SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997 Commission file number 1-4929
COMSAT CORPORATION
(Exact name of registrant as specified in its charter)
District of Columbia 52-0781863
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6560 Rock Spring Drive, Bethesda, MD 20817
(Address of principal executive offices)
Registrant's telephone number, including area code: (301) 214-3000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
Common Stock, without par value New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
8 1/8% Cumulative Monthly Income New York Stock Exchange
Preferred Securities of
COMSAT Capital I, L.P.
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
Aggregate market value of voting stock held by non-affiliates of the
Registrant was $1,635,327,690 based on a closing market price of $33 7/16
per share on February 27, 1998, as reported on the composite tape for New
York Stock Exchange listed issues.
51,012,180 shares of common stock, without par value, were outstanding
on February 28, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference:
Part of the Form 10-K into
Title which the document is incorporated
----- ----------------------------------
COMSAT - Annual Meeting of Part III
Shareholders - Notice and
Proxy Statement - 1998
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PART I
ITEM 1. BUSINESS
GENERAL INFORMATION
BUSINESS SEGMENTS
COMSAT Corporation (COMSAT, the corporation or Registrant) reports
operating results and financial data in two business segments: Satellite
Services and Network Services.
The Satellite Services segment consists of the corporation's COMSAT
World Systems (CWS) and COMSAT Mobile Communications (CMC) businesses. CWS
provides voice, data, video and audio communications services between the
U.S. and other countries using the satellite system of the International
Telecommunications Satellite Organization (INTELSAT). CMC provides voice,
data, fax, telex and information services for ships, aircraft and land
mobile applications throughout the world primarily using the satellite
system of the International Mobile Satellite Organization (Inmarsat).
The Network Services segment consists of the corporation's COMSAT
International (CI), COMSAT Laboratories (Labs) and Government Programs
businesses. CI operates an integrated group of telecommunications companies
that are engaged principally in providing individualized digital
communications network solutions to business clients and carriers in
high-growth emerging markets overseas. Labs provides technical consulting
in the design and development of advanced digital communications
technologies and also designs, develops and licenses communications
products for satellite access, compression and networking applications.
Government Programs includes the operations of COMSAT General Corporation
(COMSAT General) and COMSAT Government Services, Inc. (CGSI), both of which
are wholly-owned subsidiaries of the corporation. The Labs and Government
Programs sectors of Network Services now include certain non-manufacturing,
telecommunications contracts and businesses that were previously reported
as part of COMSAT RSI, Inc. (CRSI) in the Technology Services segment.
The revenues, operating income (loss) and identifiable assets by
business segment, for each of the last three years are shown in Note 15 to
the financial statements.
During the second quarter of 1997, the corporation began accounting
for the operations of both Ascent Entertainment Group, Inc. (Ascent) and
substantially all of the manufacturing assets of CRSI as discontinued
operations. See Note 2 to the financial statements. Ascent, through its
subsidiaries, provides on-demand in-room entertainment programming and
information services primarily to the domestic lodging industry, owns a
professional basketball team and a professional hockey team, owns a film
and television production company, and provides satellite distribution
support services to the National Broadcasting Company (NBC). The
corporation distributed its 80.67% ownership interest in Ascent to
shareholders on June 27, 1997.
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CRSI designs, manufactures and integrates earth stations, as well as
wireless and advanced antenna systems. In March 1998, the corporation
entered into a stock purchase agreement to sell substantially all of CRSI.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Outlook." The sale of substantially all of the assets
and liabilities of JEFA Wireless Systems, a subsidiary of CRSI, was
completed in a separate transaction in February 1998. Also included as part
of discontinued operations is Electromechanical System, Inc. (EMS), a
wholly-owned subsidiary of CRSI, and an equity ownership interest in
Plexsys International Corporation (Plexsys), which are being retained by
COMSAT per the terms of the stock purchase agreement, pending evaluation of
available alternatives. The long-term contract for construction of a radio
telescope in Greenbank, West Virginia also is to be retained and completed
by the corporation in connection with the stock purchase agreement
Prior to the second quarter of 1997, the corporation reported
operating results and financial data in three business segments:
International Communications (consisting of CWS, CMC and CI), Technology
Services (consisting of CRSI and the Labs) and Entertainment (consisting of
Ascent).
The corporation had approximately 2,732 employees as of December 31,
1997, approximately 1,367 of whom were employed in the corporation's
continuing operations. None of the employees is represented by a labor
union, except for approximately 68 employees working for CRSI on the
construction of the Greenbank radio telescope. The union employees are
expected to become employees of COMSAT or a subsidiary on or prior to
consummation of the CRSI sale.
COMMUNICATIONS SATELLITE ACT OF 1962
COMSAT was incorporated in 1963 under District of Columbia law, as
authorized by the Communications Satellite Act of 1962 (the Satellite Act).
In 1993, COMSAT changed its corporate name from "Communications Satellite
Corporation" to "COMSAT Corporation." COMSAT is not an agency or
establishment of the U.S. Government. The U.S. Government has not invested
funds in COMSAT, guaranteed funds invested in COMSAT or guaranteed the
payment of dividends by COMSAT.
Although COMSAT is a private corporation, the Satellite Act governs
certain aspects of COMSAT's structure, ownership and operations, including
the following: three of COMSAT's 15 directors are appointed by the
President of the United States with the advice and consent of the United
States Senate; COMSAT's issuance of capital stock and borrowing of money
must be authorized by the Federal Communications Commission (FCC); there
are limitations on the classes of persons that may hold shares of COMSAT's
common stock and on the number of shares a person or class of persons may
hold; and, on matters that may affect the national interest and foreign
policy of the United States, COMSAT's representatives to INTELSAT and
Inmarsat receive instructions from the U.S. Government. Congress has
reserved the right to amend the Satellite Act, and amendments, if any,
could materially affect the corporation.
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In June 1997, a bill captioned as the "Communications Satellite
Competition and Privatization Act of 1997" (H.R. 1872) was introduced in
the U.S. House of Representatives by Congressmen Thomas Bliley and Edward
Markey. If enacted as proposed, H.R. 1872 would have a material adverse
effect on COMSAT's financial condition and results of operations by
restricting or prohibiting COMSAT from offering certain existing and future
services via the INTELSAT and Inmarsat satellite systems, would relieve
major customers from existing contracts with the corporation and would
damage or impair COMSAT's investment in INTELSAT and Inmarsat by, among
other actions, requiring the return or orbital positions and spectrum
currently needed in INTELSAT and Inmarsat operations. 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
corporation is, and plans to continue, opposing H.R. 1872 in its present
form. For a discussion of H.R. 1872, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Outlook."
GOVERNMENT REGULATION
Under the Satellite Act, the International Maritime Satellite
Telecommunications Act of 1978 (the Inmarsat Act) and the Communications
Act of 1934, as amended (the Communications Act), COMSAT is subject to
regulation by the FCC with respect to its capital and organizational
structure, as well as CWS's 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 certain of these
matters see Note 9 to the financial statements.
In April 1997, the corporation petitioned the FCC for classification
as a non-dominant carrier and for regulatory forbearance. Because COMSAT is
currently classified by the FCC as a dominant carrier, COMSAT is subject to
rate base/rate-of-return regulation for the services it provides via the
INTELSAT system, is required to file tariffs for voice, data and video
service on 14 days' notice, and is subject to structural separation
requirements. In contrast, COMSAT's competitors are entirely free of
rate-of return regulation, tariff regulation and structural separation
requirements.
The petition requests that limits on the corporation's rate of return
and structural separation requirements be removed and that CWS be allowed
to change its tariff rates and introduce new services on one-day notice.
The corporation believes that the relief requested will enable the
corporation to compete more effectively under current market conditions. In
particular, lifting rate-of-return regulation and more flexible tariffing
requirements, are expected to permit the corporation to offer customers a
wider range of services at lower prices by eliminating inefficiencies
associated with structural separation and cost-of-services rules.
The petition would not eliminate all FCC regulatory oversight over
COMSAT or all existing regulatory constraints. If COMSAT is classified as a
non-dominant carrier or the FCC exercises its forbearance authority, COMSAT
would continue to be governed by the reasonableness and nondiscrimination
requirements of the Communications Act, would still file tariffs, and would
remain subject to the FCC's complaint procedures. In addition, COMSAT's
capital structure and debt-financing activities would continue to be
regulated by the FCC under the Satellite Act. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations- Liquidity
and Capital Resources." The Satellite Act provides that no shareholder
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(other than communications common carriers authorized to hold shares by the
FCC) may own more than 10% of the corporation's common stock. COMSAT also
is barred from providing domestic service in the U.S., which precludes it
from providing "one-stop" shopping for international and domestic services.
In addition, unlike its competitors, COMSAT is only permitted to provide
earth station services through a separate subsidiary. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Outlook" for a discussion of proposed legislation which could affect
certain of those requirements.
CI's companies operate in various developing countries and are subject
to regulation by the local regulatory authorities in those countries.
Because the regulatory environment in those countries is rapidly evolving
as the local economies are developing, CI's companies face increasing
business uncertainties which could have an adverse effect on their
operations in those countries. For a discussion of a pending regulatory
proceeding in Argentina affecting COMSAT Argentina, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Outlook-Network Services."
SATELLITE SERVICES
COMSAT WORLD SYSTEMS
SERVICES. COMSAT World Systems (CWS) provides satellite capacity for
telephone, data, video and audio communications services between the United
States and the rest of the world using the global network of INTELSAT
satellites. CWS's customers include U.S. international communications
common carriers, teleports, private network providers, multinational
corporations, U.S. and international broadcasters, news-gathering
organizations, digital audio companies and the U.S. government.
The largest portion of CWS's revenues comes from leasing full-time
voice grade half-circuits (two-way communications links between an earth
station and an INTELSAT satellite) to U.S. international communications
common carriers. The three largest carrier customers are AT&T Corp. (AT&T),
MCI International Inc. (MCI) and Sprint Communications Company (Sprint).
CWS offers significant discounts to customers entering into long-term
commitments for full-time voice-grade half-circuits. Approximately 93% of
all eligible voice-grade half-circuits are now under such commitments.
CWS's voice and data services are primarily digital, which provides
higher quality transmissions than analog services. CWS's International
Digital Route (IDR) service, for example, makes it possible for
communications carriers to provide digital public-switched telephone
network circuits. The carriers apply techniques to such circuits that
permit a single digital circuit to handle multiple telephone calls
simultaneously.
For private-line customers, CWS offers an all-digital International
Business Service (IBS), as well as an international VSAT (Very Small
Aperture Terminal) service. IBS offers customers high-speed, digital
communications for voice, data, facsimile and video conferencing using
on-premise earth stations that eliminate the need for costly land-line
connections. At year-end 1997, approximately 95% of CWS's IBS traffic was
covered by long-term commitments. CWS's customers have established
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international VSAT networks in both Latin America and Europe. Using
on-premise antennas as small as 1.8 meters in combination with the
high-power satellites in the INTELSAT network, corporations doing business
internationally can deliver communications to multiple sites. Used
primarily for data transmissions, VSATs can also accommodate voice and
video communications.
To the growing international broadcasting community, CWS provides both
digital and analog transmission services on a long-term, short-term or
occasional as-needed basis. With the introduction of the INTELSAT VII, VIIA
and VIII satellites (see "Item 2. Properties -- INTELSAT Satellites"), CWS
has expanded the availability of high-power, flexible capacity for
broadcasters and satellite news gatherers.
