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 March 31, 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 [ ]
49,074,000 shares of the Registrant's common stock were outstanding as of
March 31, 1997.
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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 March 31,
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In thousands, except per share amounts 1997 1996
- -------------------------------------------------------------------------------------------------------------------
REVENUES $ 281,680 $ 248,555
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Operating expenses:
Cost of services 199,290 157,856
Depreciation and amortization 70,504 52,704
Research and development 3,697 5,142
General and administrative 5,849 7,089
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Total operating expenses 279,340 222,791
----------- ------------
OPERATING INCOME 2,340 25,764
Interest and other income (expense), net (1,005) (3,181)
Interest expense, net of amounts capitalized (14,474) (9,101)
----------- ------------
Income (loss) before taxes, minority interest,
and extraordinary item (13,139) 13,482
Income tax expense (109) (5,710)
Minority interest in net losses of consolidated
subsidiaries 8,967 1,555
----------- ------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (4,281) 9,327
Extraordinary loss from early extinguishment
of debt (net of $585 tax) (1,010) -
----------- ------------
NET INCOME (LOSS) $ (5,291) $ 9,327
=========== ============
EARNINGS (LOSS) PER SHARE:
Before extraordinary item $ (0.09) $ 0.19
Extraordinary loss (0.02) -
----------- ------------
Net income (loss) $ (0.11) $ 0.19
=========== ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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COMSAT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
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March 31, December 31,
In thousands 1997 1996
- ---------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 22,359 $ 12,721
Receivables 329,563 314,766
Inventories 39,308 39,635
Other 38,922 42,717
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Total current assets 430,152 409,839
------------- ------------
Property and equipment (net of accumulated depreciation
of $1,306,257 in 1997 and $1,266,560 in 1996) 1,643,904 1,656,763
Investments 93,038 133,592
Goodwill 151,979 155,250
Franchise rights 100,984 102,189
Other assets 221,100 208,170
------------- ------------
TOTAL ASSETS $ 2,641,157 $ 2,665,803
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current notes payable $ 170,755 $ 159,719
Commercial paper 63,487 17,993
Accounts payable and accrued liabilities 163,602 168,039
Deferred income 75,493 81,942
Due to related parties 13,770 34,602
Other 26,971 22,788
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Total current liabilities 514,078 485,083
------------- ------------
Long-term debt 603,745 635,474
Deferred income taxes and investment tax credits 133,665 136,322
Accrued postretirement benefit costs 50,979 50,423
Other long-term liabilities 153,058 147,818
Minority interest 158,717 167,472
Preferred securities issued by subsidiary 200,000 200,000
STOCKHOLDERS' EQUITY:
Common stock 344,442 340,691
Retained earnings 488,006 502,839
Treasury stock (2,228) (3,006)
Other (3,305) 2,687
Total stockholders' equity 826,915 843,211
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,641,157 $ 2,665,803
============= ============
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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Quarter Ended March 31,
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In thousands 1997 1996
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (5,291) $ 9,327
Adjustments for noncash depreciation and amortization 70,504 52,704
Changes in operating assets and liabilities (4,890) (42,866)
Other 707 8,784
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Net cash provided by operating activities 61,030 27,949
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (85,571) (91,713)
Expenditures for film production cost (2,297) (687)
Investments in unconsolidated businesses (9,395) (34,783)
Proceeds from sale of investments 9,060 -
Proceeds from note on sale of investment 6,809 -
Decrease in INTELSAT ownership 191 -
Decrease in Inmarsat ownership - 5,739
Other 2,282 (4,198)
----------- ------------
Net cash used in investing activities (78,921) (125,642)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued 3,314 2,234
Cash dividends paid (9,542) (9,328)
Proceeds from issuance of long-term debt 912 -
Repayment/extinguishment of long-term debt (29,649) (5,830)
Net short-term borrowings 62,494 47,998
Repayment against company-owned life insurance policies - (51,175)
Other - (6)
----------- ------------
Net cash provided by (used for) financing activities 27,529 (16,107)
----------- ------------
Net increase (decrease) in cash and cash equivalents 9,638 (113,800)
Cash and cash equivalents, beginning of period 12,721 124,156
----------- ------------
Cash and cash equivalents, end of period $ 22,359 $ 10,356
=========== ============
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 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. 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 March 31, 1997. As a result of the change
in ownership, the corporation will receive $22.5 million, the majority of
which is expected to be received during the second quarter of 1997.
