continue at approximately the same level, exclusive of royalties from the
license agreement booked in the third quarter. Backlog in the Technology
Services segment at September 30, 1996 was $265 million, as compared to
$217 million at September 30, 1995. Future earnings growth in Technology
Services, however, will continue to depend upon this segment's ability to
contain costs and complete projects with favorable margins.
Operating losses at Ascent are projected to be higher in the fourth
quarter of 1996. This is primarily the result of the acquisition by OCC of
the assets of SpectraVision, Inc. (See Note 8 to the financial statements),
as well as increased costs in the sports franchises. In addition, as a
result of the SpectraVision transaction, Ascent will no longer be able to
consolidate the results of OCC for tax purposes, which will increase the
effective consolidated tax rate for COMSAT. A number of factors could cause
Ascent's actual results to differ materially from those projected,
including, but not limited to, unanticipated costs associated with the
SpectraVision acquisition or integration of SpectraVision's and OCV's
businesses, the level of ticket sales and other revenues by Ascent's
professional sports franchises, and market conditions.
As a result of anticipated increased losses at Ascent, primarily
caused by the deconsolidation for tax purposes of OCC and anticipated
increased losses associated with the SpectraVision acquisition, COMSAT
expects to report a net loss in the fourth quarter. The Board of Directors
plans to continue to evaluate the corporation's dividend payment policy on
a quarterly basis in light of the corporation's then current operating
performance, market conditions and other relevant factors.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The primary sources of cash in the first nine months of 1996 were
operations, short-term borrowings and insurance proceeds related to the
February 1996 launch failure of the INTELSAT 708 satellite. Cash was
expended primarily for property and equipment, repayment of life insurance
loans, investment in ICO and dividends. The corporation's working capital
decreased from $221.4 million at December 31, 1995 to $97.6 million at
September 30, 1996.
The corporation has $26 million remaining at September 30, 1996 under
a $100 million medium-term note program, which is unchanged from year-end
1995. The medium-term note program is part of a $200 million debt
securities shelf registration program initiated in 1994.
The corporation has access to short- and long-term financing at
favorable rates. The corporation's current long-term debt ratings are A-
from Standard and Poor's and A3 from Moody's. The corporation's current
commercial paper ratings are A2 from Standard and Poor's and P2 from
Moody's.
The corporation's capital structure and debt-financing activities are
regulated by the FCC. The corporation is required to submit a financial
plan to the FCC for review annually. Under existing FCC guidelines, the
corporation is subject to a limit of $200 million in short-term debt, a
maximum long-term debt to total capital ratio of 45% and an interest
coverage ratio of 2.3 to 1. The latter two guidelines are measured at
year-end. In October 1996, the FCC approved a temporary decrease in the
interest coverage ratio to a minimum of 1.9 to 1, and an increase in the
short-term debt limit to $325 million for the 1996 plan year and until the
FCC acts on the corporation's 1997 capital plan to filed by the end of
April 1997. The corporation was in compliance with the short-term debt
limit as of September 30, 1996 and expects to be in compliance with that
guideline and the other guidelines, as modified, at the year-end 1996
measurement date.
If the corporation were to fail to satisfy one or more of the FCC
guidelines as of an applicable measurement date, the corporation would be
required to seek advance FCC approval of future financing activities on a
case by case basis. If such approval were not granted, the corporation
could be required to reduce or reschedule planned capital investments,
reduce cash outlays, reduce debt or sell assets.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1996, the corporation filed a lawsuit against News
Corporation, PanAmSat Corp. and Grupo Televisa, S.A. to
recover damages arising out of News Corporation's breach of an
agreement with COMSAT for satellite services (see the
corporation's 1995 Form 10-K). On October 15, 1996, the U.S.