To maintain the quality of the INTELSAT network, CWS provides
tracking, telemetry, control and monitoring services to INTELSAT and
engages in a program of research and development to ensure that the
satellite system accommodates the latest communications technologies,
including broadband, integrated services digital networks (ISDN), and
asynchronous transfer mode (ATM).
INTELSAT. INTELSAT is a 142-nation organization headquartered in
Washington, D.C. It operates under three agreements: (1) an
intergovernmental agreement; (2) a headquarters agreement with the U.S.
Government; and (3) an operating agreement signed by each nation's
government or designated telecommunications entity (a signatory). COMSAT is
the U.S. signatory. It represents the United States in INTELSAT, subject to
instructions from the Department of State (in concert with the Department
of Commerce and the FCC) on matters that may affect the national interest
and foreign policy of the United States.
Each signatory has rights and obligations in INTELSAT analogous to
those of a partner. Each owns an investment share, makes proportionate
contributions to INTELSAT's capital costs, and receives proportionate
distributions of INTELSAT's net revenues after deductions for operating
expenses. The investment shares are readjusted as of March 1 of each year
to approximate the Signatories' respective portions of the total use of the
INTELSAT space segment for the previous six months. COMSAT's investment
share, the largest in INTELSAT, was 18.0% as of December 31, 1997 and 19.1%
as of December 31, 1996.
Signatories also pay INTELSAT for their use of the satellite system.
In 1997, INTELSAT established a range of 17-21% for the pretax target rate
of return on signatory capital used by another signatory or from non-owners
who use the satellite system. The actual rate of return on signatory's
capital was 18.3% in 1997. In 1998, COMSAT expects to receive a pretax rate
of return of between 15% to 19% on its capital investment after appropriate
accounting adjustments. CWS realized revenue from its INTELSAT ownership,
net of use charges paid, of $35.4 million in 1997.
At December 31, 1997, total INTELSAT Owners' Equity was approximately
$2.04 billion.
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At year end 1997, approximately 78% of CWS's IDR, IBS and FM traffic
was under long term commitments with INTELSAT. CWS has short-term
commitments with INTELSAT for the remaining portion of its FM, IDR and IBS
traffic. CWS also enters into commitments with INTELSAT for video traffic,
which vary in length depending on the length of commitments from CWS's
customers.
Under the INTELSAT agreements, the member nations that authorize
international satellite systems separate from INTELSAT are required to
ensure that such systems are technically compatible with the INTELSAT
system and will not cause significant economic harm to the INTELSAT system.
Beginning in 1990, INTELSAT initiated certain reforms to its process for
coordinating with these separate satellite systems. These reforms
culminated in 1997, when INTELSAT decided to effectively eliminate the
economic harm test. As a result, there is no longer a limit on the number
of circuits that a separate system can provide beyond which it would be
deemed to cause significant economic harm to the INTELSAT system. In
addition, the submission of non-technical information is no longer required
in connection with INTELSAT coordination procedures. For a discussion of
separate satellite systems competition to CWS, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations-Outlook" and
Note 9 to the financial statements.
The corporation continues to promote efforts to restructure the
INTELSAT satellite system. For a discussion of the current status of
INTELSAT restructuring, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Outlook."
INTELSAT generally procures spacecraft and launch services under
long-term, multi-satellite contracts which provide for payments by INTELSAT
over the contract periods. Under the satellite construction contracts,
approximately 60% of spacecraft cost is typically paid to the manufacturer
during construction prior to spacecraft delivery and satellite launch. In
addition, approximately 20% typically is paid after the satellite has been
placed in orbit and has satisfactorily completed in-orbit testing. The
remaining portion of the spacecraft cost is payable periodically as
performance incentives over the designated design life of the satellite
contingent upon continued successful operation of the satellite during the
respective periods.
Under the launch service contracts, launch services costs are
typically paid in quarterly installments with the final payment due at the
end of the planned launch period. Launch payments are payable in full
whether or not the launch has resulted in launch success.
INTELSAT has purchased launch and post-separation insurance coverage
for possible losses that may occur during the launch and subsequent one
year periods for satellites scheduled for launch during 1998. The coverage
includes the cost of the satellite and launch services, as well as the cost
of the insurance itself. The corporation typically buys additional
insurance to cover its capitalized interest associated with the satellites.
Neither the corporation nor INTELSAT has procured insurance to cover
in-orbit failures beyond one year after launch. While the corporation and
INTELSAT typically procure insurance coverage of the type described, there
can be no assurance that insurance coverage will be available on
commercially reasonable terms or purchased by INTELSAT or the corporation
for future launches.
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Effective January 1, 1998, the corporation changed its accounting
policy with respect to the cost of series satellites lost at launch or in
orbit and its accounting policy with respect to satellite performance
incentives paid to manufacturers. See ""Management's Discussion and
Analysis of Financial Condition and Results of Operations-Outlook."
INTELSAT generally offers its customers (including COMSAT) long-term
commitments for transponder capacity of one, five, ten or fifteen years for
a range of services at tariff rates which are progressively lower for the
longer term commitment periods. As of December 31, 1997, certain customers
of INTELSAT, including COMSAT, had long-term commitments in effect,
representing approximately 70% and 74% of the total analog and digital
services traffic, respectively. Over 75% of the commitments are fo a
fifteen year term.
COMPETITION. CWS competes with operators of high capacity fiber-optic
and other submarine cables in service along major traffic routes worldwide.
CWS's major carrier customers (including its three largest customers, AT&T,
MCI and Sprint) are co-owners of submarine cables.
COMSAT is currently the only U.S. entity that may provide
international space segment to customers using INTELSAT satellites. In
connection with CWS's petition for non-dominant status (discussed below),
several of CWS's customers have asked the FCC to allow some form of direct
access to the INTELSAT system. The corporation has opposed these requests
and believes that the Satellite Act requires U.S. access to INTELSAT to be
obtained through COMSAT.
In November 1997, the FCC issued an order in its "DISCO-II" rulemaking
proceeding addressing, among other matters, COMSAT's provision of INTELSAT
services within the United States. The FCC ruled that, before COMSAT may
provide such service, it must first waive the limited immunity from suit
which it has with respect to its actions as U.S. Signatory to INTELSAT.
COMSAT has appealed that ruling on the ground that its limited immunity
arises from international agreements entered into by the U.S. which may not
be abrogated by the FCC.
TARIFFS AND REVENUES. Under the Satellite Act and the Communications
Act, COMSAT is subject to regulation by the FCC with respect to CWS's
communications services and the rates charged for those services. CWS
provides its services on a non-discriminatory basis to all customers,
either under tariffs filed with the FCC or on the basis of inter-carrier
contracts.
CWS filed a petition for rulemaking with the FCC seeking
incentive-based regulation of its multi-year, switched-voice services for
carriers in January 1992. In the absence of FCC action on the petition, CWS
filed a petition for partial relief in July 1994. This petition requested
expedited FCC action to approve streamlined tariff procedures for all of
CWS's INTELSAT satellite services. The petition was also accompanied by an
extensive economic study which concluded that CWS faces substantial
effective competition in all geographic and service market segments from
existing and planned fiber optic cables, separate satellite facilities, and
regional and foreign satellite systems, and that its access to the INTELSAT
system does not confer upon CWS any market power in the provision of
transoceanic telecommunications facilities. The FCC has not acted on CWS's
1992 petition, but in August 1996 the FCC issued an order granting CWS's
1994 request for streamlined tariffing for its switched-voice and private
line services. The FCC did not grant CWS's request for streamlined
tariffing of its video services, but invited CWS to file a new petition
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with updated data seeking such relief, which CWS did in October 1996. That
petition was granted by the FCC in August 1997 with respect to CWS's
full-time video and audio services. Petitions for reconsideration or review
of the FCC's August 1996 and August 1997 orders were filed by one of CWS's
separate system competitors and are now pending before the FCC.
In April 1997, the corporation formally petitioned the FCC to
re-classify it as a non-dominant carrier or, alternatively, forbearance
from dominant carrier regulation pursuant to Section 10(c) of the Telecom
Act of 1996. The corporation expects that the FCC will act on the petition
in 1998. See "Government Regulation," "Management's Discussion and Analysis
of Financial Condition and Results of Operations-Outlook" and Note 9 to the
financial statements.
CWS has entered into inter-carrier contracts with each of its three
largest customers, AT&T, MCI and Sprint. Pursuant to those contracts, CWS
reduced its rates for 10- and 15-year IDR and TDMA digital "base" circuits
activated prior to January 1, 1992, and also reduced its rates beginning in
1996 for 7-year and longer IDR and TDMA circuits activated after January 1,
1992. Additional rate reductions occurred on January 1, 1997.
In 1997, COMSAT filed tariff rate reductions of between 8% and 10% for
IBS and VSAT services. In addition, higher speeds and larger bandwidth
sizes were made available to accommodate the growing demand of Internet
services.
Approximately 47% of the corporation's consolidated revenues in 1997
were derived from CWS's services (compared to 50% in 1996 and 1995).
Approximately 9% of the corporation's consolidated revenues in 1997 were
derived from CWS's services to AT&T. Also in 1997, CWS's three largest
customers, AT&T, MCI and Sprint, were the source of approximately 20%, 19%
and 8%, respectively, of CWS's revenues.
COMSAT MOBILE COMMUNICATIONS
COMSAT Mobile Communications (CMC) provides satellite
telecommunications services for maritime, aeronautical and land mobile
applications, primarily using Inmarsat satellites and COMSAT's land earth
stations in Connecticut and California, which serve the Atlantic and
Pacific Ocean Regions, respectively, and in Malaysia and Turkey, which
serve the Indian Ocean Region. These stations enable CMC to offer global
coverage for its services. There are currently more than 104,000 mobile
terminals operating in the Inmarsat system. As described below, CMC
provides a full range of voice, facsimile, data and telex services, as well
as certain value-added services.
MARITIME SERVICES. CMC provides satellite services for communications
to and from ships and other vessels. Customers for these services include
transport ship operators, cruise ships and their passengers, fishing vessel
operators, oil and mining interests, pleasure boat operators, U.S. Navy
ships and foreign telecommunications administrations.
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In addition to standard telephony services, CMC's services include
group call messaging to a fleet of ships, electronic mail services, a
direct-dial telephone service for passengers and crew on board ships, a
news summary distribution service, access to data bases through personal
computers, and other office communications services for facsimile
transmissions, worldwide teleconferencing and current financial news
reports.
In 1997, COMSAT entered into a memorandum of understanding with the
U.S. Coast Guard (USCG) and the National Oceanic and Atmospheric
Administration (NOAA) to provide Inmarsat standard-C services in support of
USCG position reporting and NOAA survey programs.
CMC offers two digital services, Inmarsat-B and Inmarsat-M, in the
Atlantic, Pacific and Indian Ocean Regions. These services provide more
efficient use of the Inmarsat satellite capacity, help to significantly
lower the cost of using satellite communications, and expand the potential
customer base for maritime and land mobile services. CMC also offers a
multi-channel version of Inmarsat-M service that allows cruise ships and
other high-volume users to increase their channel capacity and offer lower
rates to their customers.
In 1997, CMC entered into a five year marketing and distribution
agreement with Morsviazsputnik to expand distribution of CMC services to
Russian-flagged vessels. In addition, CMC has entered into agreements with
Telecom Italia, Videsh Sanchar Nigam Limited (VSNL), OTE and other Inmarsat
signatories to permit those entities to resell CMC services through
"hosting" arrangements, pursuant to which the unique Inmarsat
identification code of each entity is "hosted" at CMC's land earth
stations, allowing their customers to use CMC services in other regions in
which such entities do no have their own facilities. CMC is currently
examining similar arrangements with resellers in other markets.