The corporation's 23% ownership share of Inmarsat as of March 31, 1997
is unchanged from December 31, 1996.
3. INVENTORIES
Inventories, stated at the lower of cost (first-in, first-out) or
market, consist of the following:
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March 31, December 31,
In thousands 1997 1996
- ----------------------------------------------------------------------------------------------------------
Finished goods $ 18,484 $ 18,015
Work in progress 10,809 11,811
Raw materials 10,015 9,809
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Total $ 39,308 $ 39,635
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4. 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. The
corporation received cash proceeds of $8.5 million in the first quarter
with the balance to be paid in installments with interest through December
31, 1998.
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5. ASCENT ENTERTAINMENT GROUP, INC.
ASCENT CREDIT FACILITIES. In March 1997, On Command Corporation (OCC)
amended its credit facility to increase the amount that OCC may borrow to
$150.0 million from $125.0 million. Concurrently, Ascent Entertainment
Group, Inc. (Ascent) amended its credit facility to reduce the amount that
Ascent can borrow to $140.0 million from $200.0 million and committed to
raise not less than $50.0 million in subordinated debt before October 1997
as a condition to further renewal of its credit facility. Additionally, the
amendment (i) eliminated the $125.0 million limit on the available
borrowings under the facility prior to receipt of NBA and NHL consents;
(ii) provided that those financial covenants in the Ascent Credit Facility
related to the financial results of OCC will not be measured until year-end
1997; (iii) provided for the $140.0 million of availability to be divided
into a term loan of $50.0 million and a revolving facility of $90.0
million; and (iv) modified certain other financial covenants. Ascent's
management believes it will successfully raise the subordinated debt.
DENVER ARENA PROJECT. On May 7, 1997, Ascent entered into a Land
Purchase Agreement (the "Agreement") with Southern Pacific Transportation
Company ("SPT") pursuant to which Ascent would purchase approximately 49
acres in Denver as the site for the proposed arena for $20.0 million. The
Agreement is similar to the previously expired agreement between SPT and
Ascent. Pursuant to the Agreement, the closing of the land purchase needs
to occur on or before August 31, 1997. Consummation of the transaction is
subject to several conditions, including obtaining satisfactory financing
and reaching agreements with the City and County of Denver regarding the
construction of the proposed arena and the release of the Nuggets and the
Avalanche from their existing leases at McNichols Arena. The Agreement also
provides for SPT to effect a state-approved environmental clean-up plan on
the site, and to provide continuing partial indemnification with regard to
certain environmental liabilities. Management believes that these
negotiations will be successfully concluded, but there can be no assurance
that Ascent will be able to reach acceptable terms for the construction of
the new arena.
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 CWS and CMC's 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 Management's Discussion and Analysis of Operations of
Financial Condition - Outlook, and Notes 10 and 11 to the corporation's
1996 financial statements (Form 10-K).
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
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of those matters are discussed in Notes 10 and 11 to the corporation's 1996
financial statements (Form 10-K).
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 against an anti-trust suit
brought by PanAmSat Corporation and dismissed the complaint in its
entirety. PanAmSat filed an appeal, which was argued before the U.S. Court
of Appeals for the Second Circuit in April 1997, and a decision is pending
before the court.
7. EXTRAORDINARY LOSS FROM EARLY RETIREMENT 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. As of March 31, 1997, $23.0 million of the
notes had been repurchased, and the corporation incurred a loss on debt
extinguishment of $1.6 million ($1.0 million after tax) in the first
quarter of 1997. In April 1997, the corporation repurchased an additional
$66.5 million of the 8.125% notes and $10.0 million of its 7.7% medium term
notes. The debt extinguishment loss related to the April 1997 repurchases
was $4.3 million ($2.7 million after tax).