District Court for Maryland dismissed the corporation's
complaint for lack of personal jurisdiction. On October 25,
1996, the corporation filed a lawsuit alleging substantially
the same claims, including breach of contract, violation of
tariff, intentional interference with contractual relations
and civil conspiracy, against News Corporation and the other
parties named in the prior lawsuit. In addition, News
Corporation has filed a complaint with the FCC challenging the
tariff under which the services to News Corporation would have
been provided and upon which certain of the claims in the
lawsuit are based. The corporation has filed a motion with the
FCC to hold the FCC action in abeyance pending the outcome of
the lawsuit. The FCC has not yet ruled on that motion.
In the third quarter, the corporation entered into an
agreement with certain manufacturers of television encryption
and decryption equipment that resolved patent infringement
disputes with those manufacturers under a lawsuit previously
filed by the corporation in the U.S. District Court for the
Northern District of California. Revenues for the third
quarter include nonrecurring royalty payments of $7.8 million
related to that agreement.
See Notes 7 and 8 of this Form 10-Q, incorporated herein by
reference, for a discussion of other litigation.
ITEM 2. CHANGE IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. (a) EXHIBITS
No. 10 - Material Contracts - Agreement, dated as of
July 19, 1996, between the Registrant and Bruce L.
Crockett
No. 11 - Computation of Earnings per Share
No. 27 - Financial Data Schedule
15
<PAGE>
(b) REPORTS ON FORM 8-K
Report dated July 19, 1996 announcing resignation of
the corporation's President and Chief Executive Officer
and the election of a successor, and announcing second
quarter operating results, and the status of the
corporation's assessment of strategic alternatives.
Report dated September 5, 1996 announcing the dismissal
of all counts of an antitrust lawsuit brought against
the corporation by PanAmSat Corporation in 1989.
16
<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: November 14, 1996
17
<PAGE>
Exhibit 11
COMSAT CORPORATION AND SUBSIDIARIES
Computation of Earnings Per Share
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Quarter Ended Nine Months Ended
September 30, September 30,
----------------------------- ----------------------------
In thousands, except per share amounts 1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------------
PRIMARY
Earnings (loss) $ 5,037 $ (15,623) $ 20,146 $ 20,962
============ =========== =========== ===========
Shares:
Weighted average number of common
shares outstanding 48,511 47,457 48,227 47,208
Add shares issuable from assumed exercise
of options 611 - 777 732
------------ ----------- ----------- -----------
Weighted average shares 49,122 47,457 49,004 47,940
============ =========== =========== ===========
Primary earnings (loss) per share $ 0.10 $ (0.33) $ 0.41 $ 0.44
============ =========== =========== ===========
ASSUMING FULL DILUTION
Earnings (loss) $ 5,037 $ (15,623) $ 20,146 $ 20,962
============ =========== =========== ===========
Shares:
Weighted average number of common
shares outstanding 48,511 47,457 48,227 47,208
Add shares issuable from assumed exercise
of options 612 - 875 855
------------ ----------- ----------- -----------
Weighted average shares 49,123 47,457 49,102 48,063
============ =========== =========== ===========
Fully diluted earnings (loss) per share $ 0.10 $ (0.33) $ 0.41 $ 0.44
============ =========== =========== ===========
</TABLE>
18
<PAGE>
July l9, 1996
Mr. Bruce L. Crockett
906 Frome Lane
McLean, VA 22102
Dear Bruce:
This letter sets forth the substance of our understandings and
agreements with respect to your employment relationship with COMSAT
Corporation ("COMSAT") as a result of your agreement to resign as President
and Chief Executive Officer of COMSAT and to continue your employment with
COMSAT by providing certain consulting services to COMSAT for a specified
period of time. Subject to the conditions listed below, you will remain in
the employ of COMSAT as described below through January 31, 1998 (the
"Termination Date"). Based on the foregoing and the terms and conditions
stated below, COMSAT and you agree as follows:
1. (a) Effective as of July 19, 1996, you will resign as President and
Chief Executive Officer of COMSAT, as a director of COMSAT and Ascent
Entertainment Group, Inc. ("Ascent"), and as a director or officer of all
direct or indirect subsidiaries and affiliates of COMSAT and Ascent.