In 1997, CMC entered into a teaming arrangement with AT&T to provide
satellite communications for "Afloat Personnel Telecommunications Services"
on board U.S. Navy vessels. CMC has provided leased services to AT&T to
support this service offering.
AERONAUTICAL SERVICES. CMC provides satellite telecommunications
services for aeronautical applications, including airline operational and
administrative communications, passenger telephone service and,
prospectively, air traffic control. Customers of CMC for international
aeronautical services include airline service providers, commercial
airlines, government aircraft and corporate aircraft.
By an FCC Report and Order issued in 1989, COMSAT was authorized: (i)
to be the sole U.S. provider of Inmarsat space segment capacity for
aeronautical services; (ii) to provide ground segment aeronautical services
in connection with the Inmarsat space segment on a non-exclusive basis; and
(iii) to provide such aeronautical services only to aircraft engaged in
international flights, including international flights over U.S. airspace.
Another entity, the American Mobile Satellite Corporation (AMSC), was
designated to be the sole provider of certain domestic aeronautical and
land mobile satellite services. In 1995, CMC applied to the FCC for
authority to offer domestic aeronautical services. CMC's request is pending
before the FCC. In 1996, CMC began offering domestic aeronautical services
on an interim basis pursuant to temporary authority granted by the FCC,
pending completion of an FCC rulemaking proceeding, which is still ongoing.
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CMC provides aeronautical services with a data service for cockpit
communications on commercial flights under an agreement with Aeronautical
Radio, Inc., an airline-owned service organization. CMC also provides
aeronautical voice services in the Atlantic and Pacific Ocean Regions
through its earth stations at Southbury, Connecticut and Santa Paula,
California. There are currently more than 1,400 aircraft equipped to use
the Inmarsat aeronautical system, equally split between voice and data
services.
A service agreement with Kokusai Denshin Denwa Co., Ltd. (KDD), the
Japanese signatory to Inmarsat, provides that CMC may use KDD's ground
earth station serving the Indian Ocean Region to serve CMC's aeronautical
customers, and CMC may serve KDD's customers flying in the Atlantic Ocean
Region. Under the agreement, CMC and KDD provide mutual back-up in the
Pacific Ocean Region for aeronautical customers of both companies.
A service agreement with GTE Airfone, Incorporated, a provider of
air-to-ground passenger telephone service using terrestrial facilities,
enables it to extend its current service to transoceanic flights by
acquiring satellite and ground earth station services from CMC.
COMSAT has been selected by United Airlines to provide satellite
communications services for passengers (including telephone, fax and data
transmission) on approximately 74 United Airlines aircraft, in exchange for
making available to United Airlines a financing facility of up to $7
million to promote the use of satellite phones on United Airlines aircraft.
The $7 million facility will be drawn upon as United Airlines installs
seat-back phones on those aircraft.
CMC also was selected in 1997 to provide satellite communication
services to the international fleet of Delta Airlines (approximately 48
aircraft). CMC entered into agreements with AT&T Wireless, Inc. to provide
satellite communications to the passenger cabins and with DeltaTel, Inc. to
provide cockpit communications. CMC also concluded an agreement with AT&T
to accept the use of the AT&T calling card to support this service
offering. In addition, COMSAT provides voice service to Air Canada
passengers on 20 aircraft pursuant to an existing arrangement which
commenced in 1994.
In late 1996, the Federal Aviation Administration (FAA) selected CMC
to provide satellite and uplink services for the Wide Area Augmentation
System (WAAS). For a further discussion of the WAAS contract, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Outlook."
LAND MOBILE SERVICES. CMC provides telecommunications services for
international land mobile applications, using mobile and portable terminals
located outside of the United States. Customers for these services include
broadcasters, foreign telecommunications authorities and U.S. and foreign
corporations and government agencies.
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CMC's land mobile services are currently available using transportable
versions of Inmarsat's Inmarsat-A and Inmarsat-B mobile earth stations
(telephone, facsimile, data, and telex), a briefcase-size Inmarsat-M
terminal and a smaller data-only Inmarsat-C terminal through CMC's C-Link
service. C-Link service is a low-cost text messaging service that permits
smaller vessels and land mobile units to use the global satellite network.
The briefcase-size Inmarsat-M terminals provide a more portable and less
expensive telephone service for international travelers, the news media,
government officials and others who travel to remote parts of the world
where reliable communications services are often not available.
The corporation commenced commercial Planet 1 service in January 1997.
The Planet 1 terminal is a six pound, laptop computer-sized satellite
terminal which utilizes the Inmarsat-3 satellites. This product addresses
the demand for global personal communications ahead of the availability of
hand-held satellite services. All five of the Inmarsat-3 satellites have
been launched and placed in service. In 1997, COMSAT entered into an
agreement with Embratel permitting Embratel to resell CMC mini-M service in
Brazil. Similar arrangements are being pursued in other countries.
COMSAT is not generally authorized to provide U.S. domestic land
mobile services. However, it is providing U.S. domestic service to certain
individual end users under special temporary authorities from the FCC. In
1995, COMSAT applied to the FCC for regular authority to offer land mobile
services domestically. In 1996, COMSAT applied to the FCC for blanket
authority to construct and operate up to 5,000 Planet 1 terminals in the
United States. The FCC has not yet ruled on those applications.
In November 1997, the FCC issued an order in its "DISCO II" rulemaking
proceeding addressing, along with other issues, COMSAT's provision of
Inmarsat services within the United States. The FCC ruled that, before
COMSAT may provide domestic service within the United States via Inmarsat,
it must first waive its immunity from suit, including suit under the U.S.
antitrust laws, stemming from its role as U.S. signatory to Inmarsat.
COMSAT has appealed that ruling. Based in part on this DISCO II policy, the
FCC staff has since denied a COMSAT request for authority to operate up to
50 Planet 1 terminals domestically. COMSAT has since sought reconsideration
of the staff decision by the full Commission and a partial waiver of the
DISCO II policy.
In its DISCO II order, the FCC also stated that it will allow COMSAT
to provide international service to and from Inmarsat terminals within the
U.S., but ruled in January 1998, with regard to a COMSAT Planet 1
application, that COMSAT must first show that the service can be restricted
to calls originating or terminating outside of the U.S. COMSAT has since
filed an amendment to its underlying Planet 1 application containing
proposed means of providing such assurance. The FCC has not yet ruled o
COMSAT's application as amended.
INMARSAT. Inmarsat is an 81-nation organization headquartered in
London, England. It operates under three agreements: (1) an
intergovernmental convention; (2) a headquarters agreement with the U.K.
Government; and (3) an operating agreement signed by each nation's
government or designated telecommunications entity (signatory). COMSAT is
the U.S. signatory. It represents the United States in Inmarsat, subject to
instructions from the Department of State (in concert with the Department
of Commerce and the FCC) on matters that may affect the national interest
and foreign policy of the United States.
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Each signatory has rights and obligations in Inmarsat analogous to
those of a partner. Each owns an investment share, makes proportionate
contributions to Inmarsat's capital costs, and receives proportionate
distributions of Inmarsat's space segment charges after deductions for
operating expenses. The investment shares are readjusted as of February 1
of each year to approximate the Signatories' respective portions of the
total utilization of the Inmarsat space segment for the previous year.
COMSAT's investment share, the largest in Inmarsat, was 23.0% as of
December 31, 1997, which is unchanged from December 31, 1996. On February
1, 1998, COMSAT's share was reduced to 22.3%.
At December 31, 1997, total Inmarsat Owners' Equity was approximately
$978 million.
The corporation continues to promote efforts for the privatization of
Inmarsat. For a discussion of the current status of INTELSAT restructuring,
see "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Outlook."
The Inmarsat-3 satellites are the primary operational Inmarsat
spacecraft and are used for on-demand services such as Inmarsat A, B, M,
Mini-M, C, and Aeronautical. Some services such as Mini-M and Aero-I are
spot beam only services and can only be supported on the Inmarsat-3
satellites. Four Inmarsat-3 satellites are operational (two in the Atlantic
Ocean Region and one in each of the Pacific and Indian Ocean Regions) and
one serves as an in orbit spare.
The Inmarsat-2 satellites are expected to provide full time
pre-emptible lease services and backup for global beam services on the
Inmarsat-3 satellites. Four Inmarsat-2 satellites are in orbit.
Inmarsat procured the Inmarsat-2 and Inmarsat-3 satellites and launch
services under long-term, multi-satellite contracts which provided for
payments by Inmarsat over the contract periods. The contracts for the
construction of the Inmarsat-3 satellites required performance-based
incentive payments for each satellite after 60 days of successful in-orbit
testing and after successful emergence of the spacecraft from the first
eclipse season. Additional incentive payments are made quarterly based on
continuous satisfactory operation of the satellite through the end of its
orbital life. Incentive payments were not paid by Inmarsat in connection
with the procurement of the Inmarsat-2 satellites.
As of December 31, 1997, Inmarsat did not have any contracts to
procure additional satellites. Inmarsat has purchased an insurance policy
which provides insurance coverage after one satellite failure for certain
in-orbit failures for the Inmarsat-3 satellites for 365 days after launch.
Neither Inmarsat nor COMSAT carries insurance for in-orbit failures beyond
365 days after launch for the Inmarsat-3 satellites. Similarly, there is no
insurance in place for in-orbit failure for the Inmarsat-2 satellites.
Effective January 1, 1998, the corporation changed its accounting
policy with respect to the cost of series satellites lost at launch or in
orbit and its accounting policy with respect to satellite performance
incentives paid to manufacturers. See ""Management's Discussion and
Analysis of Financial Condition and Results of Operations-Outlook."
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Inmarsat generally offers its customers (including COMSAT) satellite
capacity on demand generally under terms that require payments on a per
minute basis. In contrast to INTELSAT, Inmarsat has relatively few
long-term commitments for satellite capacity.
ICO. In late 1996 and early 1997, the corporation reduced its direct
investment in ICO Global Communications (Holdings) Limited (ICO) and
presently owns 1.7%. See Note 5 to the financial statements. The
corporation also continues to hold an indirect share of ICO through its
ownership interest in Inmarsat, which is also an ICO shareholder. The
corporation is evaluating its plans with respect to distribution of ICO
products and services and will continue to assess whether its direct
ownership i properly aligned with those plans.
ICO was formed to provide hand-held satellite communications services
outside of the Inmarsat organization to allow a more commercial focus than
the current Inmarsat system. The other current major investors in ICO,
besides the Corporation and Inmarsat, include Inmarsat signatories and
Hughes Communications, Inc. (Hughes) and TRW, Inc., which are expected to
compete with the corporation as service providers in the U.S. and other
markets. For a discussion of the proposed ICO satellite system and the
corporation's investment in ICO, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations-Outlook" and Notes 8 and
10 to the financial statements.
On May 1, 1995, COMSAT filed an application with the FCC for authority
to participate in Inmarsat's procurement of space segment from ICO for
specialized (non-handheld) communications services. In that application,
COMSAT also sought an FCC ruling that ICO had been structured in compliance
with the requirements for COMSAT's participation in ICO set out in a prior
FCC ruling. The application is being opposed by certain of the
corporation's competitors. The FCC has not acted on that application.
In 1997, COMSAT concluded agreements with ICO to construct, operate
and interconnect a "satellite access node" (SAN) in Brewster, Washington.