8. NEW ACCOUNTING PRONOUNCEMENT
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 31, 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 will not have
a material impact on the corporation's reported net income (loss) per
common share.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1997
ANALYSIS OF OPERATIONS
CONSOLIDATED OPERATIONS
- -----------------------
Consolidated revenues for the first quarter of 1997 were $281.7
million, an increase of $33.1 million over the first quarter of 1996. The
majority of the increase came from both the Technology Services and
Entertainment segments. All business units reported increases in first
quarter revenues over the same period of last year, except COMSAT Mobile
Communications (CMC). First quarter 1997 revenues in the Entertainment
segment include $18.1 million related to SpectraVision, Inc., which was
acquired in October 1996 by On Command Corporation (OCC), a 57.2%
subsidiary of Ascent Entertainment Group, Inc. (Ascent).
Operating income in the first quarter was $2.3 million, down $23.4
million from the same quarter last year. The decline resulted primarily
from increased operating losses at Ascent associated with OCC's acquisition
of SpectraVision and a lower operating income in CMC.
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Interest and other income (expense) for the first quarter was a net
expense of $1.0 million, which improved from a net expense of $3.2 million
in the same period last year primarily due to interest income and a
currency gain on the sale of an equity investment.
Interest expense, net of amounts capitalized, for the first quarter
was $14.5 million as compared to $9.1 million for the first quarter of
1996. The increase stems from increased borrowings at Ascent and the
reduction of interest capitalized due to the completion of several
satellite projects.
Income tax expense for the first quarter of 1997 totaled $100,000 due
to non-deductible losses incurred at Ascent's OCC subsidiary. Since October
1996, OCC is no longer included in COMSAT's consolidated tax group, and
COMSAT is not able to recognize a benefit from OCC's losses in its tax
return.
Minority interest in net losses of consolidated subsidiaries primarily
reflects the minority interest in the losses of Ascent, net of taxes, which
have increased from the same quarter last year due principally to increased
losses at OCC after its SpectraVision acquisition in October 1996.
Extraordinary loss from early extinguishment of debt ($1.0 million or
$0.02 per share), net of tax, represents first quarter costs incurred from
the corporation's purchase of its 8.125% notes (see Note 7 to the financial
statements). Of the notes purchased through a tender offer, $23.0 million
was tendered during the first quarter of 1997.
The consolidated net loss for the first quarter was $5.3 million,
compared with net income of $9.3 million for the first quarter of 1996. The
loss per share for the first quarter was $0.11, which was $0.30 per share
below the same period last year.
SEGMENT OPERATING RESULTS
- -------------------------
The corporation reports operating results in three segments:
International Communications, Technology Services and Entertainment. The
International Communications segment includes COMSAT World Systems (CWS),
COMSAT Mobile Communications (CMC) and COMSAT International (CI). The
Technology Services sebment includes COMSAT RSI, Inc. (CRSI) and COMSAT
Laboratories. The Entertainment segment represents the corporation's 80.67%
ownership interest in Ascent. The method of allocating certain research and
development costs was changed in 1997, and 1996's segment operating results
have been restated for this change.
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RESULTS BY SEGMENT:
Quarter Ended March 31,
In millions 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
REVENUES
International Communications:
World Systems $ 66.8 $ 65.6
Mobile Communications 35.2 42.6
International 16.4 11.9
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Total International Communications 118.4 120.1
Technology Services 82.9 61.6
Entertainment 89.9 72.4
Eliminations and other (9.5) (5.5)
---------- ----------
Total revenues $ 281.7 $ 248.6
========== ==========
OPERATING INCOME (LOSS)
International Communications:
World Systems $ 28.1 $ 25.6
Mobile Communications 5.5 13.8
International (4.5) (3.8)
---------- ----------
Total International Communications 29.1 35.6
Technology Services 2.9 1.6
Entertainment (23.5) (4.2)
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Total segment operating income 8.5 33.0
General and administrative expenses (5.9) (7.1)
Other (0.3) (0.1)
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Total operating income $ 2.3 $ 25.8
========== ==========
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INTERNATIONAL COMMUNICATIONS
- ----------------------------
Revenues in the International Communications segment in the first
quarter were $118.4 million, which was slightly below the same period last
year. Operating income for the first quarter was $29.1 million, a decline
of 18% compared to the first quarter of 1996.