(b) Subject to Paragraph 3 below, your employment with COMSAT will
terminate on the Termination Date.
(c) During the period from July 19, 1996 through the Termination Date
(the "Continuation Period"), you will provide consulting services to COMSAT
with respect to matters which may arise in connection with your former
duties as President and Chief Executive Officer of COMSAT ("Consulting
Services"), from time to time as requested by the Vice President, Human
Resources and Organization Development of COMSAT (the "VP of HR"), subject
at all times to your availability to provide such services. In
consideration for your providing the Consulting Services, during the
Continuation Period COMSAT will continue to pay you your salary at your
current rate of compensation and, except as otherwise provided in this
Agreement, will provide you with all benefits that are provided to
full-time COMSAT employees, including, but not limited to, the Retirement
Plan, the Insurance and Retirement Plan for Executives (the "SERP"), the
Directors
<PAGE>
Bruce L. Crockett
July 19, 1996
Page Two
and Executives Deferred Compensation Plan (the "Deferred Compensation
Plan"), the Savings and Profit-Sharing Plan, the Employee Stock Purchase
Plan, the Split Dollar Plan for Executives and the Flexible Benefits
Program, provided that your participation in the Deferred Compensation
Plan, the Savings and Profit-Sharing Plan and the Employee Stock Purchase
Plan during the Continuation Period will continue to be subject to the
one-year suspension which you elected on October 17, 1995, as a condition
to receiving a hardship distribution from the Deferred Compensation Plan.
In addition, during the Continuation Period COMSAT will pay for up to
$7,000 of financial counseling for you per year plus reasonable receipted
expenses related thereto. Thereafter, COMSAT will continue to pay for
financial counseling for you to the same extent until you become employed
with another employer or become substantially engaged in self-employment
("Other Employment"). However, during the Continuation Period, you will not
be eligible for salary increases of any nature, cash or stock-based bonuses
or awards of any nature, short- and long-term disability, or educational
assistance, any or all of which may be available to other COMSAT employees.
Except as otherwise provided in this Agreement, for all purposes of COMSAT
service credit, your last date of employment will be the Termination Date.
(d) During the Continuation Period, you will be eligible for
outplacement assistance, commensurate with your former position as
President and Chief Executive Officer, at COMSAT's expense as determined by
the VP of HR.
(e) During the Continuation Period and thereafter, the stock options
and Restricted Stock Awards ("RSAs") previously granted to you under the
1990 and 1995 Key Employee Stock Plans and the Restricted Stock Units ("AIP
RSUs") and Phantom Stock Units ("PSUs") previously granted to you under the
Annual Incentive Plan will continue to be governed by the terms and
conditions of the specific agreements covering such grants. Accordingly,
you will continue to vest in such grants during the Continuation Period,
and the vesting of performance-based RSAs will continue to be subject to
applicable performance measures during the Continuation Period. All stock
options will terminate three months after the Termination Date (or such
later date as provided in the option agreements), during which three-month
period you may exercise such options only to the extent they were
exercisable at the Termination Date. All RSAs, AIP RSUs and PSUs which have
not vested by the Termination Date will be forfeited on such date.