It is contemplated that the Brewster SAN will become part of ICO's backbone
network.
COMPETITION. Under the Inmarsat Act, COMSAT is the designated U.S.
signatory to the Inmarsat Operating Agreement, and is the sole U.S.
operating entity and investor in the Inmarsat system. CMC competes for
maritime, land mobile and aeronautical communications business with other
Inmarsat Signatories operating land earth stations and with IDB Mobile
Communications, Inc. (IDB), another U.S. land earth station operator. IDB
provides maritime, land mobile and aeronautical services through its own
U.S. land earth stations, using Inmarsat satellite capacity obtained from
CMC, as well as through certain foreign earth stations.
In October 1997, IDB informed COMSAT that it was no longer purchasing
Inmarsat satellite capacity used by its U.S. land earth stations from
COMSAT, but was instead purchasing that capacity from another signatory.
COMSAT believes that IDB is required, under the terms of its service
contract with COMSAT, U.S. law and the Inmarsat Operating Agreement, to
purchase that capacity from COMSAT. After attempts to resolve this issue
failed, COMSAT in January 1998 filed a lawsuit against IDB seeking damages
for breach of contract in the United States District Court for the Southern
District of Maryland. In February 1998, IDB filed a petition for a
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declaratory ruling asking the FCC to rule that operators of U.S. Inmarsat
Land earth stations may purchase Inmarsat satellite capacity from foreign
signatories and a motion to dismiss or stay COMSAT's lawsuit until the FCC
rules. COMSAT has filed an opposition to both aspects of IDB's motion. The
court has not yet ruled.
In addition, CMC competes with American Mobile Satellite Corporation
(AMSC), which launched its own satellite in 1995 to offer U.S. domestic and
international mobile satellite services. CMC also competes for maritime
communications business with domestic and international operators of
cellular radio services, high frequency radio services, mobile satellites
and C-band and Ku-band satellites, and in the future is expected to compete
with the FCC-licensed low-earth-orbit ("Big Leo") satellite systems of
Iridium and GlobalStar and the medium-earth-orbit satellite system of ICO.
Operators of C-band satellites have been successful in capturing a
significant portion of the maritime communications business with the U.S.
Navy and cruise ships. These competitive forces have and are expected to
continue to exert downward pressure on CMC's pricing for services provided
through the Inmarsat system.
FCC decisions also may significantly affect the competition for
products and services offered by CMC. In November 1993, the FCC authorized
AT&T to provide shore-to-ship Inmarsat service under an agreement with CMC.
In December 1993, AT&T filed a new application to provide "branded
end-to-end" Standard-A mobile satellite service in the ship-to-shore
direction, which COMSAT opposed. In early 1996, AT&T was granted FCC
authorization to offer such service. In June 1996, CMC and AT&T concluded
an Interconnection and Service Agreement to address interconnection of
facilities and settlement issues.
In December 1994, IDB filed two applications seeking authority to
provide Inmarsat-M and Inmarsat-B services to maritime and land mobile
users through foreign land earth stations in the shore-to-ship direction in
the Atlantic and Pacific Ocean regions. In that proceeding, IDB contended
that the Inmarsat Act allows U.S. carriers to use Inmarsat land earth
stations and space segment obtained from foreign Inmarsat Signatories for
U.S.-originating traffic, a position COMSAT opposes. IDB withdrew it
applications in July 1995. In August 1995, however, Cruisephone filed
applications, which are being opposed by COMSAT, that raise similar issues.
In January 1997, IDB filed another application, which COMSAT has opposed,
seeking authority to provide Inmarsat-M and -B services (including carriage
of U.S.-originating fixed-to-mobile traffic) through foreign land earth
stations using Inmarsat satellite capacity procured from foreign
signatories. The FCC has not yet ruled on these applications.
In March 1993, the FCC granted COMSAT a waiver that would allow COMSAT
to provide equipment, software and value-added services to customers
directly through CMC, rather than through a separate subsidiary, thereby
avoiding substantial duplication of personnel and other costs, subject to
COMSAT's establishing certain non-structural safeguards. To satisfy the
FCC's conditions, COMSAT filed a proposed cost allocation manual and a plan
for implementing certain non-accounting safeguards requested by the FCC.
The FCC approved cost allocation manual in July 1995. The FCC has since
approved the second compliance filing, but has conditioned the waiver's
effectiveness on COMSAT's submission, and the FCC's approval, of a revised
cost allocation manual. COMSAT submitted the revised cost allocation manual
in January 1998. The FCC has not yet acted on that filing.
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In 1995, COMSAT petitioned the FCC for authorization to provide the
same kinds of value-added services to its aeronautical and land mobile
customers. The FCC granted this petition in 1996, subject to FCC approval
of non-structural safeguards -- which approval was granted in 1997. The FCC
has made the effectiveness of this waiver conditional upon its approval of
COMSAT's revised cost allocation manual.
REVENUES. Approximately 30% of the corporation's consolidated revenues
in 1997 were derived from CMC (compared to 30% in 1996 and 36% in 1995). No
single customer of CMC provided more than 10% of the corporation's
consolidated revenues in 1997.
NETWORK SERVICES
COMSAT INTERNATIONAL
COMSAT International (CI) operates an integrated group of
telecommunications companies that are engaged principally in providing
individualized digital network solutions to business clients and carriers
in selected markets. CI also is actively engaged in the development of
prospective international telecommunications opportunities that are
consistent with its digital networking strategy. CI's existing and
prospective companies typically are and will be located in those rapidly
growing markets where a significant number of CI's existing or targeted
clients are located (or where they intend to locate).
As of December 31, 1997, CI operated 15 companies worldwide. These
companies are located in Latin America, Asia and Europe. CI's companies
generally are wholly- or majority-owned, with the exception of COMSAT Max
Limited, CI's company operating in India, and Viatel, Inc. (Viatel), the
European facilities-based carrier and call-back company. At December 31,
1997, CI beneficially owned 50% and 9.5%, respectively, of COMSAT Max
Limited and Viatel, respectively. CI's clients are typically local,
indigenous large and medium-sized corporations, national branches of
multinational corporations and major telecommunications carriers and
consortia.
CI continued to develop new opportunities around the world in 1997. In
particular, CI expanded its activities in Latin America through the
acquisition of IntelComRed S.A. de C.V., a Mexican satellite services
company, and renamed it COMSAT Mexico S.A. de C.V. Primarily through the
completion of a statutory merger under Delaware law, CI also increased its
ownership interest and operating control of BelCom, Inc. (BelCom) to 100%.
BelCom currently provides telecommunications services in the Russian
Federation and certain countries of the Newly Independent States (NIS),
including Kazakhstan, Uzbekistan and Turkmenistan. In addition, CI sold its
19.66% interest in Philippine Global Communications, Inc. (PhilCom) (see
Notes 3 and 5 to the financial statements) in January 1997.
CI's companies operate in numerous and diverse markets, as reflected
in the table set forth below. Consequently, the level of competition in
these countries varies considerably. In some countries there is full
competition, and in others competition is limited by law. The competitive
conditions faced by each company are the result of differing and changing
regulatory policies and economic conditions. In those countries that have
not yet undergone a substantial liberalization of their telecommunications
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laws, CI's principal competitor is typically the local Postal, Telegraph
and Telephone administration (PTT), together with a limited number of
companies that provide telecommunications services similar to those offered
by CI. In countries that have liberalized their telecommunications laws, CI
typically faces greater competition than in less liberalized markets.
<TABLE>
<CAPTION>
<S> <C> <C>
CI COMPANY COUNTRY CI OWNERSHIP PERCENTAGE
- ---------- ------- -----------------------
BelCom, Inc. Russian Federation and NIS 100 %
COMSAT Argentina, S.A. Argentina 100
COMSAT Asia (L) China 55
Incorporated
COMSAT de Colombia, S.A. Colombia 100
Communicaciones Satelitales de Colombia 94
Colombia
COMSAT de Bolivia S.R.I. Bolivia 100
COMSAT Brasil Ltda. Brazil 100
COMSAT de Guatemala, S.A. Guatemala 100
COMSAT Max Limited India 50
COMSAT Mexico S.A. de C.V. Mexico 100
COMSAT Peru, S.A. Peru 65
COMSAT Digital Services Turkey 85
COMSAT Telecommunications Turkey 51
Services
COMSAT Venezuela, Venezuela 100
COMSATVEN, C.A Venezuela 100
Viatel, Inc. U.S., Europe, Latin America 9.5
and Asia
</TABLE>
COMSAT LABORATORIES
COMSAT Laboratories consists of two main business segments: technical
consulting and communications products. Technical consulting activities
include the design and development of advanced digital communications
technologies, systems and networking solutions to commercial and government
customers worldwide. COMSAT Laboratories also designs, develops and
licenses communications products for access, compression and networking
applications as well as software for satellite system planning and
management. COMSAT Laboratories also licenses new technology it develops to
other companies for commercialization.
Customers include U.S. and foreign government agencies, commercial
entities, INTELSAT and Inmarsat. In addition, COMSAT Laboratories conducts
research and development on a broad range of telecommunications devices,
subsystems, transmission systems, technologies and techniques in support of
other COMSAT businesses.
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On-going contracts being performed in 1997 include: a contract to
design, manufacture and deliver S-band mobile satellite communications
equipment; a contract with AT&T to deliver second generation TDMA
terminals; a contract with Ericsson to design and develop the HPN ICONET
ground facilities subsystems; contracts with INTELSAT to design STRIP 7 and
develop a software system for generating INTELSAT TDMA burst time plans; a
contract with NASA to provide operation and maintenance support for the
ACTS (Advanced Communications Technology Satellite) program; and a variety
of technical consulting contracts for INTELSAT, Inmarsat and other
governmental and private industry customers.
COMSAT Laboratories won external contracts with a total value of $29.7
million in 1997. Major new contracts awarded or begun in 1997 include: a
contract with Ericsson to design and develop the HPN ICONET ground
facilities subsystem for ICO; a contract with Lockheed Martin for the ACES
In-Orbit-Test System; a contract with Iridium for its second generation
system; a contract with Raytheon for ATM satellite link adapter for the
Midas program.
Revenue from external customers was $24.6 million in 1997 and $32.3
million in 1996. COMSAT Laboratories support of other COMSAT divisions
totaled $11.8 million in 1997 and $11.4 million in 1996. At December 31,
1997, COMSAT Laboratories' backlog of orders totaled $28.3 million, as
compared to $21.3 million at December 31, 1996.
COMSAT Laboratories incurred research and development expenditures of
$3.7 million in 1997, a decrease of $2.6 million from 1996. These
expenditures were largely attributed to the development of its video
compression, asynchronous transfer mode (ATM) and software products. COMSAT
Laboratories expects R&D expenses to increase in the future as it pursues
additional commercial activities.
GOVERNMENT PROGRAMS
Network Services' government and commercial programs businesses
consist of the operations of COMSAT Government Services, Inc. (CGSI) and
COMSAT General Corporation, both of which are wholly-owned subsidiaries of
the corporation.
CGSI was incorporated in 1997 to focus more directly on the government
satellite market and develop other government service applications. The
core business for CGSI is the Commercial Satellite Communications
Initiative (CSCI) program which is a contract with the Defense Information
Systems Agency (DISA) to provide commercial satellite services. CGSI
provides satellite bandwidth, operates two bandwidth management centers
currently, and provides satellite engineering services under the CSCI
contract.
