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, 1997
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 [ ]
49,722,000 shares of the Registrant's common stock were outstanding as of
September 30, 1997.
<PAGE>
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 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------
REVENUES $ 147,122 $ 143,085 $ 422,222 $ 407,724
----------- ----------- ----------- -----------
Operating expenses:
Cost of services 74,467 63,555 198,304 183,920
Depreciation and amortization 47,222 40,006 135,531 113,236
Research and development 2,381 2,777 6,175 7,600
General and administrative 5,399 5,835 17,996 18,453
----------- ----------- ----------- -----------
Total operating expenses 129,469 112,173 358,006 323,209
----------- ----------- ----------- -----------
OPERATING INCOME 17,653 30,912 64,216 84,515
Interest and other income (expense), net 6,502 (3,182) 6,292 (10,502)
Interest expense, net of amounts capitalized (11,190) (10,135) (31,028) (25,748)
----------- ----------- ----------- -----------
Income from continuing operations before taxes,
minority interest, and extraordinary item 12,965 17,595 39,480 48,265
Income tax expense (4,208) (10,301) (14,462) (23,760)
Minority interest in net losses of consolidated
subsidiaries 638 914 1,574 3,177
----------- ----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS BEFORE
EXTRAORDINARY ITEM 9,395 8,208 26,592 27,682
----------- ----------- ----------- -----------
Discontinued operations, net of income tax:
Loss from operations - (3,171) (17,572) (7,536)
Loss on disposal (30,207) - (41,496) -
----------- ----------- ----------- -----------
Discontinued operations (30,207) (3,171) (59,068) (7,536)
----------- ----------- ----------- -----------
Income (loss) before extraordinary item (20,812) 5,037 (32,476) 20,146
Extraordinary loss from early extinguishment
of debt (net of tax) - - (3,946) -
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (20,812) $ 5,037 $ (36,422) $ 20,146
=========== =========== =========== ===========
EARNINGS (LOSS) PER SHARE:
Income from continuing operations $ 0.19 $ 0.16 $ 0.53 $ 0.56
Loss from discontinued operations (0.60) (0.06) (1.18) (0.15)
Extraordinary loss - - (0.08) -
----------- ----------- ----------- -----------
Net income (loss) $ (0.41) $ 0.10 $ (0.73) $ 0.41
=========== =========== =========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
2
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COMSAT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
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September 30, December 31,
In thousands 1997 1996
- ---------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 7,361 $ 7,659
Receivables 167,615 133,952
Other 21,812 18,395
Net assets of discontinued operations 162,658 385,315
------------- ------------
Total current assets 359,446 545,321
------------- ------------
Property and equipment (net of accumulated depreciation
of $1,113,853 in 1997 and $1,027,437 in 1996) 1,346,343 1,322,985
Investments 82,063 124,442
Goodwill 12,952 13,189
Other assets 107,564 98,486
------------- ------------
TOTAL ASSETS $ 1,908,368 $ 2,104,423
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 10,376 $ 13,802
Commercial paper 135,627 17,993
Accounts payable and accrued liabilities 77,617 73,426
Due to related parties 35,117 42,562
Other 20,930 15,342
------------- ------------
Total current liabilities 279,667 163,125
------------- ------------
Long-term debt 468,659 578,379
Deferred income taxes and investment tax credits 123,744 131,827
Accrued postretirement benefit costs 50,931 50,423
Other long-term liabilities 173,792 134,523
Minority interest 5,113 4,329
Preferred Securities issued by subsidiary 200,000 200,000
STOCKHOLDERS' EQUITY:
Common stock 358,647 340,691
Retained earnings 257,307 502,839
Treasury stock (1,332) (3,006)
Other (8,160) 1,293
------------- ------------
Total stockholders' equity 606,462 841,817
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,908,368 $ 2,104,311
============= ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
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COMSAT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Cash Flow Statements
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Nine Months Ended September 30,
----------------------------------
In thousands 1997 1996
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (36,422) $ 20,146
Adjustments to reconcile net income (loss) to cash flow of
continuing operations:
Depreciation and amortization 135,531 113,236
Extraordinary loss from early extinguishment of debt 3,946 -
Loss from discontinued operations 59,068 7,536
Changes in operating assets and liabilities (26,890) 10,640
Other 5,379 3,002
----------- ------------
Net cash provided by continuing operations 140,612 154,560
Net cash used by discontinued operations (27,690) (23,023)
----------- ------------
Net cash provided by operating activities 112,922 131,537
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (191,585) (175,225)
Investments in unconsolidated businesses (9,831) (31,733)
Proceeds from sale of investments 9,060 -
Proceeds from note on sale of investment 15,655 -
Net proceeds from sale of land 9,293 -
Insurance proceeds from satellite launch failure - 54,443
Decrease (increase) in INTELSAT ownership 23,024 (1,238)
Decrease in Inmarsat ownership - 5,746
Other (4,254) 2,067
----------- ------------
Net cash used in investing activities (148,638) (145,940)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued 12,605 9,484
Cash dividends paid (14,476) (28,212)
Repayment/extinguishment of long-term debt (110,952) (7,479)
Net short-term borrowings 117,634 -
Repayment against company-owned life insurance policies (3,736) (51,443)
Net proceeds from sale-leaseback financing 34,343 -
----------- ------------
Net cash provided by (used for) financing activities 35,418 (77,650)
----------- ------------
Net decrease in cash and cash equivalents (298) (92,053)
Cash and cash equivalents, beginning of period 7,659 109,512
----------- ------------
Cash and cash equivalents, end of period $ 7,361 $ 17,459
=========== ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
(SEE NON-CASH DIVIDEND DISCUSSED IN NOTE 2 TO THE FINANCIAL STATEMENTS.)
4
<PAGE>
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 1996 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. DISCONTINUED OPERATIONS
The corporation placed Ascent Entertainment Group, Inc. (Ascent), its
entertainment subsidiary, and substantially all of the assets and
operations of COMSAT RSI, Inc. (CRSI), its manufacturing subsidiary, into
discontinued operations during the second quarter of 1997. The condensed
consolidated financial statements have been restated for all prior periods
presented to reflect the results of operations and net assets of Ascent and
CRSI as discontinued operations.
ASCENT ENTERTAINMENT GROUP
The corporation distributed its 80.67% ownership interest in Ascent
through a tax-free dividend to shareholders on June 27, 1997 (the
"Distribution"). COMSAT shareholders of record on June 19, 1997 received
0.4888 of a share of Ascent common stock for each share of COMSAT common
stock owned. Ascent was placed in discontinued operations on May 16, 1997,
the date on which the corporation's Board of Directors adopted a formal
plan to effect the Distribution. The book value of the net assets of Ascent
totaled approximately $195 million at June 27, 1997 and consisted of the
following:
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In millions
- ------------------------------------------------------------------------------------------
Current assets $ 89.2
Property and equipment, net 308.2
Intangible and other assets 343.3
Short-term debt 176.0
Other current liabilities 151.3
Long-term debt 50.0
Other non-current liabilities 168.8
----------
Net assets $ 194.6
==========
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The non-cash dividend was recorded as an adjustment to retained earnings.
5
<PAGE>
The operating results of the discontinued entertainment operations,
net of minority interests, for the periods through May 16, 1997 are
summarized below. The loss on disposal includes Ascent's operating loss
subsequent to May 16, 1997 through June 27, 1997 of $7.4 million, and costs
of $4.1 million incurred by COMSAT to facilitate the distribution. The tax
expense associated with the loss on disposal also includes a charge of $4.4
million to recognize an additional tax provision on deferred inter-company
gains while Ascent was included in COMSAT's consolidated tax return.
COMSAT RSI, INC.
Substantially all of CRSI was placed in discontinued operations as of
June 30, 1997. CRSI designs, manufactures and integrates earth stations as
well as wireless and advanced antenna systems. The assets of JEFA Wireless
Systems (JEFA), a wholly-owned subsidiary of CRSI engaged in the wireless
communications integration and intelligent transportation systems
businesses, are being disposed of in a separate transaction. The
corporation has determined to retain certain non-manufacturing businesses
of CRSI (E.G., CRSI's satellite control facility, satellite construction
monitoring business and certain government contracts). The retained
businesses are reported as continuing operations within the Network
Services segment. See "Management's Discussion and Analysis - Segment
Operating Results" below.
The operating results of the discontinued manufacturing operations for
the periods through June 30, 1997 are summarized below. At June 30, 1997,
no loss was anticipated. In the third quarter of 1997, the corporation
recorded a provision for an estimated loss on disposal of $46.7 million
($30.2 million after tax). This change in the estimate for discontinued
operations resulted from new information, obtained in part, through
negotiation activity and buyers' due diligence, primarily with respect to
the estimated sale price for the disposal of JEFA. The estimated loss on
disposal of CRSI includes the write-down of JEFA's assets to net realizable
value, facility closure costs and the estimated operating results through
the date of disposal of CRSI (including JEFA). Included in the estimated
loss on disposal was an unanticipated third quarter loss from operations of
$15.7 million ($12.9 million after tax), which included operating losses at
JEFA and adjustments in the estimated cost to complete certain long-term
contracts at CRSI. The estimated loss on disposal is subject to change in
the near term due to continuing negotiations and does not include a
potential additional material loss that may be incurred if negotiations are
concluded successfully within the range of sales prices currently being
discussed. See "Management's Discussion and Analysis - Outlook" below.