CWS's revenues for the first quarter increased 2% to $66.8 million,
primarily due to increased Very Small Aperture Terminal (VSAT) leases and
International Business Service (IBS) traffic. Operating income for the
first quarter was $28.1 million, up 10% from the comparable period last
year. The increase in operating income was a result of improved earnings on
carrier-to-carrier contracts, offset in part, by increased depreciation
from placing in service two INTELSAT satellites during 1996.
Revenues in CMC were $35.2 million in the first quarter, a decline of
17% compared to the first quarter of last year. The lower revenues were
primarily the result of decreases in analog telephone and telex revenues
and lower volume in the bulk service contract with IDB Mobile
Communications (IDB). CMC's operating income for the first quarter was $5.5
million, compared with $13.8 million in the same quarter last year. The
decrease in operating income is attributable to lower revenues, increased
depreciation associated with three Inmarsat-3 satellites placed in service
during 1996 and early 1997, and increased costs related to Planet 1SM
service, which began commercial operation in January 1997.
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CI's revenues in the first quarter increased 38% to $16.4 million
compared to the first quarter of 1996. Revenues increased in nearly all of
the international companies of CI, with the largest improvement occurring
in Brazil where revenues increased by 132% over the comparable period of
1996. Increased start-up costs at new companies drove CI's operating loss
in the first quarter to $4.5 million compared to $3.8 million for the first
quarter last year. In January 1997, CI sold its remaining interests in
Philippine Global Communications, Inc. (PhilCom) at book value (see Note 4
to the financial statements).
TECHNOLOGY SERVICES
- -------------------
Revenues from the Technology Services segment for the first quarter
were $82.9 million, a 35% increase over the first quarter of last year. The
improvement was primarily the result of increases in revenues from
transponder leases under the Commercial Satellite Communications Initiative
(CSCI) contract, sales of wireless antennas for personal communication
systems (PCS), gateway earth stations for the Asia Cellular Satellite
system (ACeS) and ORBCOMM Global, L.P. (ORBCOMM) mobile satellite systems,
and revenues related to intelligent transportation system projects. In
addition, COMSAT Laboratories revenues in the first quarter of 1997 more
than doubled compared to the first quarter of 1996 because of increased
technical consulting. Operating income in Technology Services for the first
quarter of 1997 was $2.9 million, which was 81% higher than the comparable
period of 1996, due primarily to the higher revenues at COMSAT
Laboratories.
ENTERTAINMENT
- -------------
The Entertainment segment is comprised of COMSAT's 80.67% ownership
interest in Ascent. Revenues for the first quarter were $89.9 million,
which was 24% higher than the first quarter of 1996. The increase in
revenues was due to a larger room installation base at OCC resulting
primarily from the acquisition of SpectraVision. The operating loss in the
Entertainment segment during the first quarter was $23.5 million compared
to a loss of $4.2 million for the first quarter of last year. The increased
operating loss was primarily attributable to increased depreciation expense
and other costs at OCC, a satellite failure in January 1997 affecting
certain SpectraVision rooms, lower revenues at the Denver Nuggets and
higher costs at the Colorado Avalanche and the Denver Nuggets.
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.