COMSAT General provides satellite earth station service through
facilities located in Clarksburg, Maryland, Santa Paula, California and
Southbury, Connecticut. COMSAT General operates antennas, a satellite
control facility, and high speed fiber interconnects to telecommunications
carriers and Internet service providers. COMSAT General services include
transmission and reception capability to INTELSAT and non INTELSAT
satellites for voice, data, Internet and video broadcasts.
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COMSAT General also provides satellite operation service for the
Marisat and Comstar satellites, which includes tracking, telemetry,
command, and maintenance of these assets. In addition to operating these
satellites, COMSAT General also leases transponder capacity on those
satellites. COMSAT General provides services to both commercial and
government customers.
DISCONTINUED OPERATIONS
ASCENT
During 1995, the corporation incorporated and transferred all of its
entertainment assets to COMSAT Entertainment Group, Inc., which was
subsequently renamed Ascent Entertainment Group, Inc. (Ascent). An initial
public offering of Ascent's common stock was completed in December 1995.
Ascent's common stock is traded on the Nasdaq National Market under the
symbol "GOAL." Following the offering, the corporation owned 80.67% of
Ascent's common stock. During the second quarter of 1997, the corporation
began accounting for the operations of substantially all of CRSI as
discontinued operations See Note 2 to the financial statements. The
corporation distributed its 80.67% ownership interest in Ascent to
shareholders on June 27, 1997.
Ascent's principal business is providing pay-per-view entertainment
and information services through its 57 percent-owned subsidiary On Command
Corporation. In addition, Ascent is involved in other entertainment-related
businesses including ownership and operation of the NBA Denver Nuggets and
NHL Colorado Avalanche, development and management of The Pepsi Center
through Ascent Arena Company, and Beacon Communications, a motion picture
and television production company.
COMSAT RSI
COMSAT RSI, Inc. (CRSI) was formed in 1994 in connection with the
acquisition by the corporation of Radiation Systems, Inc. (RSI). The
corporation combined RSI with certain of its then existing antenna and
wireless networks product and system integration operations to form CRSI.
During the second quarter of 1997, the corporation began accounting for the
operations of substantially all of CRSI as discontinued operations. See
Note 2 to the financial statements.
In March 1998, the corporation entered into a stock purchase agreement
to sell substantially all of CRSI. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Outlook." The
sale of substantially all of the assets and liabilities of JEFA Wireless
Systems, a subsidiary of CRSI, was completed in a separate transaction in
February 1998. Also included as part of discontinued operations is
Electromechanical System, Inc. (EMS), a wholly-owned subsidiary of CRSI,
and an equity ownership interest in Plexsys International Corporation
(Plexsys), which are being retained by COMSAT per the terms of the stock
purchase agreement, pending evaluation of available alternatives. The
long-term contract for construction of a radio telescope in Greenbank, West
Virginia also is to be retained by the corporation in connection with the
stock purchase agreement. The Labs sector of the Network Services segment
and the Government Programs sector of Satellite Services now includes
certain non-manufacturing, telecommunications contracts and businesses that
were previously reported as part of CRSI in the Technology Services
segment.
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CRSI designs, manufactures and integrates earth stations, as well as
wireless and advanced antenna systems. CRSI has three operating groups:
Advanced Systems, Communication Systems and Wireless Networks. These groups
include 10 business units, 9 of which are vertically integrated to serve
global telecommunications markets. The remaining unit serves the global
machine tool market. CRSI's customers include the U.S. Government, U.S.
Government prime contractors, foreign governments, domestic and foreign
telecommunication service providers, broadcast and cable television
operators, and a wide variety of other commercial customers.
CRSI's manufactured products include a broad range of parabolic
antennas and line-of-sight microwave antennas, cellular and personal
communication system (PCS) antennas, satellite frequency converters,
microwave components, Ultra-Small Aperture Terminal (USAT) and VSAT
equipment, cellular switch and base station radio equipment, servo control
systems, vehicle-mounted mobile antennas, multiplexers, antenna monitor and
control systems, antenna positioning systems, tactical military antennas,
air traffic control antennas, radar antennas, radio telescope antennas,
tactical masts, monopoles, towers, and optical measuring devices. CRSI
designs, integrates, installs and tests large-scale wireless and satellite
ground systems, private VSAT networks, video distribution networks, and
network control systems. In addition, CRSI provides turnkey gateway
antennas and network control systems for regional and global fixed and
mobile satellite systems.
CRSI competes with major companies around the world in several
telecommunications markets. Major competitors in the communications systems
market include Scientific Atlanta, Inc.; California Microwave, Inc.;
Globecomm Systems, Inc.; Alcatel N.V.; Miteq, Inc.; LNR Communications,
Inc.; SSE Telecom, Inc.; NEC; Harris Corporation; and Mitsubishi. In the
wireless networks market, competitors include GM Hughes Electronics
Corporation; Gilat Satellite Networks Ltd.; ViaSat, Inc.; Andrew
Corporation; Kathrein; Cellwave; Allgon; Gabriel Electronics, Inc.;
Ericsson Radio Systems AB; Northern Telecom Limited; Stanilite; Celcore
(recently acquired by DSC Communications Corp.); Alcatel NV; STM Wireless,
Inc.; EMS Technologies, Inc.; and Allen Telecom, Inc. The advanced systems
markets competition includes Datron Systems, Inc.; TIW Systems, Inc.;
Electrospace Systems, Inc.; Signal Processors, Ltd.; Marconi Radar Systems
Limited; Cosser Electronics Limited (Raytheon); Tech-Sym Corporation; and
Vertex Communications Corporation. Certain companies like Hughes,
Scientific Atlanta, California Microwave, Harris, Alcatel and Andrew
Corporation compete in most of CRSI's markets. Many of these companies are
considerably larger and have greater financial resources than CRSI. In all
market areas, CRSI competes on the basis of price, performance, on-time
delivery, reliability and customer support.
As part of the stock purchase agreement, the corporation has agreed to
retain the long-term contract for the completion of the 100 meter radio
telescope at Green Bank, West Virginia. COMSAT or a subsidiary also will
retain the CRSI employees at the site and assume the contracts with two
unions that provide on-site labor. CRSI will provide the surface panels and
certain other services related to completion of the servo-drive system for
the telescope under a separate subcontract. COMSAT is in negotiation with
Associated Universities Incorporated, which operates the National Radio
Astronomy Observatory at Green Bank under a Co-operative Agreement with the
National Science Foundation, for novating of the original contract for
construction of the telescope from CRSI to COMSAT. Novation of the
Greenbank contract is a condition to the purchaser's obligation to close
under the stock purchase agreement. CRSI's $29 million claim for work
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performed under and relating to the Greenbank contract, which is currently
in arbitration, also will be assigned to COMSAT in connection with stock
purchase agreement. There can be no assurance that the corporation will be
successful in collecting all or any portion of the claim.
Electromechanical Systems, Inc. (EMS) designs, manufactures and
installs multi-axis positioning control units (pedestals) for precision
tracking and pointing for air traffic control, weather, radar,
communication and surveillance equipment. EMS also provides repair and
restoration service for various antenna pedestals for its customers. More
than 90% of EMS's current business is with military and government
customers, nearly all in the U.S.
CRSI also owns approximately 53% of the outstanding equity securities
of Plexsys International Corporation (Plexsys). Plexsys provides turn-key
cellular and wireless local loop systems primarily targeted at thin-route
applications in rural or developing markets and manufactures switching and
base station equipment. Most of Plexsys' business is in international
markets. In February and March 1998, Plexsys substantially reduced its
operations and laid off most of its staff. The corporation doe not
anticipate that it will recover its investment in Plexsys or certain
amounts owed it by Plexsys. The corporation believes that the reserves it
has established for the disposition of CRSI generally are adequate to
absorb any losses that are likely to be incurred in connection with
Plexsys. There can be no assurance, however, that additional reserves will
not be required.
INVESTMENTS
The corporation's investments are discussed at Note 5 to the
financial statements.
ITEM 2. PROPERTIES
COMSAT PROPERTIES
At year end 1997, the headquarters of the corporation and the
headquarters of the Satellite Services segment and CI were located in a
building in Bethesda, Maryland, which the corporation leases from a limited
partnership in which it holds a 50% interest, primarily as a limited
partner. The managing general partner also owns a 50% interest in the
partnership. An affiliate of the managing general partner owns the building
site and has leased this site to the partnership. The corporation has
entered into a 15-year lease with the partnership for the new building (see
Note 8 to the financial statements).
In 1997, the corporation sold the office buildings and land at
Clarksburg, Maryland that serve as the headquarters of COMSAT Laboratories,
as well as offices for certain operations of CRSI. The corporation leased
back the office buildings for a ten-year lease term. See Note 4 to the
financial statements.
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The corporation also owns two manufacturing facilities in Dulles,
Virginia, one of which serves as the headquarters of CRSI, and land located
nearby that is used as an antenna test range by CRSI. Further, the
corporation owns or leases 10 other properties in the United States, leases
two properties in England and a sales office in Beijing, China. The
properties owned by CRSI are to be transferred upon consummation of the
proposed sale of CRSI and the purchaser will assume the leases for the CRS
leased properties in accordance with the terms of the stock purchase
agreement.
COMSAT General owns 86.3% of the MARISAT Joint Venture, which still
operates the MARISAT F-2, one of the three satellites launched in 1976,
with capacity leased to the U.S. Navy and Fugro N.V., a Netherlands
company. The MARISAT F-1 and F-3 ceased commercial operations in 1996.
COMSAT General owns the COMSTAR D-4 satellite (launched in 1981) with
capacity leased to CMC and the U.S. Navy.
The corporation leases earth stations in Turkey and Malaysia, and owns
earth stations at Santa Paula, California and Southbury, Connecticut that
are used by CMC to provide mobile communications services. A leased earth
station in Fucino, Italy along with the California and Connecticut earth
stations are used by CRSI to provide TT&C services. The corporation owns
earth stations at Clarksburg, Maryland and Paumalu, Hawaii that are used by
CWS to provide TT&C services to INTELSAT. The corporation owns an
additional earth station at Clarksburg, Maryland which is used by Network
Services' Government Programs to house its Satellite Control and Teleport
Facilities as well as the Bandwidth Management Center for the U.S.
Government CSCI Program.
CI leases facilities in each of the countries in which it operates.
See "General Information - Network Services - COMSAT International" above
for a listing of the countries in which CI operates.
The corporation's properties are believed to be suitable and adequate
for the corporation's business operations.
INTELSAT SATELLITES
The corporation's property accounts include CWS's pro-rata share of
INTELSAT satellites. The INTELSAT satellites currently used and under
construction are described below. Some of these satellites are planned to
be transferred to a separate entity as a result of INTELSAT restructuring.
For a discussion of the current status of INTELSAT restructuring, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operation -- Outlook."
There are seven INTELSAT V and VA satellites continuing to operate in
the INTELSAT system. All these satellites have reached the end of their
design lives and are operating in an inclined orbit. Their capacities range
from 15,000 to 17,000 voice circuits or 51 to 57 television channels (or
some combination of each depending on the configuration of the satellite).
The satellites were built by a predecessor to Space Systems/Loral.
22
<PAGE>
The INTELSAT VI series consists of five satellites, constructed by
Hughes Aircraft Company, a subsidiary of General Motors Corporation. These
satellites have an average capacity of at least 24,000 bearer circuits or
87 television channels. The INTELSAT VI satellites, the last of which was
launched on October 1991, currently provide primarily backbone public
switched network (PSN) services in the Atlantic and Indian Ocean regions.