6
<PAGE>
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QUARTER ENDED SEPTEMBER 30,
--------------------------------------------------------------
In millions 1997 1996
- -------------------------------------------------------------------------------------------------------------------
CRSI Ascent CRSI Total
----------- ---------- ---------- -----------
Revenues $ 38.1 $ 52.8 $ 90.9
========== ========== ===========
Income (loss) from operations before
taxes and minority interest (8.3) 2.0 (6.3)
Income tax benefit (expense) 2.5 (0.6) 1.9
Minority interest 1.4 (0.1) 1.3
---------- ---------- -----------
Income (loss) from operations (4.4) 1.3 (3.1)
---------- ---------- -----------
Loss on disposal before taxes $ (46.7)
Income tax benefit 15.8
Minority interest 0.7
-----------
Loss on disposal (30.2)
-----------
Income (loss) on discontinued $ (30.2) $ (4.4) $ 1.3 $ (3.1)
operations =========== ========== ========== ===========
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NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------------------
In millions 1997 1996
- -------------------------------------------------------------------------------------------------------------------
Ascent CRSI Total Ascent CRSI Total
---------- ----------- ----------- ---------- ---------- -----------
Revenues $ 177.5 $ 121.3 $ 298.8 $ 166.5 $ 147.5 $ 314.0
========== =========== =========== ========== ========== ===========
Income (loss) from operations before
taxes and minority interest (34.7) (0.4) (35.1) (22.1) 6.9 (15.2)
Income tax benefit (expense) 6.2 0.2 6.4 6.7 (2.1) 4.6
Minority interest 10.7 0.4 11.1 3.1 3.1
---------- ----------- ----------- ---------- ---------- -----------
Income (loss) from operations (17.8) 0.2 (17.6) (12.3) 4.8 (7.5)
---------- ----------- ----------- ---------- ---------- -----------
Loss on disposal before taxes (11.5) (46.7) (58.2)
Income tax benefit (expense) (2.0) 15.8 13.8
Minority interest 2.2 0.7 2.9
---------- ----------- -----------
Loss on disposal (11.3) (30.2) (41.5)
---------- ----------- -----------
Income (loss) on discontinued $ (29.1) $ (30.0) $ (59.1) $ (12.3) $ 4.8 $ (7.5)
operations ========== =========== =========== ========== ========== ===========
7
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The net assets of the discontinued operations are summarized below:
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September 30, 1997 December 31, 1996
----------------------------------- -----------------------------------
In millions CRSI Ascent CRSI Total
- -------------------------------------------------------------------------------------------------------------------
Current assets $ 169.7 $ 83.4 $ 173.0 $ 256.4
Fixed assets, net 33.3 301.5 32.3 333.8
Intangible and other assets 15.5 351.4 13.0 364.4
Short-term debt 4.4 145.5 0.4 145.9
Other current liabilities 30.2 143.6 39.3 182.9
Provision for estimated loss on
disposal of discontinued operations 17.3
Long-term debt 1.8 52.0 5.1 57.1
Other non-current liabilities 2.1 178.9 4.5 183.4
----------- ---------- ---------- -----------
Net assets discontinued operations $ 162.7 $ 216.3 $ 169.0 $ 385.3
=========== ========== ========== ===========
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3. SALE AND LEASEBACK OF THE CLARKSBURG PROPERTY
During the third quarter, the corporation sold its Clarksburg,
Maryland office building and the surrounding land for $45.8 million in an
all cash transaction. A gain of $7.3 million ($4.2 million net of tax) was
recognized on the sale of land and is included in "Interest and other
income (expense), net." As part of the transaction, the corporation entered
into a ten year lease-back transaction with the new owner to continue
occupying the office building, that principally houses COMSAT Laboratories.
The sale-leaseback of the office building has been accounted for as a
financing, wherein the historical cost of the building remains on the books
and continues to be depreciated. A financing obligation, of approximately
$36 million, representing the proceeds was recorded in other current and
other long-term liabilities, and will be reduced based on lease payments
under the lease.
4. INTELSAT AND INMARSAT SHARE CHANGES
The corporation's ownership share of INTELSAT decreased from 19.1% at
December 31, 1996 to 18.0% as of September 30, 1997. As a result of the
change in ownership, the corporation received a total of $23.0 million
during the first nine months of 1997.
The corporation's 23% ownership share of Inmarsat as of September 30,
1997 is unchanged from December 31, 1996.
5. INVESTMENTS
In January 1997, the corporation sold its remaining interest in
Philippine Global Communications, Inc. (PhilCom) at book value in exchange
for cash and a collateralized note receivable totaling $34.3 million, to be
paid in installments with interest through December 31, 1998. The
corporation received cash proceeds of $17.3 million during the nine months
ended September 30, 1997.
8
<PAGE>
In the second quarter of 1997, the corporation sold certain marketable
equity securities and recognized a $2.0 million pre-tax gain that is
recorded in "Interest and other income (expense) net."
6. REGULATORY MATTERS AND CONTINGENCIES
GOVERNMENT REGULATION. Under the Communications Satellite Act of 1962
(the Satellite Act), the International Maritime Satellite Act of 1978 (the
Inmarsat Act) and the Communications Act of 1934, as amended (the
Communications Act), COMSAT is subject to regulation by the Federal
Communications Commission (FCC) with respect to its capital and
organizational structure, as well as COMSAT World Systems (CWS) and COMSAT
Mobile Communications (CMC) plant, operations, services and rates. FCC
decisions and policies have had and will continue to have a significant
impact on the corporation. For a discussion of these matters refer to the
description of the corporation's "Business" and Notes 10 and 11 to the
corporation's 1996 financial statements included as part of the
corporation's 1996 Form 10-K and the "Management's Discussion and Analysis
- -- Outlook" section of the Form 10-Q.
LITIGATION. COMSAT and its subsidiaries are a party to various
lawsuits and arbitration proceedings and are subject to various claims and
inquiries, which generally are incidental to the ordinary course of its
business. The outcome of legal proceedings cannot be predicted with
certainty. Based on currently available information, however, management
does not believe that the outcome of any matter which is pending or
threatened, either individually or in the aggregate, will have a materially
adverse effect on the consolidated financial condition of the corporation
but could materially effect consolidated results of operations in a given
year or quarter. Certain of those matters are discussed in Notes 10 and 11
to the corporation's 1996 financial statements included as part of the
corporation's 1996 Form 10-K and "Item 1 - Legal Proceedings" of Part II of
the Form 10-Q herein.
7. EXTRAORDINARY LOSS FROM EARLY EXTINGUISHMENT OF DEBT
During the period March 25, 1997 through April 9, 1997, the
corporation offered to purchase for cash its 8.125% notes due April 1, 2004
in a fixed-spread offering. The corporation repurchased $89.5 million of
the 8.125% notes and $10.0 million of its 7.7% medium term notes using
proceeds from short-term debt. The debt extinguishment loss related to the
repurchases was $6.2 million ($3.9 million after tax) during the first half
of 1997.
8. NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share."
This statement establishes standards for computing and presenting earnings
per share. This statement is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods; early
application is not permitted. The corporation will adopt this standard in
the fourth quarter of 1997 and will restate all prior period earnings per
share data presented as required. Adoption of this statement is not
expected to have a material effect on the corporation's reported net income
(loss) per common share.
9
<PAGE>
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS No. 130) and Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS No. 131). SFAS No.130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. SFAS No. 131 establishes standards for the way public business
enterprises report information about operating segments and the related
disclosures about products and services, geographic areas, and major
customers. Both statements are effective for financial statements issued
for fiscal years beginning after December 15, 1997. The corporation is
reviewing what effect the new standards will have on future reporting;
however, the new standards will not have any material effect on the
corporation's financial condition.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1997
ANALYSIS OF OPERATIONS
CONSOLIDATED OPERATIONS
During the second quarter of 1997, the corporation placed both Ascent
Entertainment Group, Inc. (Ascent) and substantially all of COMSAT RSI,
Inc. (CRSI) in discontinued operations. The condensed consolidated
financial statements (unaudited) have been restated for all periods
presented to reflect them as discontinued operations.
CONTINUING OPERATIONS
Consolidated revenues from continuing operations in the third quarter
were $147.1 million, an increase of $4.0 million over the third quarter of
1996. The increase came predominantly in the Network Services segment.
Revenues from continuing operations in the nine months ended September 30,
1997 were $422.2 million, $14.5 million higher than the same period last
year. This improvement was the result of a 35% increase in Network Services
revenues, which was partially offset by a decrease in Satellite Services
due to lower revenues in COMSAT Mobile Communications (CMC). The third
quarter 1996 revenues included $7.8 million of revenues in Network Services
related to an agreement that resolved patent-infringement disputes.
Operating income from continuing operations for the third quarter and
year-to-date was $17.6 million and $64.2 million, respectively, as compared
to $30.9 million and $84.5 million for the comparable periods of last year.