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As discussed in the corporation's 1996 Annual Report on Form 10-K,
COMSAT's Board of Directors approved, in March 1997, a strategic plan to
refocus the corporation on international satellite services and digital
networking services and technology. As a part of the strategic plan, the
corporation reaffirmed its commitment to divest its 80.67% interest in
Ascent through a spin-off or sale. In response to the corporation's January
1997 request the Internal Revenue Service issued a ruling letter dated May
12, 1997. The ruling confirms that, if the corporation were to spin-off its
ownership interest in Ascent to its shareholders, the spin-off would not be
taxable to the corporation and its shareholders. The corporation also
announced that it intends to sell substantially all of the assets and
operations of CRSI, as well as other non-core assets.
At its April 1997 meeting, the Board of Directors authorized the
corporation's quarterly dividend at $0.05 per share. This is a reduction
from the $0.195 per share paid for the previous eleven quarters.
In April 1997, the corporation petitioned the Federal Communications
Commission (FCC) for classification as a non-dominant carrier and for
forbearance from certain regulation. The petition requests that CWS be
allowed to change its tariff rates and introduce new services over the
INTELSAT satellite system on one-day notice. It also requests that limits
on the company's rate-of-return and structural separation requirements be
removed.
CWS operating results in 1997 are expected to be at approximately the
same level as last year as a result of increased earnings from
carrier-to-carrier contracts, offset by higher depreciation from INTELSAT
satellites placed in service during 1996 and 1997. The carrier-to-carrier
contracts are not subject to tariff requirements or to regulatory
requirements associated with tariffs.
Operating income in CMC is expected to be lower in 1997 as compared to
last year, because of continuing competition among existing Inmarsat
service providers and increased depreciation associated with the Inmarsat-3
satellites placed in service during 1996 and 1997.
CI's operating loss in 1997 is expected to be improved over last year.
Improvements at CI's more mature companies are expected to be partially
offset by start-up costs in CI's newer companies. The corporation has
initiated efforts to either seek an operating partner or sell its
non-strategic operations in Russia and in the Commonwealth of Independent
States before the end of 1997.
On May 1, 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 will offer business
customers digital, domestic and international private-line services to
support voice, data and image applications.
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Technology Services' 1997 revenues and operating income are expected
to improve over 1996, exclusive of royalties from the license agreement
recognized in the third quarter of 1996 and the reserves taken in the
fourth quarter of 1996 on certain long-term, fixed-price contracts. Future
earnings growth in Technology Services will continue to depend upon this
segment's ability to contain costs and complete projects with favorable
margins.
Backlog in the Technology Services segment at March 31, 1997 was $256
million, compared to $244 million at December 31, 1996. Included in this
segment's March 31, 1997 backlog is $145 million of U.S. Government
contracts and $29 million of contracts that are unfunded. As is customary,
these contracts include provisions for cancellation at the convenience of
the U.S. Government or the prime contractor. If such a provision were
exercised, the corporation would likely assert a claim for reimbursement of
costs and a reasonable allowance for profit thereon.
Operating losses at Ascent are projected to be higher during 1997 as
compared to last year, primarily as a result of the acquisition by OCC of
SpectraVision in October 1996, as well as increased costs in the sports
franchises. In addition, Ascent's ownership of OCC declined at the time of
the acquisition of SpectraVision to less than 80%. As a result, OCC is no
longer a part of the COMSAT consolidated tax group, and COMSAT is no longer
able to recognize tax benefits on OCC losses in its tax returns.
As a result of anticipated continued losses at Ascent, COMSAT expects
to report net losses in 1997 until Ascent is no longer a part of COMSAT's
consolidated results.
LIQUIDITY AND CAPITAL RESOURCES
The primary sources of cash in the first three months of 1997 were
operations and short-term borrowings. Cash was used primarily for property,
equipment and dividends. The corporation's working capital deficit at March
31, 1997 was $83.9 million, an increase of $8.7 million from December 31,
1996. The increased deficit was primarily the result of purchasing $23.0
million of long-term debt using proceeds from short-term debt.
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 $63.5
million in borrowings outstanding at March 31, 1997. Ascent had $160.0
million in short-term debt at March 31, 1997. A $200 million credit
agreement, expiring in 1999, backs up the corporation's commercial paper
program.