The INTELSAT-K satellite, constructed by General Electric Technical
Services Company, Inc., which was subsequently acquired by Lockheed Martin
Corporation and launched in 1992, has an average capacity of 7,000 bearer
circuits or 32 television channels. The INTELSAT-K satellite provides video
transponder leases to European and North American customers.
The INTELSAT VII series consists of six satellites constructed by
Space Systems/Loral. These satellites have an average capacity of at least
17,050 bearer circuits or 62 television channels (or a capacity of 62 36MHz
units with a typical minimum power range of 29 to 34.5 decibels relative to
one watt (DBW) at C-band and 44 DBW at Ku-band depending on the beam). The
last INTELSAT VII satellite was launched in June 1996. These satellites
were designed to replace the V/VA satellites. They provide improved
utilization and flexibility, with improved radio frequency power, enhanced
Ku-band coverage and increased C-band connectivity compared to the V/VA
satellites.
The INTELSAT VIIA series, also constructed by Space Systems/Loral,
consists of two satellites having an average capacity of at least 19,250
bearer circuits or 70 television channels (or a capacity of 70 36MHz units
with a typical minimum power range of 29 to 36 DBW at C-band and 42.7 to 45
DBW at Ku-band depending on the beam). Of the three INTELSAT VIIA
satellites constructed, the first INTELSAT VIIA satellite was successfully
launched in May 1995; the launch of the second VIIA, in February 1996 was a
failure (see Note 4 to the financial statements); and the third VIIA was
successfully launched in March 1996. These satellites provide an
enhancement over the VII satellites to meet increased demand for high power
Ku-band capacity. New cross-strapped connectivity from Ku-band to C-band
allows the provision of satellite news gathering (SNG) service using a
roving Ku-band Spot Beam in the uplink.
The INTELSAT VIII series consists of four satellites constructed by
Lockheed Martin Corporation. These satellites have an average capacity of
21,000 bearer circuits or 76 television channels (or a capacity of 76 36MHz
units with a typical power range of 29 to 34.5 DBW at C-band and 44 DBW at
Ku-band depending on the beam). All four INTELSAT VIII satellites were
successfully launched in 1997. They were designed primarily to complement
the INTELSAT VI satellites and meet growing demand for C-band services. The
INTELSAT VIII series satellites provide new television broadcast mode
capability with simultaneous up link from the Northeast zone beam and down
link from three West zone beams. The INTELSAT VIII series satellites also
provide expanded SNG service with the capability to cross connect any of
the Ku-band spot beams to any of the global beams in certain transponders.
The INTELSAT VIIIA series consists of two satellites constructed by
Lockheed Martin Corporation. These satellites have an average capacity of
at least 11,600 bearer circuits or 38 television channels (or a capacity of
42 36MHz units with a power range of 39.7 to 42 DBW at C-band and 50.4 to
51.7 DBW at Ku-band depending on the bean). The INTELSAT VIIIA (F-6) was
successfully launched in February 1998. The INTELSAT VIIIA (F-5) is
scheduled for launch later in 1998. The INTELSAT VIIIA satellites are
23
<PAGE>
designed for users requiring high power together with a wide coverage areas
in C-band for the provision of services such as video, VSAT applications
and PSN. They use complex state-of-the-art antenna technology to provide
improved coverage of land areas of North and South America.
COMSAT has applied to the FCC for authorization to participate in the
procurement of the K-TV satellite. This spacecraft is being constructed by
Matra Marconi Space and has a capacity of 30 36MHz transponders with a
typical minimum range of 36 to 52 DBW depending on the beam. It is expected
that the satellite will be launched in the first quarter of 1999. The
satellite was designed to provide high power Ku-band capacity specifically
for direct-to-home television service, and VSAT network applications, such
as data distribution and contribution, including INTERNET/INTRANET
networks. The K-TV satellite will provide coverage over areas of India,
China and Indonesia/Malaysia.
COMSAT has applied to the FCC for authorization to participate in the
procurement of up to five INTELSAT IX satellites. As of December 31, 1997,
procurement of four satellites had been approved by the INTELSAT Board of
Governors. These spacecraft are to be built by Space Systems/Loral and are
intended to replace the INTELSAT VI satellites in the years 2000 and 2001.
The INTELSAT IX satellites are expected to have an average capacity of 98
36MHz transponders with a typical minimum power range of 31 to 47 DBW
depending on the beam. The satellites will provide primarily high
connectivity backbone PSN services in the Atlantic and Indian Ocean
regions. The INTELSAT IX satellites will be INTELSAT's largest capacity
satellite with advanced communications and RF performance.
The corporation has purchased insurance to cover the launch and
subsequent in-orbit testing of the INTELSAT VIII and VIIIA satellites.
Partial loss in-orbit insurance for the remaining four INTELSAT VIII and
VIIIA satellites was purchased for the first 365 days after launch.
Effective January 1, 1998, the corporation changed its accounting policy
with respect to the cost of series satellites lost at launch or in orbit
and its accounting policy with respect to satellite performance incentives
paid to manufacturers. See ""Management's Discussion and Analysis of
Financial Condition and Results of Operations-Outlook."
INMARSAT SATELLITES
The corporation's property accounts include CMC's PRO-RATA share of
Inmarsat satellites. The Inmarsat satellites currently used and under
construction are described below.
The second-generation Inmarsat satellite system, known as the
Inmarsat-2 series, consists of four satellites constructed by an
international consortium led by British Aerospace Dynamics Corporation.
These satellites are now used primarily for leases and backup capacity. The
Inmarsat-2 satellites are expected to be moved, depending on traffic
demand, to new orbital locations where they will provide full time
pre-emptible lease services. The Inmarsat-2 series satellites also provide
backup for global beam services on the Inmarsat-3 satellites. Some services
such as Mini-M and Aero-I are spot beam only services and can only be
supported on the Inmarsat-3 satellites.
24
<PAGE>
The third-generation Inmarsat satellite system, known as the
Inmarsat-3 series, consists of five satellites constructed by Lockheed
Martin Astro Space. These satellites use spot-beam technology, which allows
reuse of the scarce frequency resources allocated for mobile satellite
communications. The Inmarsat-3s are about eight times more powerful than
the Inmarsat-2 series. All five of these satellites were launched
successfully. Four of the Inmarsat-3 satellites are the primary operational
Inmarsat spacecraft and are used for on-demand services such as Inmarsat A,
B, M, Mini-M, C, and Aero. The fifth Inmarsat-3 satellite is planned to be
used primarily for leases and backup capacity. Inmarsat has purchased an
insurance policy for 365 day in-orbit coverage after launch. For a
discussion of financing arrangements related to the Inmarsat-2 and -3
satellites, see Note 6 to the financial statements. Effective January 1,
1998, the corporation changed its accounting policy with respect to the
cost of series satellites lost at launch or in orbit and its accounting
policy with respect to satellite performance incentives paid to
manufacturers. See ""Management's Discussion and Analysis of Financial
Condition and Results of Operations-Outlook."
ITEM 3. LEGAL PROCEEDINGS
Neither COMSAT nor any of its subsidiaries is a party to, and none of
their property is the subject of, material pending legal proceedings, and
no such proceedings are known to be contemplated by governmental
authorities, except for the matters described in Notes 8 and 9 to the
financial statements and as discussed below.
In 1995, the corporation entered into a five-year agreement with News
Corporation to provide satellite services beginning in 1996. In March 1996,
News Corporation rescinded this agreement. The corporation has commenced a
lawsuit against News Corporation and other parties to recover damages
arising out of News Corporation's breach of obligation to COMSAT. News
Corporation has asserted a counter claim for return of the deposit it
originally paid.
In October 1997, IDB informed COMSAT that it was no longer purchasing
Inmarsat satellite capacity used by its U.S. land earth stations from
COMSAT, but was instead purchasing that capacity from another signatory.
COMSAT believes that IDB is required, under the terms of its service
contract with COMSAT, U.S. law and the Inmarsat Operating Agreement, to
purchase that capacity from COMSAT. After attempts to resolve this issue
failed, COMSAT in January 1998 filed a lawsuit against IDB seeking damages
for breach of contract in the United States District Court for the Southern
District of Maryland. In February 1998, IDB filed a petition for a
declaratory ruling asking the FCC to rule that operators of U.S. Inmarsat
land earth stations may purchase Inmarsat satellite capacity from foreign
signatories and a motion to dismiss or stay COMSAT's lawsuit until the FCC
rules. COMSAT has filed an opposition to both aspects of IDB's motion. The
court has not yet ruled.
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 o
the consolidated financial condition of the corporation but could
materially affect consolidated results of operations in a given year or
quarter.
25
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None.
<TABLE>
<CAPTION>
<S> <C> <C>
EXECUTIVE OFFICERS OF THE REGISTRANT
AGE AS OF
NAME OFFICER MARCH 1, 1998
---- ------- --------------
Betty C. Alewine President and Chief Executive Officer 49
Allen E. Flower Vice President and Chief Financial Officer 54
Dwight Jasmann* President and General Manager, 61
COMSAT International
Alan G. Korobov Controller 49
John H. Mattingly President, COMSAT Satellite Services 47
Benjamin A. Pontano President, COMSAT Laboratories 54
Raymond D. Thomas President, COMSAT RSI, Inc. 47
Warren Y. Zeger Vice President, General Counsel and Secretary 50
- -------------
*Mr. Jasmann resigned as an executive officer effective as of February 2, 1998.
</TABLE>
Normally, the officers are elected annually by the Board of Directors,
at its first meeting following the Annual Meeting of Shareholders, to serve
until their successors are elected and qualified.
There is no family relationship between an officer and any other
officer or director and no arrangement or understanding between an officer
and any other person pursuant to which he or she was selected as an
officer.
The following is a brief account of each executive officer's
experience for the past five years:
Mrs. Alewine has been President and Chief Executive Officer since July
1996. She was President, COMSAT International Communications from January
1995 to July 1996, and was President, CWS, from May 1991 to January 1995.
She is also a member of the Board of Directors of the Corporation.
Mr. Flower has been Vice President and Chief Financial Officer since
November 1995. From November 1995 to September 1996, he was also Acting
Treasurer. He was Controller and Acting Chief Financial Officer from April
1995 through November 1995 and Controller from June 1992 to May 1995. He is
a director of Calian Technology Ltd., in which the corporation holds a
minority equity investment.
Mr. Jasmann served as President and General Manager, COMSAT
International from August, 1996 to February, 1998. He previously worked for
AirTouch Communications as Vice President of Human Resources and Corporate
Services and for AT&T, where in his last position he was Managing President
and Managing Director of AT&T Asia/Pacific. He is a director of Elcotel,
Inc.
26
<PAGE>
Mr. Korobov has been Controller since November 1995. He was Vice
President, Finance for CMC from January 1993 to September 1995.
Mr. Mattingly has been President, COMSAT Satellite Services since
September 1997. He was President, COMSAT World Systems from May 1997 to
September 1997 and Vice President and General Manager, COMSAT World Systems
from March 1995 to September 1997. He previously served as Vice President,
European Ventures, COMSAT International Ventures. Before joining COMSAT in
November 1994, he was Senior Vice President and General Manager of
OrionNet, Inc.
Mr. Pontano has been President, COMSAT Laboratories since March 1997,
having served as acting President, COMSAT Laboratories from August 1996. He
was Vice President, Network Technology Division of COMSAT Laboratories from
February 1995 to August 1996. He joined COMSAT Laboratories in 1984 and has
held various management positions during that period.