The lower operating income in the third quarter was primarily the result of
lower operating income at COMSAT Laboratories which was related to the
third quarter 1996 agreement that resolved patent-infringement disputes
which did not reoccur this year. The decline in the year-to-date operating
income was the result of lower operating income in CMC as well as the
impact of the agreement at COMSAT Laboratories noted above. Also affecting
operating income in the year-to-date results were expenses of $1.8 million
related to a potential proxy contest which was settled in the second
quarter and litigation costs of $1.5 million related to an action brought
against certain of the proxy contestants and the corporation's former chief
executive officer to enforce certain provisions of the Communications
Satellite Act of 1962, which action was dismissed in connection with
settlement of the proxy contest. The dispute with the former chief
executive officer was resolved in the third quarter of 1997. For additional
information concerning settlement of the proxy contest and such litigation,
see the corporation's Form 8-K dated June 9, 1997.
Interest and other income (expense) for the third quarter and
year-to-date were income of $6.5 million and $6.3 million, respectively,
compared to net expense of $3.2 million and $10.5 million for the
comparative periods in 1996. The improvement in both periods stems
primarily from the impact of a gain of $7.3 million from the sale of real
estate. In addition, the year-to-date period includes a $2.0 million gain
related to the sale of marketable equity securities and increased interest
income.
11
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Interest expense, net of amounts capitalized, for the third quarter
and first nine months of 1997 was $11.2 million and $31.0 million,
respectively, which was $1.1 million and $5.3 million higher than the
comparable periods last year. The increases reflect reduced interest
capitalized due to the completion of several satellite projects.
The consolidated tax rate on income from continuing operations before
taxes, minority interest and extraordinary item, for both the third quarter
and year-to-date, has improved over the comparable periods of last year
principally because of a net reduction in non-deductible items.
The change in minority interest in net losses of consolidated
subsidiaries primarily reflects the increased ownership of COMSAT
International's (CI) operations in Russia.
Income from continuing operations before extraordinary item for the
third quarter was $9.4 million ($0.19 per share), which was $1.2 million
($0.03 per share) better than the third quarter of 1996. Year-to-date
income from continuing operations before extraordinary item was $26.6
million ($0.53 per share), $1.1 million ($0.03 per share) below the
comparative period last year.
Extraordinary loss from early extinguishment of debt, net of tax, for
the year-to-date was $3.9 million ($0.08 per share). This represents the
costs incurred in the first half of 1997 from the corporation's repurchase
of $89.5 million of its 8.125% notes and $10.0 million of its 7.7% medium
term notes (see Note 7 to the financial statements).
DISCONTINUED OPERATIONS
The loss from discontinued operations, net of tax, for the third
quarter was $30.2 million ($0.60 per share) compared to a loss of $3.2
million ($0.06 per share) for the same period last year. For the nine
months ended September 30, 1997, the loss was $59.1 million ($1.18 per
share) versus a loss of $7.65 million ($0.15 per share) in the first nine
months of 1996. Discontinued operations include both Ascent and
substantially all of CRSI.
COMSAT placed substantially all of CRSI in discontinued operations on
June 30, 1997. The third quarter charge in discontinued operations of $30.2
million, after tax, is primarily attributable to losses now anticipated on
the separate disposition of JEFA Wireless Systems (JEFA), a subsidiary of
CRSI, as well as adjustments in the estimated cost to complete certain
long-term contracts in CRSI. The estimated loss on disposal of CRSI
(including JEFA) is subject to change in the near term and does not include
a potential additional material loss that may be a incurred if negotiations
are concluded successfully within the range of sales prices currently being
discussed. See Note 2 to the financial statements and Management's
Discussion and Analysis -- Outlook.
Ascent was placed in discontinued operations on May 16, 1997 when
COMSAT's Board of Directors approved a plan to distribute the corporation's
80.67% interest in Ascent to COMSAT's shareholders. On June 27, 1997,
COMSAT completed the spin-off of Ascent as a tax-free dividend to COMSAT's
shareholders. The loss in discontinued operations for the first nine months
of 1997, which is unchanged from June 30, 1997, was $29.1 million, after
tax. The loss on disposal of Ascent of $11.3 million includes COMSAT's
share of Ascent's operating losses subsequent to May 16, 1997 through June
27, 1997, costs incurred by COMSAT to facilitate the distribution and
additional tax provision recognized on deferred inter-company gains when
COMSAT divested its ownership in Ascent (see Note 2 to the financial
statements).
12
<PAGE>
CONSOLIDATED RESULTS
On a consolidated basis, including discontinued operations and the
extraordinary item, the net loss for the third quarter was $20.8 million,
or $0.41 per share, compared with net income of $5.0 million, or $0.10 per
share, in the same period last year. Through the first nine months of 1997,
the consolidated net loss was $36.4 million, or $0.73 per share, versus net
income of $20.1 million, or $0.41 per share, in the same period of last
year.
SEGMENT OPERATING RESULTS
Commencing with the second quarter of 1997, the corporation has
reported operating results in two segments -- Satellite Services and
Network Services. The Satellite Services segment includes both COMSAT World
Systems (CWS) and COMSAT Mobile Communications (CMC). The Network Services
segment includes COMSAT International (CI), COMSAT Laboratories and
Government Programs. COMSAT Laboratories and Government Programs results
now include certain non-manufacturing businesses that were previously
reported as part of CRSI.
RESULTS BY SEGMENT:
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Quarter Ended September 30, Nine Months Ended September 30,
------------------------------ -------------------------------------
In millions 1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
REVENUES
Satellite Services:
World Systems $ 66.0 $ 67.1 $ 199.3 $ 200.2
Mobile Communications 41.6 38.4 115.3 120.3
----------- ----------- ----------- -----------
Total Satellite Services 107.6 105.5 314.6 320.5
----------- ----------- ----------- -----------
Network Services:
International 25.1 15.6 62.5 39.8
Laboratories 8.9 14.4 26.8 24.5
Government Programs 15.6 13.5 45.2 35.6
----------- ----------- ----------- -----------
Total Network Services 49.6 43.5 134.5 99.9
----------- ----------- ----------- -----------
Eliminations and other (10.1) (5.9) (26.9) (12.7)
----------- ----------- ----------- -----------
Total revenues $ 147.1 $ 143.1 $ 422.2 $ 407.7
=========== =========== =========== ===========
OPERATING INCOME (LOSS)
Satellite Services:
World Systems $ 22.3 $ 24.4 $ 77.6 $ 74.1
Mobile Communications 6.8 7.3 17.7 32.6
----------- ----------- ----------- -----------
Total Satellite Services 29.1 31.7 95.3 106.7
----------- ----------- ----------- -----------
Network Services:
International (3.9) (3.6) (10.5) (12.1)
Laboratories (1.0) 8.4 (1.3) 6.5
Government Programs (0.3) 1.4 0.5 3.5
----------- ----------- ----------- -----------
Total Network Services (5.2) 6.2 (11.3) (2.1)
----------- ----------- ----------- -----------
Total segment operating income 23.9 37.9 84.0 104.6
General and administrative expense (5.4) (5.8) (18.0) (18.4)
Other (0.9) (1.2) (1.8) (1.7)
----------- ----------- ----------- -----------
Total operating income $ 17.6 $ 30.9 $ 64.2 $ 84.5
=========== =========== =========== ===========
</TABLE>
13
<PAGE>
SATELLITE SERVICES
Revenues in the Satellite Services segment in the third quarter and
year-to-date were $107.6 million and $314.6 million, respectively, which
was $2.1 million better and $5.9 million below the same periods last year.
Operating income for the third quarter and year-to-date 1997 was $29.1
million and $95.3 million, respectively, a decline of $2.6 million and
$11.4 million from the comparative periods of 1996.
CWS revenues for the third quarter and first nine months of 1997 at
$66.0 million and $199.3 million, respectively, was 2% below the third
quarter of 1996 and was essentially unchanged from the first nine months of
last year. Increased revenues from Very Small Aperture Terminal (VSAT)
leases and International Business Service (IBS) traffic were offset by
declines in full-time voice and fiber-optic cable restoration revenues. The
lower voice revenues stemmed primarily from rate reductions in long-term
carrier contracts. Operating income for the third quarter was $22.3 million
and for the year-to-date was $77.6 million, which was 8% below and 5%
higher than the comparable periods last year. The Federal Communications
Commission regulations limit the amount that CWS can earn during the year.
During the second quarter of 1997, CWS's operating income was increased by
the recovery of certain litigation costs. Accordingly, the third quarter
results were lower. The year-to-date increase reflects improved earnings
realized on carrier-to-carrier contracts, offset in part, by increased
depreciation from placing in service two INTELSAT satellites during the
past 12 months.
Revenues in CMC were $41.6 million in the third quarter, an increase
of 8% compared to the third quarter of last year. For the year-to-date, CMC
revenues were $115.3 million, 4% below the same period of last year. The
higher revenues in the third quarter were the result of sales of Planet 1TM
terminals and Planet 1SM service which did not commence service until
January 1997. For the year-to-date, the lower revenues were primarily the
result of decreases in analog telephone transmissions and lower volume in
the bulk service contract with IDB Mobile Communications (IDB). CMC's
operating income for the third quarter was $6.8 million, which was $0.5
million below the third quarter of 1996. For the first nine months of 1997,
the operating income was $17.7 million, down $14.9 million from last year.
The decrease in year-to-date operating income is attributable to lower
revenues, increased depreciation associated with three Inmarsat-3
satellites placed in service during the past 12 months, and increased costs
related to Planet 1SM service, which began commercial operation this year.
NETWORK SERVICES
Network Services segment revenues in the third quarter and
year-to-date were $49.6 million and $134.5 million, respectively, which was
$6.1 million and $34.6 million better than the comparative periods of 1996.