In March and April 1997, the corporation purchased a total of $89.5
million of its 8.125% notes due 2004 using proceeds from short-term debt.
Of the total, $23.0 million was tendered in March 1997. This reduced the
total outstanding of the 8.125% notes from $160.0 million at December 31,
1996 to $70.5 million at April 30, 1997. In addition, the corporation in
April 1997 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 and March 31, 1997 to $64.0 million at April 30, 1997.
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The corporation had $36 million remaining under a $100 million medium-term
note program at April 30, 1997. The medium-term note program is part of a
$200 million debt securities shelf registration program initiated in 1994.
The corporation plans to reduce short-term debt with proceeds from the sale
of substantially all of the assets and operations of CRSI and other
non-core assets.
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. 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. The
corporation was in compliance with the $325 million short-term debt limit
as of March 31, 1997. The corporation submitted its 1997 capitalization
plan on April 30, 1997. As a result of restructuring actions being
undertaken, the corporation expects to be in compliance with the unmodified
guidelines at the applicable 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.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
See Note 6 of this Form 10-Q and Item 3 of the Corporation's 1996
Form 10-K, which are incorporated herein by reference.
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. 11 - Computation of Earnings per Share
No. 27 - Financial Data Schedule
(b) Reports on Form 8-K
Report dated February 11, 1997, reporting the
Corporation's comments on the final report of the
INTELSAT 2000 Working Party.
14
<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: May 15, 1997
15
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Exhibit 11
COMSAT CORPORATION AND SUBSIDIARIES
Computation of Earnings Per Share
Three Months Ended March 31,
----------------------------
In thousands, except per share amounts 1997 1996
- -------------------------------------------------------------------------------------------------------------------
PRIMARY
Earnings (loss):
Before extraordinary item $ (4,281) $ 9,327
Extraordinary loss (1,010) -
----------- -----------
Net income (loss) $ (5,291) $ 9,327
=========== ===========
Shares:
Weighted average number of common
shares outstanding 48,948 47,904
Add shares issuable from assumed
exercise of options - 643
----------- -----------
Weighted average shares 48,948 48,547
=========== ===========
Primary earnings (loss) per share:
Before extraordinary item $ (0.09) $ 0.19
Extraordinary loss (0.02) -
----------- -----------
Net income (loss) $ (0.11) $ 0.19
=========== ===========
ASSUMING FULL DILUTION
Earnings (loss):
Before extraordinary item $ (4,281) $ 9,327
Extraordinary loss (1,010) -
----------- -----------
Net income (loss) $ (5,291) $ 9,327
=========== ===========
Shares:
Weighted average number of common
shares outstanding 48,948 47,904
Add shares issuable from assumed
exercise of options - 846
----------- -----------
Weighted average shares 48,948 48,750
=========== ===========
Fully diluted earnings (loss) per share:
Before extraordinary item $ (0.09) $ 0.19
Extraordinary loss (0.02) -
----------- -----------
Net income (loss) $ (0.11) $ 0.19
=========== ===========
</TABLE>
16
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000022698
<NAME> COMSAT
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1.00
<CASH> 22,359
<SECURITIES> 0
<RECEIVABLES> 329,563
<ALLOWANCES> 0
<INVENTORY> 39,308
<CURRENT-ASSETS> 430,152
<PP&E> 2,950,161
<DEPRECIATION> 1,306,257
<TOTAL-ASSETS> 2,641,157
<CURRENT-LIABILITIES> 514,078
<BONDS> 603,748
0
0
<COMMON> 344,442
<OTHER-SE> 482,473
<TOTAL-LIABILITY-AND-EQUITY> 2,641,157
<SALES> 0
<TOTAL-REVENUES> 281,680
<CGS> 0
<TOTAL-COSTS> 199,290
<OTHER-EXPENSES> 80,050
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,474
<INCOME-PRETAX> (4,172)
<INCOME-TAX> 109
<INCOME-CONTINUING> (4,281)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,010)
<CHANGES> 0
<NET-INCOME> (5,291)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