Mr. Thomas has been President of COMSAT RSI, Inc. since January 1997,
having served as acting President from September 1996. From 1994 until
September 1996, he was Group Vice President of CRSI's Communication Systems
Group. In 1993, he was appointed President of Fixed Earth Station Systems.
Mr. Zeger has been Vice President, General Counsel and Secretary since
August 1994. He was Vice President and General Counsel from March 1992 to
August 1994.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
As of December 31, 1997, there were 50,055,871 shares of common stock,
without par value, of the corporation (COMSAT Common Stock) outstanding:
50,036,887 were Series I shares, held by approximately 35,000 holders of
record other than communications common carriers; and 18,984 were Series II
shares, held by 35 common carriers.
The principal market for COMSAT Common Stock is the New York Stock
Exchange, where it is traded under the symbol "CQ." COMSAT Common Stock is
also listed on the Chicago Stock Exchange and the Pacific Stock Exchange in
the United States and on the Swiss Exchange.
The corporation's Transfer Agent, Registrar and Dividend Disbursing
Agent is The Bank of New York, 101 Barclay Street, New York, New York.
27
<PAGE>
The high and low sales prices of, and the dividends declared on, each
share of COMSAT Common Stock for the last two years are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
COMSAT COMMON STOCK
--------------------------------------------
CALENDAR YEAR 1997 HIGH LOW DIVIDEND
- ------------------ -------- ---------- --------
First Quarter 28 1/2 23 .195
Second Quarter 26 11/16 19 5/8 .05
Third Quarter 24 5/16 20 13/16 .05
Fourth Quarter 25 3/4 20 5/16 .05
CALENDAR YEAR 1996 HIGH LOW DIVIDEND
- ------------------ -------- ---------- --------
First Quarter 25 5/8 16 3/4 .195
Second Quarter 33 1/8 23 3/8 .195
Third Quarter 26 1/2 18 3/4 .195
Fourth Quarter 26 3/4 21 1/2 .195
</TABLE>
ITEM 6: SELECTED FINANCIAL DATA FOR THE REGISTRANT FOR EACH OF THE LAST FIVE
FISCAL YEARS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
In thousands, except per share amounts 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
Revenues $ 562,651 $ 545,100 $ 507,687 $ 500,687 $ 488,876
Operating expenses 480,683 437,875 387,873 367,324 359,351
Operating income 81,968 107,225 119,814 133,363 129,525
Income from continuing operations 28,568 36,197 43,507 69,245 70,011
Net income (loss) (64,446) 8,622 37,817 77,642 84,394
Earnings (loss) per share - assuming
dilution:
Income from continuing operations 0.57 0.74 0.91 1.47 1.49
Net income (loss) (1.29) 0.18 0.79 1.65 1.80
BALANCE SHEET DATA
Total assets 1,894,775 2,097,286 2,022,247 1,851,351 1,651,792
Long-term debt 461,960 578,379 590,378 511,474 401,154
Stockholders' equity 586,271 841,817 839,433 826,916 763,440
DIVIDENDS
Dividends paid 16,975 37,698 36,874 33,547 30,410
Dividends paid per share 0.345 0.78 0.78 0.76 0.74
Distribution of Ascent Entertainment
Group, Inc. shares 194,633 - - - -
</TABLE>
Notes:
(1) As discussed in Note 2 to the financial statements, the
corporation began accounting for Ascent Entertainment Group, Inc.
and substantially all of COMSAT RSI as discontinued operations in
1997. Accordingly, all prior periods have been restated to present
Ascent and CRSI as discontinued operations.
(2) The corporation adopted SFAS No. 128, "Earnings per Share" in 1997
and, accordingly, has restated earnings (loss) per share amounts,
for all prior periods presented.
28
<PAGE>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ANALYSIS OF OPERATIONS
CONSOLIDATED OPERATIONS
During the second quarter of 1997, the corporation began accounting
for the operations of both Ascent Entertainment Group, Inc. (Ascent) and
substantially all of COMSAT RSI, Inc. (CRSI) as discontinued operations.
The consolidated financial statements have been restated for all periods
presented to reflect the results of operations and net assets of Ascent and
CRSI as discontinued operations.
CONTINUING OPERATIONS
Consolidated revenues from continuing operations in 1997 were $563
million, $18 million higher than the previous year. This improvement was
the result of a 19% increase in Network Services segment revenues which
was, in part, offset by a 1% decrease in Satellite Services segment
revenues. Consolidated revenues for 1996 were $545 million, an increase of
$37 million as compared to 1995. Network Services segment revenues in 1996
were 58% higher than 1995, while Satellite Services revenues were slightly
below the previous year.
Operating income from continuing operations for 1997 was $82 million,
as compared to $107 million for 1996. The lower operating income was
primarily the result of lower operating income in the Satellite Services
segment and a larger operating loss in the Network Services segment. The
decrease in the Satellite Services segment was primarily the result of a
lower investment base in COMSAT World Systems (CWS) upon which the
regulated rate of return is calculated and increased depreciation from new
satellites in COMSAT Mobile Communications (CMC). The increased loss in the
Network Services segment resulted from the positive impact in 1996 from a
licensing agreement that resolved patent-infringement disputes with certain
manufacturers of television encryption and decryption equipment at COMSAT
Laboratories which did not reoccur in 1997. Also affecting 1997 operating
income were expenses of $4 million for a proxy contest and related
litigation brought to enforce certain provisions of the Communications
Satellite Act of 1962, which were settled in the second quarter of 1997.
Operating income in 1996 was $107 million, $13 million below 1995.
Other income (expense) for 1997 was a net expense of $3 million, $4
million lower than 1996. This was primarily attributable to improvements in
the results of COMSAT International's (CI) equity investments. Other income
(expense) for 1996 was a net expense of $7 million, $5 million higher than
1995. This was due to a full year of dividend payments in 1996 on the
Monthly Income Preferred Securities (MIPS), which were issued in July 1995
(see Note 7 to the financial statements), offset by a $3 million gain on
the sale of ICO Global Communications (Holdings) Limited (ICO) shares. See
Note 5 to the financial statements.
29
<PAGE>
Interest expense, net of amounts capitalized for 1997, was $42
million, $7 million higher than 1996. The increase primarily reflects
reduced interest capitalized due to the completion of several satellite
projects. For 1996, interest expense net of amounts capitalized was $35
million, $4 million below the previous year. This improvement was the
result of lower interest expense, offset by a decrease in the amount of
interest capitalized.
In 1997, the corporation sold its Clarksburg, Maryland property and
recognized a pre-tax gain of $7 million on the sale of the land. See Note 4
to the financial statements.
The consolidated tax rate on income from continuing operations before
taxes and the extraordinary item for 1997 has improved over 1996's
effective tax rate principally because of a reduction in state income tax
expense.
Income from continuing operations before extraordinary item for 1997
was $29 million, $7 million below last year. Income for 1996 from
continuing operations before extraordinary item was $36 million, $7 million
below 1995.
Basic earnings per share for continuing operations for 1997 were
$0.58, $0.18 below 1996. For 1996, basic earnings per share were $0.76, as
compared to $0.93 for 1995. Diluted earnings per share for continuing
operations for 1997 were $0.57, a $0.17 decrease from 1996. Diluted
earnings per share for continuing operations for 1996 and 1995 were $0.74
and $0.91, respectively. See Note 10 to the financial statements.
Extraordinary loss from early extinguishment of debt, net of tax, for
1997 was $4 million ($0.08 per share). This represents the costs incurred
in 1997 from the corporation's repurchase of $90 million of its 8.125%
notes and $10 million of its 7.7% medium-term notes. See Note 6 to the
financial statements.
DISCONTINUED OPERATIONS
The loss in 1997 from discontinued operations, net of tax, was $89
million ($1.78 per share, fully diluted) compared to losses of $28 million
($0.56 per share) for 1996 and $6 million ($0.12 per share) for 1995.
Discontinued operations include the operations of both Ascent and
substantially all of CRSI.
COMSAT began accounting for substantially all of CRSI as a
discontinued operation on June 30, 1997. During the fourth quarter, the
corporation recognized an additional charge to discontinued operations of
$30 million, after tax, related to the sale of CRSI. This additional charge
is primarily attributable to losses now anticipated on the sale of CRSI as
well as adjustments in the estimated cost to complete certain long-term
contracts. The total loss in discontinued operations for CRSI for 1997 was
$60 million, after tax. See Note 2 to the financial statements and
Management's Discussion and Analysis - Outlook.
30
<PAGE>
COMSAT began accounting for Ascent as a discontinued operation on May
16, 1997, when COMSAT's board of directors decided to distribute the
corporation's 80.67% interest in Ascent to COMSAT's shareholders. On June
27, 1997, COMSAT completed the spinoff of Ascent as a tax-free dividend to
COMSAT's shareholders. The 1997 loss from discontinued operations for
Ascent was $29 million, net of tax. See Note 2 to the financial statements.
CONSOLIDATED RESULTS
On a consolidated basis, including discontinued operations and the
extraordinary item, the net loss for 1997 was $64 million versus 1996 net
income of $9 million. For 1995, the consolidated net income was $38
million.
Basic losses per share for 1997 were $1.32, as compared to 1996
earnings per share of $0.18. Basic earnings per share for 1995 were $0.81.
Diluted losses per share for 1997 were $1.29, as compared to diluted
earnings per share for 1996 and 1995 of $0.18 and $0.79, respectively. See
Note 10 to the financial statements.
31
<PAGE>
SEGMENT OPERATING RESULTS
The corporation has reported operating results in two segments --
Satellite Services and Network Services (see Note 15 to the financial
statements). 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, telecommunications contracts and
businesses that were previously reported as part of CRSI.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
In millions 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
REVENUES
- --------
Satellite Services:
World Systems $ 262.9 $ 273.0 $ 254.7
Mobile Communications 167.8 160.9 180.4
--------------- --------------- ---------------
Total Satellite Services 430.7 433.9 435.1
--------------- --------------- ---------------
Network Services:
International 89.7 58.1 37.7
Laboratories 36.3 43.7 25.9
Government Programs 44.0 40.7 26.8
--------------- --------------- ---------------
Total Network Services 170.0 142.5 90.4
--------------- --------------- ---------------
Eliminations and other (38.1) (31.3) (17.8)
--------------- --------------- ---------------
Total $ 562.6 $ 545.1 $ 507.7
=============== =============== ===============
OPERATING INCOME (LOSS)
- -----------------------
Satellite Services:
World Systems $ 100.4 $ 104.6 $ 109.8
Mobile Communications 23.1 31.9 54.9
--------------- --------------- ---------------
Total Satellite Services 123.5 136.5 164.7
--------------- --------------- ---------------
Network Services:
International (14.0) (17.3) (20.7)
Laboratories (2.0) 7.1 (4.0)
Government Programs (0.4) 5.1 6.6
--------------- --------------- ---------------
Total Network Services (16.4) (5.1) (18.1)
--------------- --------------- ---------------
Total segment operating income 107.1 131.4 146.6
Provision for restructuring - - (3.9)
General and administrative expense (23.2) (24.0) (19.9)
Other (1.9) (0.2) (3.0)
--------------- --------------- ---------------
Total $ 82.0 $ 107.2 $ 119.8
=============== =============== ===============
</TABLE>
32
<PAGE>
SATELLITE SERVICES
Satellite Services includes the Federal Communications Commission
(FCC) regulated and non-regulated businesses of CWS and CMC. CWS provides
international voice, data, video and audio communications as the
statutorily designated U.S. participant in the global satellite system of
the International Telecommunications Satellite Organization (INTELSAT). CMC
provides maritime, aeronautical and land mobile communications services as
the statutorily designated U.S. participant in the global satellite system
of the International Mobile Satellite Organization (Inmarsat).