The operating loss in the third quarter was $5.2 million, compared to
operating income of $6.2 million in the third quarter of last year. For the
year-to-date, the operating loss was $11.3 million, compared to a operating
loss of $2.1 million over the same period last year. The third quarter of
1996 included revenues and operating income at COMSAT Laboratories of $7.8
million related to a licensing agreement that resolved patent infringement
disputes with certain manufacturers of television encryption and decryption
equipment.
14
<PAGE>
CI's revenues in the third quarter and year-to-date were $25.1 million
and $62.5 million, respectively, 61% and 57% better than the same periods
of last year. The increase in revenues in CI were driven primarily by
advances in CI's operations in Brazil. CI's operating loss in the third
quarter was $3.9 million as compared to $3.6 million in the third quarter
of 1996. For the first nine months of 1997, the operating loss was $10.5
million, which was $1.6 million better than the comparable period of last
year. The improvement year-to-date was primarily the result of a decrease
in losses at BelCom, CI's company operating in Russia and in the
Commonwealth of Independent States (CIS). Revenue commitments under
long-term contracts increased to $287 million at September 30, 1997, as
compared to $220 million at the end of 1996.
In May 1997, CI acquired full ownership of the Mexican corporation
IntelCom Red S.A. de C.V. (IntelCom Mexico), which was previously a wholly-
owned subsidiary of ICG Satellite Services, Inc., and named it COMSAT
Mexico S.A. de C.V. (COMSAT Mexico). COMSAT Mexico offers business
customers digital, domestic and international private-line services to
support voice, data and image applications. In January 1997, CI sold its
remaining interest in Philippine Global Communications, Inc. (PhilCom) at
book value (see Note 5 to the financial statements).
COMSAT Laboratories' revenues for the third quarter and year-to-date
were $8.9 million and $26.8 million, as compared to $14.4 million and $24.5
million in the respective periods of 1996. Exclusive of the $7.8 million of
revenues related to the agreement in the third quarter of 1996 that
resolved patent disputes, COMSAT Laboratories revenues were up 35% in the
quarter and 61% for the nine months ending September 30, 1997, primarily
driven by improvements in technical consulting revenues. The operating loss
for the third quarter and the first nine months was $1.0 million and $1.3
million, respectively, as compared to operating income of $8.4 million and
$6.5 million for the same periods of last year. Exclusive of the impact of
the agreement on patent disputes, the operating result in the quarter was
$1.6 million lower than the same period last year and unchanged for the
year-to-date period. The Laboratories' backlog at September 30, 1997 was
$25.4 million, which was 19% higher than at the end of 1996.
Government Programs revenues in the third quarter and year-to-date
were $15.6 million and $45.2 million, respectively, which was $2.1 million
and $9.6 million better than the same periods of last year. The increased
revenues were related to the Commercial Satellite Communications Initiative
(CSCI) contract and were offset by lower revenues from two Marisat
satellites that ceased operating in the third quarter of 1996 after 20
years of operation. Operating loss for the third quarter was $0.3 million
and the operating income for the year-to-date was $0.5 million, which was
$1.7 million and $3.0 million below the comparative periods in 1996. The
lower operating results were primarily the result of the impact of lower
revenues from the loss of the Marisat satellites and increased costs
associated with the CSCI contract.
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. THESE STATEMENTS AND THE
CORPORATION'S FUTURE OPERATING RESULTS MAY BE AFFECTED BY THE TIMING AND
OUTCOME OF PENDING REGULATORY AND LEGISLATIVE ACTIONS, EFFORTS TO
15
<PAGE>
RESTRUCTURE INTELSAT AND INMARSAT, COMPETITIVE BUSINESS CONDITIONS, THE
DISPOSITION OF DISCONTINUED OPERATIONS AND OTHER FACTORS. 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 March 1997, COMSAT's Board of Directors approved a strategic plan
to refocus the corporation on international satellite services and digital
networking services and technology as discussed in the corporation's 1996
Annual Report on form 10-K. As a part of the strategic plan the corporation
decided to divest its ownership interest in Ascent, sell substantially all
of the assets and operations of CRSI, and other non-core assets. On June
27, 1997, the corporation distributed its ownership interest in Ascent to
its shareholders through a tax-free dividend.
Negotiations for the sale of substantially all of CRSI (including JEFA
Wireless Systems, a wholly-owned subsidiary of CRSI which is being disposed
of in a separate transaction) are continuing. Although the negotiations are
at an advanced stage, the corporation is unable to predict whether the
negotiations will be concluded on acceptable terms. In the event that the
corporation is unable to conclude negotiations successfully, the
corporation would evaluate all options then available to it, including
selling or retaining and continuing to operate all or portions of CRSI. If
negotiations are successfully concluded, based on the range of sales prices
currently being discussed, it appears that the corporation would be
required to recognize an additional loss on disposal which is materially in
excess of that recorded to date for discontinued operations. The magnitude
of the additional potential loss on disposal is estimated to be within a
range of $20 million to $30 million. If negotiations are successfully
concluded, the sale process likely will not be completed until the first
quarter of 1998 or as soon as reasonably possible thereafter. The timing,
completion and estimated losses on disposal of substantially all of CRSI
are subject to, and may be affected adversely by, a number of factors,
including factors which are not wholly within the control of the
corporation (E.G., completion of due diligence by the prospective
purchasers, negotiation of definitive agreements on acceptable terms,
receipt of any necessary third-party consents and satisfaction of any
conditions agreed to between the parties).
The corporation's operating results are expected to continue to be
constrained in the near term predominantly due to the effect of regulation
on CWS operations. Following is a discussion on COMSAT's two business
segments.
SATELLITE SERVICES
INTELSAT AND INMARSAT RESTRUCTURING. In the third quarter, continued
progress was made in the corporation's ongoing efforts to restructure the
International Telecommunications Satellite Organization (INTELSAT) and the
International Mobile Satellite Organization (Inmarsat).
The restructuring proposal currently under consideration at INTELSAT
would create a separate entity (referred to as "INC") to which an as yet to
be determined number of satellites would be transferred. An internal
working group has made provisional recommendations to the INTELSAT Board of
Governors on several key outstanding issues, including INC's ownership
16
<PAGE>
structure and competitive safeguards. As currently proposed, INTELSAT's
direct ownership in INC would be limited to 10%, and individual ownership
levels would be limited to between 15% and 20%. The proposal, however,
would grandfather the corporation's direct ownership in INC pending
completion of the initial public offering to the extent that the
corporation's direct ownership would exceed the limit ultimately
established. The issue of which satellites would be transferred to INC is
not expected to be resolved until the next round of working group meetings
scheduled for December 1997. An Assembly of Parties (meeting of
governments) is now scheduled for March 1998 at which final approval for an
overall restructuring plan is to be considered. Assuming that schedule is
maintained, INC would be formally established as a separate business entity
in the second quarter of 1998, and an initial public offering for INC would
be expected to occur sometime during the first half of 1999.
At Inmarsat, a provisional agreement has been reached within the
Inmarsat Council on the broad contours of a restructuring proposal. As
proposed, the operating assets of the current Inmarsat intergovernmental
organization would be transferred to a new company. While the company
initially would not be publicly-traded, it is expected that the new company
would proceed with an initial public offering within 24 months after its
creation. A number of significant details, both political and commercial,
remain to be determined before the proposal is submitted for final
approval. An Assembly of Parties is scheduled in April 1998 to review and
approve the restructuring proposal, with implementation then envisioned in
late 1998 or early 1999 assuming the proposal is adopted.
Final approval of the restructuring proposals under consideration at
INTELSAT and Inmarsat will require a vote of two-thirds of the member
governments that are present and voting (up to 142 in the case of INTELSAT
and 81 in the case of Inmarsat, with each having one vote) at the Assembly
of Parties at which final approval is presented. The corporation, as a
minority shareholder and the U.S. signatory to both organizations, lacks
the ability to independently effect a restructuring of either INTELSAT or
Inmarsat. The success and timing of the corporation's privatization efforts
will be dependent upon the corporation's ability to achieve a consensus
among other signatories and participating member governments.
REGULATORY AND LEGISLATIVE DEVELOPMENTS. In April 1997, the
corporation petitioned the Federal Communications Commission (FCC) for
classification as a non-dominant carrier and for regulatory forbearance.
The petition requests that limits on the company's rate of return and
structural separation requirements be removed and that CWS be allowed to
change its tariff rates and introduce new services over the INTELSAT
satellite system on one-day notice. The petition has been opposed by
certain of the corporation's competitors and customers. The corporation
expects that the FCC will act on the petition in 1998. The outcome and
timing of FCC regulatory action, however, cannot be predicted with
accuracy.
In June 1997, Congressmen Thomas Bliley and Edward Markey introduced a
bill captioned as the "Communications Satellite Competition and
Privatization Act of 1997" (H.R. 1872) in the U.S. House of
Representatives. The bill's stated objective is to promote a fully
competitive global market for satellite communications services by fully
privatizing INTELSAT and Inmarsat. If enacted as proposed, however, H.R.