(f) The COMSAT Board of Directors (the "Board") has approved your
early retirement under the SERP on April 1, 1999
<PAGE>
Bruce L. Crockett
July 19, 1996
Page Three
(the "Retirement Date"), the first day of the month after your 55th
birthday. Beginning on the Retirement Date, you will receive SERP
retirement benefits as reduced by (i) the early retirement factor in
Section 5.2(b) of the Plan, and (ii) the termination of employment factor
in Section 7.1 of the Plan. Based on estimated calculations which are
subject to final adjustment, the annual SERP retirement benefit you will
receive beginning on the Retirement Date is $234,984 plus an early
retirement supplement of $15,696 payable until you reach age 65. The lump
sum payments you elected to receive on January 1, 2000 and January 1, 2001
pursuant to Sections 9.3 and 9.4 of the Plan, respectively, will be paid to
you in accordance with your elections unless you revoke these elections
prior to the specified payment dates. As a condition to receiving SERP
retirement benefits beginning on the Retirement Date, you agree to elect
early retirement under the Retirement Plan on the same date. If you die
during the period from the Termination Date to the Retirement Date (the
"Transition Period"), your spouse will receive the annual death benefit
provided in Section 10.1(a) of the Plan, and your beneficiary designated
under the Plan will receive the lump sum death benefit provided in Section
10.1(b) of the Plan. If you become disabled during the Continuation Period
or the Transition Period, COMSAT will recommend to the Board that the Board
approve the commencement of your SERP retirement benefits on February 1,
1998, or the first day of the month after you become disabled, whichever is
later. The Board will have the sole discretion to approve the commencement
of your SERP retirement benefits prior to the Retirement Date if you become
disabled. For this purpose, you will be deemed "disabled" if you incur a
total disability as defined in COMSAT's Long-Term Disability Plan. In
addition, at the end of the Continuation Period COMSAT will request the
Board to review whether the non-competition periods in Section 11.2 of the
Plan and Paragraph 3(b) of this Agreement should run concurrently. The
Board will make this determination in its sole discretion after a good
faith review of the relevant circumstances at such time.
(g) Your rights under the Split Dollar Plan for Executives after the
Termination Date will be governed by the terms and conditions of the Split
Dollar Agreement between COMSAT and you dated February 12, 1992 (the
"SDA"). Accordingly, you will have the option for 60 days after the
Termination Date to obtain the release of the assignment encumbering the
life insurance policies covered by the SDA by reimbursing COMSAT for the
total amount of the premium payments made by COMSAT under the SDA, less any
indebtedness secured by the life insurance policies which was incurred by
COMSAT and which remains outstanding as of the Termination Date, including
any interest due on such indebtedness.
<PAGE>
Bruce L. Crockett
July 19, 1996
Page Four
(h) After the Termination Date, COMSAT will pay up to $8,500 per year
for medical and dental insurance coverage for you and your family until you
become engaged in Other Employment.
(i) You will be entitled to keep the mobile telephone in your personal
automobile provided by COMSAT, plus the computer and other office equipment
provided by COMSAT for use in your home which is listed on the attached
Schedule A.
(j) The COMSAT Foundation will donate the deferred gift amount payable
under the Educational Grant Program to your designated beneficiary, the
University of Rochester, following the death of you or your spouse,
whichever occurs last.
(k) During the Continuation Period, you will be free at all times to
seek, take on and perform other business and employment opportunities and
responsibilities outside COMSAT ("Other Business"), whether or not for
compensation, without limitation and without any effect on the obligations
of COMSAT to you under this Agreement, subject only to the express terms
and conditions of this Agreement. In the event of a conflict between a
COMSAT request for Consulting Services and your Other Business, you shall
resolve such conflict in your reasonable discretion after consulting with
the VP or HR.
2. In consideration of COMSAT's agreement to enter into this Agreement
and in return for your receipt of the benefits thereof, you agree to the
general release and covenant not to sue contained in this paragraph 2 and
the other provisions of this Agreement. It is understood, however, that
this release shall not waive any claim for benefits or any rights to which
you are or may be entitled under this Agreement, your employment by COMSAT
from the date of this Agreement through the Termination Date in accordance
with this Agreement, the COMSAT Retirement Plan, or any other payments or
other benefits to which you are entitled, or will become entitled after
your termination from COMSAT, pursuant to the specific terms of any other
COMSAT employee benefit plans in which you are a participant.