1872 would adversely affect COMSAT by placing restrictions on COMSAT's
ability to offer certain existing and future services via the INTELSAT and
Inmarsat satellite systems and would require the return of
17
<PAGE>
orbital positions and spectrum currently needed in INTELSAT and Inmarsat
operations. The bill would direct the FCC not to act on the corporation's
pending petition for non-dominant carrier status for as long as three years
or until direct access to INTELSAT and Inmarsat is available for U.S.
users. Moreover, the bill would direct the FCC to require direct access to
INTELSAT and Inmarsat in the U.S. market and discontinue COMSAT's exclusive
provider role. The bill also specifies privatization criteria for the
anticipated INTELSAT restructuring proposal that, if not agreed to by the
other member nations of INTELSAT, would bar INC from accessing the U.S.
market. In addition, if privatization of INTELSAT and Inmarsat in
accordance with the criteria were not effected by a mandatory timetable,
all non-core INTELSAT and Inmarsat services would be foreclosed from U.S.
markets. In October 1997, Senator Daniel Inouye introduced companion
legislation (S. 1328) in the U.S. Senate. The corporation is, and will
continue, opposing H.R. 1872 and S. 1328, unless they are modified in an
acceptable, pro-competitive manner that would not adversely affect the
corporation's business and the value of its investments in the INTELSAT and
Inmarsat satellite systems.
Satellite Services operating income is expected to be lower in 1997
than in 1996 due to anticipated decreased earnings at CMC. CWS's operating
results in 1997 are expected to be at approximately the same level as last
year as a result of the continued effects of increased earnings realized
from carrier-to-carrier contracts and the recovery in the second quarter of
1997 of certain litigation costs, offset by higher depreciation from
INTELSAT satellites placed in service. Operating income in CMC is expected
to be lower in 1997 compared to 1996, because of continuing competition
among existing Inmarsat service providers, increased depreciation
associated with Inmarsat-3 satellites placed in service, and costs related
to Planet 1SM service, which began commercial operations in January 1997.
NETWORK SERVICES
Network Services 1997 operating losses are expected to be
approximately at the same level as last year, excluding the impact to
operating income of $7.8 million in revenues at COMSAT Laboratories
associated with the resolution of a patent dispute that was recorded in the
third quarter of 1996.
CI's operating loss in 1997 is expected to improve over 1996.
Improvements in CI's more mature companies are expected to be partially
offset by start-up costs in CI's newer companies. The corporation is in the
process of either seeking a strategic partner or selling the non-strategic
portions of BelCom's operations in Russia and in the Commonwealth of
Independent States. It is the corporation's current expectation that this
process will be completed in the first quarter of 1998.
In September 1997, the Communications Secretariat of Argentina
(Secretariat) issued a resolution that permits Telintar, the exclusive
provider of international voice telephony and data services in Argentina,
to provide switched domestic Internet services within Argentina. The
resolution is drafted broadly enough that it may be also construed to
permit Telintar to provide switched domestic data services. Presently it is
unclear, however, whether the Secretariat will interpret the resolution to
apply to data services. COMSAT Argentina has challenged the resolution on
the grounds that domestic switching of Internet and/or data services by
Telintar is
18
<PAGE>
not permitted under its franchise. In November 1997, COMSAT Argentina
received a preliminary injunction suspending the resolution. The injunction
will remain in effect until the Secretariat rules on COMSAT Argentina's
request for administrative structure relief from the resolution. The
resolution, together with other recent actions by the Secretariat,
including its resolutions awarding Nahuelsat the exclusive right to sell
domestic Ku-band capacity in Argentina, appears to indicate a willingness
of the Secretariat to adopt initiatives that benefit large, domestic and
incumbent telecommunications service providers to the detriment of
competitors, such as COMSAT Argentina, which are smaller than the domestic
incumbents. For additional information concerning the Nahuelsat matter, see
the "Management's Discussion & Analysis - Outlook" section of the
corporation's 1996 Form 10-K. The corporation intends to monitor regulatory
developments in Argentina closely. There can be no assurance, however, that
recent actions of the Secretariat or other regulatory developments those
actions will be resolved without any material affect on COMSAT Argentina's
future business prospects.
Excluding the impact to operating income from the patent revenues
noted above, COMSAT Laboratories operating loss in 1997 is expected to be
higher than 1996 as the Labs continue to expand its technical consulting
and communications products business. COMSAT Laboratories results now
include Satellite Construction Monitoring (SCM) which was previously
reported as a part of CRSI. SCM's operating income in 1997 is expected to
be lower than 1996.
Government Programs operating income is expected to be lower in 1997
than last year because of the loss of revenues related to two 20-year old
Marisat satellites which ceased operation in the third half of 1996 and
costs associated with the CSCI contract.
LIQUIDITY AND CAPITAL RESOURCES
The primary sources of cash in the nine months of 1997 were
operations, short-term borrowings, proceeds received from the sale and
leaseback of the Clarksburg, Maryland property (see Note 3 to the financial
statements) and from the sale of PhilCom (see Note 5 to the financial
statements) . Cash was used primarily for the purchase of property and
equipment.
The corporation's working capital at September 30, 1997 was $79.8
million, which was $302.4 million lower than at December 31, 1996. The
decrease in working capital during the first nine months of 1997 was
primarily the result of the reduction in current assets of $216.3 million
due to the spin-off of Ascent on June 27, 1997 (see Note 2 to the financial
statements) and the use of commercial paper to repurchase long-term debt
(see Note 7 to the financial statements).
The corporation has access to short-term 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 $200 million commercial paper program had $135.6
million in borrowings outstanding at September 30, 1997. A $200 million
credit agreement, expiring in 1999, backs up the corporation's commercial
paper program. The corporation plans to reduce short-term debt if proceeds
become available from the sale of substantially all of the assets and
operations of CRSI. Consummation of the sale of CRSI, however, remains
subject to a number of contingencies (see "Management's Discussion &
Analysis - Outlook").
19
<PAGE>
During the first half of 1997, the corporation repurchased a total of
$89.5 million of its 8.125% notes due 2004 using proceeds from short-term
debt. This reduced the total outstanding of the 8.125% notes from $160.0
million at December 31, 1996 to $70.5 million at September 30, 1997. In
addition, the corporation in the second quarter repurchased $10.0 million
of its medium-term notes. This reduced the corporation's total outstanding
medium-term notes from $74.0 million at December 31, 1996 to $64.0 million
at September 30, 1997. The corporation had $36 million remaining under a
$100 million medium-term note program at September 30, 1997. The
medium-term note program is part of a $200 million debt securities shelf
registration program initiated in 1994.
The corporation's capital structure and debt-financing activities are
regulated by the FCC. The corporation is required to submit a
capitalization plan to the FCC for review annually. In August 1997, the FCC
approved the corporation's 1997 capitalization plan. Under the approved 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. The corporation was in compliance with the $200
million short-term debt limit as of September 30, 1997. The corporation
expects to be in compliance with the other guidelines at the year-end 1997
measurement dates.
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.
20
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Item 3 of the Corporation's 1996 Form 10-K, which is
incorporated herein by reference.
As discussed in Note 11 to the 1996 financial statements, in
September 1996, the U.S. District Court for the Southern
District of New York granted the corporation's motion for
summary judgment in an anti-trust suit brought by PanAmSat
Corporation and dismissed the complaint in its entirety.
PanAmSat subsequently filed an appeal. In April 1997, the U.S.
Court of Appeals for the Second Circuit denied PanAmSat's
appeal. PanAmSat did not seek Supreme Court review, and the
Second Circuit decision has become final.
In October 1997, CRSI commenced an arbitration proceeding
against Associated Universities, Inc. (AUI) in accordance with
the rules of the American Arbitration Association in McLean,
Virginia. The arbitration demand relates to a $55 million
contract entered into between AUI and CRSI (then Radiation
Systems, Inc.) on December 19, 1990 for the construction of a
100-meter radio telescope to be constructed in Greenbank, West
Virginia. CRSI is seeking approximately $29 million, plus
interest, as a contract price adjustment or damages in respect
of alleged breaches of contract and changes in contract
requirements by AUI. In November 1997, AUI filed a
counterclaim in the arbitration proceeding seeking $4.5
million in estimated damages for alleged delayed completion
and undetermined damages for alleged potential defects in the
telescope's back-up structure.
ITEM 2. CHANGE IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Corporation's Annual Meeting of Shareholders held on
August 15, 1997 (the "Annual Meeting"), all twelve of the
Corporation's nominees for director were elected by vote
totals noted below:
<TABLE>
<CAPTION>
<S> <C> <C>
NOMINEE FOR WITHHELD
------- --- --------
Betty C. Alewine 39,208,025 776,528
Marcus C. Bennett 39,021,001 963,552
Lucy Wilson Benson 37,636,565 2,347,988
Edwin I. Colodny 37,645,666 2,338,887
Lawrence S. Eagleburger 37,442,568 2,541,985
Neal B. Freeman 37,671,467 2,313,086
Caleb B. Hurtt 37,636,717 2,347,836
Peter W. Likins 37,615,535 2,369,018
Larry G. Schafran 39,121,231 863,322
Robert G. Schwartz 37,647,850 2,336,703
Kathryn C. Turner 38,988,550 996,003
Guy P. Wyser-Pratte 39,126,340 858,213
</TABLE>
21
<PAGE>
The Corporation also has two directors, Peter S. Knight and
Charles T. Manatt, who are appointed by the President pursuant
to the Satellite Act of 1962 and whose terms continued after
the Annual Meeting. A third director position is vacant
pending appointment by the President.
The following additional matters were approved at the Annual
Meeting:
o amendment of the Non-Employee Directors Stock Plan to (1)
authorize the grant of share awards or phantom stock
units in lieu of the annual cash retainer for Directors,
and (2) authorize the Chairman of the Board of Directors
to elect to receive stock or stock options in lieu of all
or a portion of his or her annual cash compensation,
which amendment was approved by a vote of 38,104,264 for,
1,324,658 against and 554,631 abstentions.
o appointment of Deloitte & Touche LLP as independent
public accountants of the Corporation for the fiscal year
ending December 31, 1997 which appointment was approved
by a vote of 39,723,037 for, 141,173 against and 120,343
abstentions.
A shareholder proposal requiring the corporation to reaffirm
its political non-partisanship and require the reporting of
certain practices was defeated by a vote of 3,661,791 for,
25,486,724 against and 3,381,677 abstentions.
A potential proxy contest was settled in the second quarter of
1997. The corporation incurred expenses of $1.8 million
related to the potential proxy contest and litigation costs of
$1.5 million related to an action brought against certain of
the proxy contestants and the corporation's former chief
executive officer to enforce certain provisions of the
Communications Satellite Act of 1962, which action was
dismissed in connection with settlement of the proxy contest.
The dispute with the former chief executive officer was
resolved in third quarter of 1997 (see Exhibit 10). For
additional information concerning settlement of the proxy
contest and such litigation, see the corporation's Form 8-K
dated June 9, 1997.
ITEM 5. OTHER INFORMATION
None
ITEM 6. (a) EXHIBITS
No. 10 - Settlement Agreement between the corporation and
Bruce L. Crockett dated as of September 17, 1997.
No. 11 - Computation of Earnings per Share
No. 27 - Financial Data Schedule
(b) REPORTS ON FORM 8-K
None
22
<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, 1997
23
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Exhibit 11
COMSAT CORPORATION AND SUBSIDIARIES
Computation of Earnings Per Share
Three Months Ended September 30, Nine Months Ended September 30,
----------------------------- ----------------------------------
In thousands, except per share amounts 1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------------
PRIMARY
Earnings (loss):
Income from continuing operations $ 9,395 $ 8,208 $ 26,592 $ 27,682
Loss from discontinued operations (30,207) (3,171) (59,068) (7,536)
Extraordinary loss - - (3,946) -
------------- ----------- ------------ -----------
Net income (loss) $ (20,812) $ 5,037 $ (36,422) $ 20,146
============= =========== ============ ===========
Shares:
Weighted average number of
common shares outstanding 49,482 48,511 49,194 48,227
Add shares issuable from assumed
exercise of options 1,104 611 757 777
------------- ----------- ------------ -----------
Weighted average shares 50,586 49,122 49,951 49,004
============= =========== ============ ===========
Primary earnings (loss) per share:
Income from continuing operations $ 0.19 $ 0.16 $ 0.53 $ 0.56
Loss from discontinued operations (0.60) (0.06) (1.18) (0.15)
Extraordinary loss - - (0.08) -
------------- ----------- ------------ -----------
Net income (loss) $ (0.41) $ 0.10 $ (0.73) $ 0.41
============= =========== ============ ===========
ASSUMING FULL DILUTION
Earnings (loss):
Income from continuing operations $ 9,395 $ 8,208 $ 26,592 $ 27,682
Loss from discontinued operations (30,207) (3,171) (59,068) (7,536)
Extraordinary loss - - (3,946) -
------------- ----------- ------------ -----------
Net income (loss) $ (20,812) $ 5,037 $ (36,422) $ 20,146
============= =========== ============ ===========
Shares:
Weighted average number of
common shares outstanding 49,482 48,511 49,194 48,227
Add shares issuable from assumed
exercise of options 1,258 612 1,461 875
------------- ----------- ------------ -----------
Weighted average shares 50,740 49,123 50,655 49,102
============= =========== ============ ===========
Fully diluted earnings (loss) per share:
Income from continuing operations $ 0.19 $ 0.16 $ 0.53 $ 0.56
Loss from discontinued operations (0.60) (0.06) (1.17) (0.15)
Extraordinary loss - - (0.08) -
------------- ----------- ------------ -----------
Net income (loss) $ (0.41) $ 0.10 $ (0.72) $ 0.41
============= =========== ============ ===========
24
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000022698
<NAME> COMSAT Corporation
<MULTIPLIER> 1000
<CURRENCY> U.S. Dollors
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1.00
<CASH> 7,361
<SECURITIES> 0
<RECEIVABLES> 167,615
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 359,446
<PP&E> 2,460,196
<DEPRECIATION> 1,113,853
<TOTAL-ASSETS> 1,908,368
<CURRENT-LIABILITIES> 279,667
<BONDS> 468,659
0
0
<COMMON> 358,647
<OTHER-SE> 247,815
<TOTAL-LIABILITY-AND-EQUITY> 1,908,368
<SALES> 0
<TOTAL-REVENUES> 422,222
<CGS> 0
<TOTAL-COSTS> 198,304
<OTHER-EXPENSES> 159,702
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,028
<INCOME-PRETAX> 41,054
<INCOME-TAX> (14,462)
<INCOME-CONTINUING> 26,592
<DISCONTINUED> (59,068)
<EXTRAORDINARY> (3,946)
<CHANGES> 0
<NET-INCOME> (36,422)
<EPS-PRIMARY> (0.73)
<EPS-DILUTED> (0.72)
</TABLE>
SETTLEMENT AGREEMENT
This SETTLEMENT AGREEMENT (the "Agreement") is made as of September
17, 1997 (the "Effective Date") by and between COMSAT Corporation
("COMSAT"), a District of Columbia corporation, and Bruce L. Crockett, a
resident of the Commonwealth of Virginia ("Crockett").
WHEREAS, COMSAT and Crockett entered into a letter agreement dated
July 19, 1996 (the "Separation Agreement") providing for (i) Crockett's
resignation as President and Chief Executive Officer of COMSAT on that date
and (ii) his continued employment with COMSAT until January 31, 1998,
subject to the terms and conditions set forth in the Separation Agreement.
WHEREAS, COMSAT (i) filed a lawsuit against Crockett and certain other
individuals in the United States District Court for the Eastern District of
Virginia on April 23, 1997 (the "Litigation") alleging, among other things,
that Crockett breached the Separation Agreement, and (ii) terminated the
Separation Agreement on April 29, 1997.
WHEREAS, Crockett has denied and continues to deny each and every
allegation made by COMSAT in the Litigation and maintains that COMSAT
improperly terminated the Separation Agreement.
WHEREAS, COMSAT dismissed the Litigation as to Crockett on June 10,
1997 without prejudice to file another lawsuit against Crockett involving
the claims made in the Litigation.
WHEREAS, COMSAT and Crockett have determined that their interests
would best be served by (i) avoiding the substantial expense and disruption
of further litigation involving the claims made in the Litigation, the
termination of the Separation Agreement and any other matters relating to
Crockett's employment with COMSAT or termination of employment with COMSAT,
(ii) providing for certain benefits to Crockett after the termination of
the Separation Agreement and his employment with COMSAT and (iii) the
benefit of other agreements, covenants, rights and benefits as provided
herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements and representations set forth herein, and intending to be
legally bound hereby, COMSAT and Crockett agree as follows:
<PAGE>
1. TERMINATION OF SEPARATION AGREEMENT AND EMPLOYMENT. The parties
hereto agree that the Separation Agreement and Crockett's employment with
COMSAT are terminated effective April 29, 1997 (the "Termination Date").
Except as provided below in this Agreement, as of the Termination Date (a)
Crockett for all purposes shall be treated as a terminated COMSAT employee,
(b) the rights and obligations of each party under the Separation Agreement
are terminated and (c) all benefits provided to -- Crockett under the
Separation Agreement or by virtue of his employment with COMSAT are
terminated.
2. SERP.
(a) Crockett shall be entitled to begin receiving retirement
benefits under the COMSAT Insurance and Retirement Plan for Executives (the
"SERP" or "Plan") on April 1, 1999 (the "Retirement Date"). The retirement
benefit shall be computed based on Crockett's termination of employment on
the Termination Date and shall be 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. The computation of such
retirement benefit is shown on Exhibit A, which is attached to and
incorporated by reference into this Agreement. In accordance with Exhibit
A, the annual SERP retirement benefit Crockett shall receive beginning on
the Retirement Date shall be $226,223.65 plus an annual early retirement
supplement of $17,592.00 payable until Crockett reaches age 66. The lump
sum payments which Crockett elected to receive on January 1, 2000 and
January 1, 2001 pursuant to Sections 9.3 and 9.4 of the Plan, respectively,
shall be paid to him in accordance with his elections unless he revokes
these elections prior to the specified payment dates. As a condition to
receiving SERP retirement benefits beginning on the Retirement Date,
Crockett agrees to elect early retirement under the COMSAT Retirement Plan
on the same date.
(b) If Crockett dies during the period from the Termination Date
to the Retirement Date (the "Transition Period"), (i) his spouse shall
receive the annual death benefit provided in Section 10.1(a) of the Plan,
and (ii) his beneficiary designated under the Plan shall receive the lump
sum death benefit provided in Section 10.1(b) of the Plan. If Crockett
becomes disabled during the Transition Period, COMSAT shall recommend to
the COMSAT Board of Directors (the "Board") that the Board approve the
commencement of his SERP retirement benefits on the first day of the month
2
<PAGE>
after he becomes disabled. The Board shall have the sole discretion to
approve the commencement of Crockett's retirement benefits prior to the
Retirement Date if he becomes disabled during the Transition Period. For
this purpose, Crockett shall be deemed "disabled" if he incurs a total
disability as defined in COMSAT's Long-Term Disability Plan.