(a) You, on behalf of yourself and your heirs, executors,
administrators, successors and assigns, agree to release, discharge and
covenant not to sue COMSAT, its affiliated companies and its and their
predecessors, successors, assigns, shareholders, directors, officers,
employees, administrators, fiduciaries and agents, in their individual and
representative capacities (hereinafter referred to collectively as
"COMSAT") with respect to all claims, charges, causes of action,
liabilities, suits, debts and demands, of any kind or nature,
<PAGE>
Bruce L. Crockett
July 19, 1996
Page Five
which you had, have or may have against COMSAT up to the effective date of
this Agreement (collectively, "Waived Claims"), including, without
limitation, (i) any claims relating to your employment with COMSAT; (ii)
any claims relating to the termination of your employment pursuant to the
terms of this Agreement, including but not limited to your agreement to
terminate employment effective on the Termination Date, under the
arrangement as set forth herein; (iii) any claims relating to the terms,
conditions and benefits associated with such employment or your termination
from employment; (iv) any claims under any local, state or federal
antidiscrimination law, including, without limitation, Title VII of the
Civil Rights Act of 1964, as amended, the Age Discrimination in Employment
Act, the Americans With Disabilities Act, the Employee Retirement Income
Security Act of 1974, as amended, and the Fair Labor Standards Act; (v) any
claims at common law, including, without limitation, claims for breach of
an express or implied contract, or wrongful discharge; or (vi) any other
claims, statutory or otherwise.
(b) You agree not to encourage, initiate or participate in or assist
in any way in any individual or class action lawsuit or administrative,
arbitral or other proceeding against COMSAT with respect to any Waived
Claims in any forum on behalf of yourself or others, unless compelled to do
so by legal process or court order. You further agree to waive any remedy
or recovery in any action which may be brought on your behalf by any
governmental agency or other person with respect to any Waived Claims.
3. Except to the extent provided herein, you release and waive any and
all rights or claims you may have to reemployment with COMSAT or any of its
affiliated companies after the Termination Date, and agree that you will
not apply for employment with COMSAT or any of its affiliated companies
after such date. You further understand and agree that your employment
status with COMSAT during the Continuation Period and the salary and
benefits provided are conditioned upon the following and that if you breach
any of the following during such period, your employment, salary and
benefits will terminate on the date upon which COMSAT provides written
notice to you of such termination:
(a) During the Continuation Period you will not disparage, slander,
defame, impugn or make any statement to third parties orally or in writing,
or take, or omit to take, any other actions that will damage or harm COMSAT
or any of its subsidiaries or affiliates, or their respective officers and
directors, or the reputations of any of them, provided that this clause (a)
will not apply to any testimony you give under oath in connection with any
lawsuit or other proceeding.
<PAGE>
Bruce L. Crockett
July 19, 1996
Page Six
(b) Without the prior written approval of the VP of HR, you may not
accept or enter into any employment or direct or indirect consulting
arrangement during the Continuation Period (i) with any competitor of
COMSAT or its subsidiaries and affiliates, or (ii) which violates or is
otherwise prohibited by the Conflicts of Interest or Confidentiality
policies of COMSAT, including the Standard Invention and Information
Agreement you signed regarding nondisclosure of corporate proprietary
information.
(c) You will cooperate as requested by the Vice President and General
Counsel of COMSAT in assisting COMSAT to defend the PanAmSat and Kinzie
lawsuits or any other existing or prospective lawsuits or regulatory
proceedings that arise out of or involve matters or events which occurred
on or before July 19, 1996, to the extent that any statements you are
required to make in such capacity are truthful and to the extent that your
cooperation is not adverse to your own interests.
4. This Agreement is strictly confidential. You agree, that, until
such time as this Agreement becomes public as a result of its required
filing by COMSAT with the Securities and Exchange Commission (the "SEC"),
or except as agreed upon in writing by COMSAT, you will not communicate,
publish or disclose, in any manner, the terms, nature or scope of this
Agreement to any person except: (a) as may be required by law; (b) to your
attorneys, accountants, financial counselors, or tax consultants; (c) to
prospective employers; or (d) to members of your immediate family. In the
event that information described in this Agreement is revealed to your
attorneys, accountants, financial counselors, tax consultants, prospective
employers or immediate family as permitted herein before this Agreement
becomes public as a result of its required filing by COMSAT with the SEC,
such person(s) shall be advised of this non-disclosure covenant and be
instructed that they are bound not to publish, disclose, or otherwise
disseminate such information in the same way you are bound and that you are
responsible for any unauthorized disclosure by such recipient.