(c) COMSAT hereby agrees to waive the non-compete clause in
Section 11.2 of the Plan which otherwise would apply during the two-year
period following the Termination Date.
3. STOCK OPTIONS. The COMSAT stock options listed on Exhibit B,
which is attached to and incorporated by reference into this Agreement, (i)
shall continue to vest after the Termination Date in accordance with their
original terms as if Crockett's employment had not terminated on the
Termination Date and shall vest on the dates indicated on Exhibit B, and
(ii) shall terminate on the dates such options would have expired if his
employment had not terminated, which dates are indicated on Exhibit B.
4. SPLIT DOLLAR INSURANCE. Crockett's rights under the COMSAT Split
Dollar Plan for Executives after the Termination Date shall be governed by
the terms and conditions of the Split Dollar Agreement between COMSAT and
Crockett dated February 12, 1992 (the "Split Dollar Agreement").
Accordingly, Crockett shall have the option for sixty (60) days after the
Effective Date to obtain the release of the assignment encumbering the life
insurance policies covered by the Split Dollar Agreement by reimbursing
COMSAT for the total amount of the premium payments made by COMSAT under
the Split Dollar Agreement, 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. If Crockett does not elect such option, he shall transfer his
interest in the policies to COMSAT.
5. MEDICAL AND DENTAL INSURANCE. After the Termination Date, COMSAT
shall pay the costs of medical and dental insurance coverage for Crockett
and his family under COBRA (currently $682.00 per month) during the COBRA
continuation period of 18 months, up to a maximum of $8,500 per year, until
Crockett becomes employed with another employer or becomes substantially
engaged in self-employment ("Other Employment"). Within ten (10) business
days of the Effective Date, COMSAT shall reimburse Crockett $4,092.00 for
the costs of COBRA continuation coverage for May through October 1997 which
3
<PAGE>
Crockett has already paid out-of-pocket. If Crockett has not become engaged
in Other Employment by the end of the 18-month COBRA continuation period or
should Crockett elect to obtain insurance outside of COBRA, COMSAT shall
reimburse Crockett on a quarterly basis up to $2,125 (maximum of $8,500 per
year) for medical and dental insurance coverage for Crockett and his family
until such time that Crockett doe become engaged in Other Employment upon
receipt of the insurance carrier's invoice for such coverage from Crockett,
which shall be provided to COMSAT annually, or whenever Crockett changes
carriers, and which shall be treated as strictly confidential by COMSAT and
used solely for purposes of confirming Crockett's entitlement under this
Section 5. Crockett shall provide notice to COMSAT immediately upon
becoming engaged in Other Employment. For purposes of this Section 5, any
outside director positions held by Crockett shall not constitute Other
Employment.
6. EDUCATIONAL GRANT PROGRAM. The COMSAT Foundation shall donate the
deferred gift amount payable under the COMSAT Educational Grant Program to
Crockett's designated beneficiary, the University of Rochester, following
the death of Crockett or his spouse, whichever occurs last.
7. EXPENSES. COMSAT hereby agrees to reimburse Crockett for the
reasonable, documented legal fees and costs incurred by him, and for which
he is personally responsible, in connection with the Litigation in an
aggregate amount not to exceed $75,000 within ten (10) business days of
receipt of a detailed and itemized law firm invoice for the same from
Crockett which shall be provided to COMSAT after the Effective Date.
8. RELEASE AND COVENANT NOT TO SUE.
(a) In consideration of the other party's agreement to enter into
this Agreement, each party to this Agreement, on behalf of such party and
its affiliates, subsidiaries, predecessors, successors, assigns,
shareholders, directors, officers, employees, administrators, heirs,
executors, fiduciaries and agents, in their individual and representative
capacities (as applicable in each party's case, such party's "Affiliates"),
agrees to release, discharge and covenant not to sue the other party and
its Affiliates with respect to all claims, charges, causes of action,
liabilities, debts and demands, of any kind or nature, which such party
had, has or may have against the other party and its Affiliates up to the
Effective Date (collectively, the "Waived Claims"), including, without
4
<PAGE>
limitation, (i) any claims relating to the Litigation or the subject matter
of the Litigation; (ii) any claims relating to breach or termination of the
Separation Agreement; (iii) any claims relating to Crockett's employment
with COMSAT; (iv) any claims relating to the termination of Crockett's
employment, including but not limited to his agreement to terminate
employment effective on the Termination Date under the terms of this
Agreement; (v) any claims relating to the terms, conditions and benefits
associated with such employment or termination from employment; (vi) 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, and the Employee Retirement Income Security Act of 1974, as amended;
(vii) any claims at common law, including, without limitation, claims for
breach of an express or implied contract, defamation, libel, slander or
wrongful discharge; or (viii) any other claims, statutory or otherwise.
(b) Crockett agrees 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 or its
Affiliates with respect to any Waived Claims in any forum on behalf of
himself or others, unless compelled to do so by legal process or court
order. Crockett further agrees to waive any remedy or recovery in any
action which may be brought on his behalf by any governmental agency or
othe person with respect to any Waived Claims.
(c) The release contained in this Section 8 shall not operate to
waive any claim for benefits or any rights to which Crockett is entitled
under this Agreement or the COMSAT Retirement Plan.
9. REPRESENTATIONS AND WARRANTIES.
(a) COMSAT hereby represents and warrants as follows:
(i) COMSAT has the corporate power and authority to execute,
deliver and carry out the terms and provisions of this Agreement, and has
taken all necessary action to authorize the execution, delivery and
performance of this Agreement.
(ii) This Agreement has been duly and validly authorized,
executed and delivered by COMSAT and constitutes a valid and binding
agreement of COMSAT, enforceable in accordance with its terms.
5
<PAGE>
(b) Crockett hereby represents and warrants as follows:
(i) He has the power and authority to execute, deliver and
carry out the terms and provisions of this Agreement.
(ii) This Agreement has been duly executed and delivered by
him, constitutes his valid and binding obligation, and is enforceable
against him in accordance with its terms.
10. NON-DISPARAGEMENT. Each party agrees not to 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 shall damage or harm the
other party or its reputation, including in the case of COMSAT any of its
subsidiaries or affiliates or its or their respective officers and
directors, PROVIDED that this Section 10 shall not apply to any testimony
either party gives under oath in connection with any lawsuit, investigation
or other proceeding. COMSAT agrees that it will not terminate this
Agreement for breach of this Section 10 without the prior review and
approval of the Chief Executive Officer of COMSAT and the Committee on
Compensation and Management Development of the Board.
11. WAIVER AND RELEASE ACKNOWLEDGMENT. 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 Crockett acknowledges that
he has been advised, in writing, by COMSAT to consult with an attorney
prior to executing this Agreement, that he has had an opportunity to do so
and that he understands the nature, terms and effects of this Agreement,
and the general release and covenant not to sue. He further acknowledges
that COMSAT has not made any representations to him, or his agents or
successors and assigns, concerning this Agreement, or the general release
and covenant not to sue, other than those contained herein. In addition, he
acknowledges that he has been informed that he has the right to consider
and review this Agreement for a period of at least twenty-one (21) days,
and that he has 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.
6
<PAGE>
12. CONFIDENTIALITY. This Agreement is strictly confidential. Each
party hereto agrees that, until such time as this Agreement becomes public
as a result of its required filing by COMSAT with the Securities and
Exchange Commission as an exhibit to COMSAT's third quarter 1997 report on
Form 10-Q, or except as agreed upon in writing by the other party, the
party shall 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 the party's attorneys, accountants, financial
advisors or tax consultants; (c) in the case of Crockett, to prospective
employers, companies on whose board of directors Crockett serves or is
seeking to serve, or members of his immediate family; or (d) in the case of
COMSAT, as may be required in the ordinary course of its business. In the
event that information described in this Agreement is disclosed as
permitted herein before this Agreement becomes public as a result of its
filing with COMSAT's third quarter 1997 Form 10-Q, 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 otherwise
disseminate such information to the same extent that the party making such
disclosure is bound. Each party hereto agrees to limit any statements of
any kind or responses to inquiries, whether written or oral, regarding the
dispute between the parties and their future relationship to the following:
(x) the Litigation insofar as it relates or related to the dissident
shareholders of COMSAT has been resolved; (y) the contract dispute between
COMSAT and Crockett has been resolved; and (z) Crockett is free to pursue
and accept any and all business and employment opportunities that are
available or offered to him and is not subject to any continuing duty or
obligation to COMSAT restricting his ability or right to seek or accept any
such employment or business opportunities.
13. NO ADMISSIONS. Each party hereto agrees and acknowledges that this
Agreement, and the general release and covenant not to sue contained
herein, shall not operate or be construed as an admission by the other
party of any violation of any local, state or federal statute or regulation
or of any duty at common law or otherwise owed to the first party, its
successors or assigns.
14. NO WAIVER. Any waiver by any party hereto of a breach of any
provision of this Agreement shall not operate as or be construed to be a
waiver of any other breach of such provision or of any breach of any other
provision of this Agreement. The failure of a party hereto to insist upon
strict adherence to any term of this Agreement on one or more occasions
shall not be considered to be a waiver of that term or any other term of
this Agreement and shall not deprive that party of the right thereafter to
insist upon strict adherence to that term or any other term of this
Agreement.