5. COMSAT agrees that it will not communicate, publish or disclose, in
any manner, the terms, nature or scope of this Agreement to any person
except: (a) as may be required by law; (b) to its attorneys, accountants,
financial counselors, or tax consultants; or as may be required in the
ordinary course of its business. In the event that information described in
this Agreement is disclosed pursuant to this Paragraph 5 before this
Agreement becomes public as a result of its required filing by COMSAT with
the SEC, the person(s) to whom such disclosure is made shall be advised of
this non-disclosure covenant and be instructed that they are bound not to
publish, disclose, or
<PAGE>
Bruce L. Crockett
July 19, 1996
Page Seven
otherwise disseminate such information to the same extent that COMSAT is
bound.
6. Because of the nature of the terms of this Agreement, and the
general release and covenant not to sue contained herein, by agreeing to
this Agreement you acknowledge that you have been advised, in writing, by
COMSAT to consult with an attorney prior to executing this Agreement, that
you have had an opportunity to do so and that you understand the nature,
terms and effects of this Agreement, and the general release and covenant
not to sue. You further acknowledge that COMSAT has not made any
representations to you, or your agents or successors and assigns,
concerning this Agreement, or the general release and covenant not to sue,
other than those contained herein. In addition, you acknowledge that you
have been informed that you have the right to consider and review this
Agreement for a period of at least twenty-one (21) days, and that you have
the right to revoke this Agreement for a period of seven (7) days following
its execution, and that this Agreement shall not become effective or
enforceable until such seven (7) day period has expired.
7. Finally, you agree and acknowledge that this Agreement, and the
general release and covenant not to sue contained herein, shall not operate
or be construed as an admission by COMSAT of any violation of any local,
state or federal statute or regulation or of any duty at common law or
otherwise owed to you, your successors or assigns.
8. You will be entitled to indemnification to the extent provided in
COMSAT's Articles of Incorporation and By-Laws and to coverage under
COMSAT's liability insurance policy for directors and officers to the
extent provided therein.
9. This Agreement shall inure to the benefit of, and is binding upon,
COMSAT and you and our respective heirs, executors, administrators,
successors, representatives and assigns.
10. This Agreement may not be modified or amended except in writing signed
by the parties.
11. A waiver of a breach of any provision of this Agreement will not
constitute a waiver of any subsequent breach of the same provision or a
waiver of a breach of any other provision of this Agreement.
12. This Agreement shall be governed by and construed in accordance with
the laws of the State of Maryland without giving effect to conflicts of
laws principles thereof.
<PAGE>
Bruce L. Crockett
July 19, 1996
Page Eight
If you agree to the foregoing, please sign both originals of this
Agreement in the space provided below and return one original to the
undersigned.
COMSAT Corporation
/s/ Steve Bell
-----------------------------------
By: Steve Bell, Vice President
Human Resources and
Organization Development
Agreed and Acknowledged:
/s/ B. L. Crockett
- ----------------------------
Bruce L. Crockett
7-19-96
- ----------------------------
Date
Enclosure: Duplicate Original
<PAGE>
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<CIK> 0000022698
<NAME> COMSAT CORPORATION
<MULTIPLIER> 1000
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<S> <C> <C>
<PERIOD-TYPE> 9-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JUN-01-1996
<PERIOD-END> SEP-30-1996 SEP-30-1996
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<PP&E> 2,820,671 2,820,671
<DEPRECIATION> 1,260,423 1,260,423
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<CHANGES> 0 0
<NET-INCOME> 20,146 5,037
<EPS-PRIMARY> 0.41 0.10
<EPS-DILUTED> 0.41 0.10
</TABLE>