7
<PAGE>
15. SUCCESSORS AND ASSIGNS. All the terms and provisions of this
Agreement shall inure to the benefit of and shall be enforceable by the
successors and assigns of the parties hereto.
16. SURVIVAL OF REPRESENTATIONS. All representations, warranties and
agreements made by the parties in this Agreement or pursuant hereto shall
survive the date hereof.
17. ENTIRE AGREEMENT; AMENDMENTS. This Agreement contains the entire
understanding of the parties hereto with respect to its subject matter.
There are no restrictions, agreements, promises, representations,
warranties, covenants or undertakings other than those expressly set forth
herein. This Agreement may be amended only by a written instrument duly
executed by the parties hereto or their respective successors or assigns.
18. HEADINGS. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
19. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly given if so given) by hand delivery, cable,
telecopy (confirmed in writing) or telex, or by mail (registered or
certified, postage prepaid, return receipt requested) to the respective
parties hereto as follows:
If to COMSAT:
COMSAT Corporation
6560 Rock Spring Drive
Bethesda, Maryland 20817
Attention: Paul A. Jones
Vice President, Human Resources
and Organization Development
Telecopy: (301) 214-7134
with a copy to:
8
<PAGE>
COMSAT Corporation
6560 Rock Spring Drive
Bethesda, Maryland 20817
Attention: Warren Y. Zeger, Esq.
Vice President, General
Counsel and Secretary
Telecopy: (301) 214-7128
If to Crockett:
Bruce L. Crockett
906 Frome Lane
McLean, Virginia 22102
Telecopy: (703) 442-3831
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
1001 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: Daniel E. Loeb, Esq.
Telecopy: (202) 639-7003
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth
above.
20. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Maryland, without
giving effect to the conflict of laws principles thereof.
21. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be an original, but each of which together shall constitute
one and the same Agreement.
22. INDEMNIFICATION. With respect to any liability in his capacity as
an officer or director of COMSAT which arises out of any action or event
occurring on or before July 19, 1996, Crockett shall be entitled to
indemnification, and to coverage under COMSAT's liability insurance policy
for directors and officers, to the same extent as other COMSAT directors
and officers for that period. Crockett shall be entitled to indemnification
as a COMSAT employee from July 20, 1996 to the Termination Date to the
extent he is so entitled pursuant to COMSAT's Articles of Incorporation and
By-Laws or under applicable law, PROVIDED that the parties hereto agree and
acknowledge that this Agreement shall not operate or be construed in any
way (a) to limit the Board's discretion with respect to indemnification
under COMSAT's Articles of Incorporation and By-Laws or (b) as an admission
by COMSAT that Crockett is entitled to any such indemnification under
applicable law.
9
<PAGE>
23. CONSENT TO JURISDICTION.
(a) Each of the parties hereto hereby irrevocably and
unconditionally submits to the nonexclusive jurisdiction of any Maryland
State court or Federal court sitting in the State of Maryland and any
appellate court from any court thereof, in any action or proceeding arising
out of or relating to this Agreement or for recognition or enforcement of
any judgment relating thereto, and each of the parties hereto hereby
irrevocably and unconditionally agrees that all claims in respect of an
such action or proceeding may be heard and determined in such Maryland
State court or, to the extent permitted by law, in such Federal court. Each
of the parties hereto agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions
by suit on the judgment in any other manner provided by law.
(b) Each of the parties hereto hereby irrevocably and
unconditionally waives, to the fullest extent it may legally and
effectively do so, any objection which it may now or hereafter have to the
laying of venue of any suit, action or proceeding arising out of or
relating to this Agreement in any Maryland State or Federal court. Each of
the parties hereto hereby irrevocably and unconditionally waives, to the
fullest extent permitted by law, the defense of any inconvenient forum to
th maintenance of such action or proceeding in any such court.
(c) Each of the parties hereto irrevocably consents to service of
process in the manner provided for notices in Section 19 hereof.
Notwithstanding the foregoing, each of the parties hereto shall have the
right to serve process in any other manner permitted by law.
24. SECURITY CLEARANCES. Crockett agrees to be debriefed by COMSAT
regarding security clearances he held while employed at COMSAT and to
execute such forms as may be required by the federal government with
respect to such security clearances.
10
<PAGE>
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
parties hereto have executed this Agreement as of the day and year first
above written.
COMSAT Corporation
By: /S/ PAUL A. JONES
-------------------------------
Paul A. Jones
Vice President, Human Resources
and Organization Development
/S/ B. L. CROCKETT
-------------------------------
Bruce L. Crockett
11
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Page 1 of 3
Exhibit A to Settlement Agreement
dated as of September 17, 1997
COMSAT CORPORATION INSURANCE
AND RETIREMENT PLAN FOR EXECUTIVES 29-Oct-97
EMPLOYMENT
EMPLOYEE NAME SSN EE# DATE
BRUCE CROCKETT ###-##-#### 07404 09-02-80
BASE RETIREMENT
TERMINATION DATE RETIREMENT DATE EARNINGS TYPE
04-29-97 04/01/99 $425,000
EMPLOYEE
SPOUSE NAME SPOUSE BIRTHDATE BIRTHDATE
03-31-44
INCENTIVE DIV EQUIVS/ TOTAL
PERIOD COVERED BASE SALARY COMPENSATION RSUs COMPENSATION
1993 $351,346.19 $240,000.00 $109,011.95 $700,358.14
1994 $350,000.04 $400,000.00 $172,522.23 $922,522.27
1995 $350,000.04 $350,000.00 $103,082.30 $803,082.34
1996 $424,999.90 $160,000.00 $ 87,352.65 $672,352.55
TOTAL $3,098,315.30
DIVIDED BY: 4.0000 $774,578.83
HIGHEST AVERAGE ANNUAL EARNINGS
</TABLE>
NORMAL RETIREMENT BENEFIT CALCULATION (AGE 62 AND OLDER)
HIGHEST AVERAGE
ANNUAL EARNINGS $774,578.83
MULTIPLIED BY: 70% $542,205.18
LESS: COMSAT QUAL RET $34,031.00*
SOCIAL SECURITY PIA ($17,592.00)
OTHER RET BENEFITS $0.00
GOVT/MIL PENSIONS $0.00
ANNUAL RETIREMENT BENEFIT: $490,582.18
70% FOR CHAIRMAN/CEO; 65% FOR PRESIDENT; AND 60% FOR ALL OTHERS
* Crockett is entitled to this benefit, expressed as a single life
annuity, pursuant to the provisions of the COMSAT Retirement Plan.
Nothing in the prties' Settlement Agreement dated as of September 17,
1997 shall affect or limit Crockett's entitlement under the COMSAT
Retirement Plan.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Page 2 of 3
Exhibit A to Settlement Agreement
dated as of September 17, 1997
EARLY RETIREMENT REDUCTION CALCULATION AT AGE 55:
CALCULATION OF EARLY YR MO DA
RETIREMENT REDUCTION 62ND BIRTHDATE 2005 15 31
FACTOR: EARLY RET DATE 1999 4 1
PERIOD BETWEEN ERD
NUMBER OF WHOLE MONTHS: 83 AND AGE 62 6 11
MULTIPLIED BY .0025: 0.2075
NORMAL RETIREMENT BENEFIT: $490,582.18
MINUS REDUCTION: ($101,795.80)
ANNUAL EARLY RETIREMENT BENEFIT: $388,786.38
VESTING PERCENTAGE: 100%
VESTED EARLY RETIREMENT BENEFIT: $388,786.38
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Page 3 of 3
Exhibit A to Settlement Agreement
dated as of September 17, 1997
TERMINATION REDUCTION:
CALCULATION OF NUMERATOR: YR MO DA
REDUCTION TERMINATION DATE 1996 16 29
FACTOR: DATE OF HIRE 1980 9 2
16 7
DENOMINATOR: YR MO DA
NORMAL RETIREMENT(AGE 65) 2008 15 1
DATE OF HIRE 1980 9 2
NUMERATOR: 199 28 6
DENOMINATOR: 342
NORMAL RETIREMENT BENEFIT: $388,786.38
MUTLIPLIED BY TERMINATION REDUCTION: $226,223.65
</TABLE>
<PAGE>
Exhibit B to Settlement Agreement
dated as of September 17, 1997
Optionee Statement as of 08/21/1997
COMSAT Corporation
Bruce L. Crockett
906 Frome Lane
McLean, VA 22102
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Options Options Option Date of Options
Grant Date Type Granted Outstanding Price Expiration Vested
- ---------- ---- ------- ----------- ------ ---------- -------
01/15/1993 Non Qualified 248,040 171,500 $20,4856 01/15/2008 171,500 (current)
01/21/1994 Non Qualified 248,040 248,040 $22,2746 01/21/2004 248,040 (current)
01/20/1995 Non Qualified 161,226 80,613 $15,5721 01/20/2005 0 (current)
80,613 on 01/20/1998
01/19/1996 Non Qualified 148,824 111,618 $14,5138 01/19/2006 0 (current)
37,206 on 01/19/1998
74,412 on 01/19/1999
======= ======= =======
806,130 611,771 419,540
</TABLE>