Revenues in the Satellite Services segment in 1997 were $431 million,
1% below last year. Revenues in 1996 were $434 million, $1 million below
1995. Operating income in the Satellite Services segment in 1997 was $124
million, a decline of $12 million as compared to 1996. Operating income in
1996 was $137 million, $28 million below the previous year.
CWS revenues for 1997 were $263 million, 4% below 1996. Increased
revenues from Very Small Aperture Terminal (VSAT) leases and International
Business Service (IBS) traffic were offset by contracted reductions in
full-time voice revenues and lower fiber-optic cable restoration revenues.
The lower voice revenues stemmed primarily from scheduled rate reductions
in long-term carrier contracts with AT&T, MCI and Sprint, CWS's three
largest international carrier customers. CWS's 1996 revenues were $273
million, which reflects a 7% increase over 1995. The improvement in
revenues came primarily from increases in VSAT leases, IBS traffic and
CWS's share of revenues from the INTELSAT system. These increases were
partially offset by reduced revenues from scheduled rate reductions in
long-term carrier contracts.
Operating income for CWS in 1997 was $100 million, 4% below last year.
The 1997 results reflect increased depreciation from placing in service
three INTELSAT satellites during the past 12 months, offset in part by
improved earnings realized on carrier-to-carrier contracts and the recovery
of certain litigation costs. Operating income in 1996 in CWS was $105
million, a 5% decrease from the prior year. The decline in operating income
was the result of a lower investment base upon which the regulated rate of
return is calculated. This was the result of insurance proceeds received
from the February 1996 launch failure of the INTELSAT 708 satellite. See
Note 4 to the financial statements.
Revenues in CMC for 1997 were $168 million, an increase of 4% compared
to the prior year. The higher revenues were primarily the result of sales
of Planet 1 terminals and service, and increases in CMC's share of revenues
from the Inmarsat system. Offsetting this increase in revenues were
decreases in analog telephone transmissions and lower volume in the bulk
service contract with IDB Mobile Communications (IDB). CMC's 1996 revenues
were $161 million, a decrease of 11% as compared to 1995. The lower
revenues were primarily the result of decreases in analog telephone and
telex revenues, expiration of the American Mobile Satellite Corporation
(AMSC) service contract in December 1995 and lower volume in the bulk
service contract with IDB.
33
<PAGE>
CMC's operating income for 1997 was $23 million, $9 million below
1996. The decrease was primarily the result of increased depreciation
associated with two Inmarsat-3 satellites placed in service during 1997,
and lower revenues and increased costs related to Planet 1 service, which
began commercial operation in 1997. Operating income in CMC for 1996 was
$32 million, or 42% lower than 1995 due to lower revenues, increased
depreciation expense associated with two Inmarsat-3 satellites placed in
service during 1996 and increased costs related to the start up of Planet 1
service.
NETWORK SERVICES
Network Services includes CI, COMSAT Laboratories and Government
Programs. CI operates an integrated group of telecommunications businesses
in countries with rapidly growing telecommunications markets and provides
individualized digital network solutions to customers located in these
markets. COMSAT Laboratories consists of two main businesses -- technical
consulting and communications products. Government Programs includes the
Commercial Satellite Communications Initiative (CSCI) contract, Satellite
Control Facility and Special Program Office.
Network Services segment revenues in 1997 were $170 million, $28
million, or 19% higher than 1996. Included in revenues and operating income
during 1996 was $8 million related to a licensing agreement that resolved
patent infringement disputes with certain manufacturers of television
encryption and decryption equipment at COMSAT Laboratories. Revenues for
the Network Services segment in 1996 were $143 million, a 58% improvement
over 1995. The 1997 Network Services segment operating loss was $16
million, compared to an operating loss of $5 million in the prior year. The
1996 loss was lower primarily due to the positive impact of the licensing
agreement noted above. The operating loss in 1996 was $13 million lower
than 1995.
CI's revenues in 1997 and 1996 were $90 million and $58 million,
respectively, 54% better than each of their comparative years. The increase
in revenues in CI was driven primarily by improvements in CI's operations
in Brazil, Argentina and Venezuela. Partially offsetting the increase in
1996 as compared to 1995 was a decline in revenues in BelCom, CI's company
operating in Russia and in the Newly Independent States (NIS).
CI's operating loss in 1997 was $14 million, $3 million lower than
1996. The improvement was primarily the result of a decrease in losses at
BelCom. Revenue commitments under long-term contracts increased to $323
million at December 31, 1997, as compared to $220 million at the end of
1996. CI's operating loss in 1996 was $17 million, 16% less than the
previous year's loss of $21 million. This improvement was primarily the
result of the increase in revenues in Brazil and a decrease in the
operating losses at BelCom. Partially offsetting these improvements were
start-up costs associated with CI's newer companies in China, Colombia and
Venezuela.
In May 1997, CI acquired full ownership of the Mexican corporation
IntelCom Red S.A. de C.V., which was previously a wholly owned subsidiary
of ICG Satellite Services, Inc., and renamed 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 for $34 million. See
Notes 3 and 5 to the financial statements.
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COMSAT Laboratories' revenues for 1997 were $36 million, as compared
to $44 million for 1996. Exclusive of the $8 million of revenues related to
the 1996 agreement that resolved patent disputes, COMSAT Laboratories' 1997
revenues were at approximately the same level as 1996, and 1996 revenues
were 39% higher than 1995.
The operating loss for COMSAT Laboratories for 1997 was $2 million,
compared to operating income of $7 million for 1996. Exclusive of the
income related to the agreement on patent disputes, the 1997 operating loss
was $1 million more than 1996, and the 1996 operating loss was $3 million
lower than 1995. The Laboratories' backlog at December 31, 1997, was $28
million, 33% higher than at the end of 1996.
Government Programs' revenues in 1997 were $44 million, an increase of
$3 million over the previous year. The increased revenues were related to
the CSCI contract and were offset by lower revenues from two Marisat
satellites that ceased operating in 1996 after 20 years of service.
Revenues in Government Programs in 1996 were $41 million, $14 million
higher than 1995. This increase was primarily due to increased revenues
associated with the CSCI contract, which started in the fourth quarter of
1995.
The operating loss for Government Programs in 1997 was $400,000,
compared to operating income of $5 million for 1996. This was the result of
lower revenues from the loss of the Marisat satellites and increased costs
associated with the CSCI contract. Government Programs 1996 operating
income was $2 million below 1995.
OUTLOOK
MANY OF THE STATEMENTS THAT FOLLOW ARE FORWARD-LOOKING AND RELATE TO
ANTICIPATED FUTURE EVENTS AND 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,
INCLUDING THE CORPORATION'S PETITION BEFORE THE FCC FOR CLASSIFICATION AS A
NON-DOMINANT CARRIER AND A BILL INTRODUCED IN CONGRESS WHICH CALLS FOR THE
PRIVATIZATION OF INTELSAT AND INMARSAT; EFFORTS TO 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 and sell
substantially all of the assets and operations of CRSI as well as other
non-core assets. On June 27, 1997, the corporation distributed its
ownership interest in Ascent to its shareholders through a tax-free
dividend.
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In March 1998, the corporation signed a stock purchase agreement to
sell substantially all of CRSI for $116.5 million. The sale price is
subject to adjustment based on inter-company loans and advances between
COMSAT and CRSI at the time of the closing. Closing for the sale is
expected to occur on or before June 30, 1998, and is dependent upon
completion of certain conditions agreed to by the parties, third party
consents and regulatory filings. The financial impact of the transaction
was included in the corporation's 1997 loss from discontinued operations.
As part of the agreement, the corporation is retaining Electromechanical
Systems, Inc. and Plexsys International Corporation, pending evaluation of
available alternatives. COMSAT also will retain and complete a long-term
construction contract for a radio telescope in Green Bank, West Virginia.
JEFA Wireless Systems, a wholly owned subsidiary, was disposed of in a
separate transaction in February 1998.
The corporation's 1998 operating income from continuing operations is
expected to be better than 1997, while the net income from continuing
operations is expected to be at approximately the same level as 1997.
Following is a discussion of COMSAT's two business segments.
SATELLITE SERVICES
In the first quarter of 1998, continued progress was made in the
corporation's ongoing efforts to restructure INTELSAT and Inmarsat.
The INTELSAT Board of Governors and an internal working group have
approved a restructuring plan that involves creation of a separate entity
(referred to as "INC") to which six satellites would be transferred. 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. The restructuring plan to be considered by
the Assembly of Parties includes recommendations on several key issues,
including INC's ownership 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 17%. 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.
At its March 1998 meeting, the Inmarsat Council approved a plan to
transfer the operating assets of the current Inmarsat intergovernmental
organization to a new company. The Council will present its proposed plan
to the Inmarsat Assembly of Parties for consideration at a meeting now
scheduled for April 1998. Under the proposal, the target date for
completing the transition to a private company is January 1, 1999. While
the new company initially would not be publicly traded, it is expected that
the company would proceed with an initial public offering within 24 months
after its creation. As currently proposed, individual ownership in the new
company would be capped at 15%, although COMSAT's current 22% ownership in
Inmarsat would be grandfathered. Prior to the public offering, owners would
be able to trade shares, and strategic investors would be able to invest up
to $500 million in equity in the new company.
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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 approval is sought. The Inmarsat restructure timetable
is contingent on Inmarsat member governments reaching broad consensus on
implementing the proposed amendments to the Inmarsat Convention prior to
formal ratification. If such consensus is not achieved, the ratification
process could take longer. 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.
In April 1997, the corporation petitioned the 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, but cannot predict with accuracy the
outcome and timing of FCC regulatory action nor whether the FCC may impose
conditions on a grant of the corporation's petition, such as allowing
customers some form of direct access to the INTELSAT system, abrogating
certain provisions of the corporation's inter-carrier agreements with its
largest carrier customers, or requiring the corporation to waive its
privileges and immunities as a INTELSAT signatory.
The U.S. House of Representatives Commerce Committee has approved a
bill entitled the "Communications Satellite Competition and Privatization
Act of 1997" (H.R. 1872) over strong bipartisan opposition for
consideration by the House of Representatives. To become law, the bill will
have to be approved by the full House, considered and passed by the U.S.
Senate and signed by the President. While the corporation supports the
bill's stated objective of privatizing INTELSAT and Inmarsat in a
pro-competitive manner, COMSAT is strongly opposed to the bill as proposed,
since it would have an extremely punitive effect on COMSAT and its
shareholders. However, the bill is in an early stage of the legislative
process, and the corporation expects that the objectionable provisions of
the bill will be addressed and resolved in the later stages of the process.
As proposed, H.R. 1872 could restrict COMSAT from offering certain
existing and future services via the INTELSAT and Inmarsat satellite
systems and might relieve major customers from existing traffic contracts
with the corporation. The bill could impair COMSAT's investment in INTELSAT
and Inmarsat by, among other actions, possibly requiring the return of
orbital positions and spectrum needed in INTELSAT and Inmarsat operations.
The bill also would direct the FCC to permit other companies to directly
access the INTELSAT and Inmarsat satellite systems in the U.S., thus
discontinuing COMSAT's exclusive provider role, subject to certain
safeguards that would insure fair compensation to COMSAT. On the plus side,
the bill would no longer require the FCC to defer action on the
corporation's petition for non-dominant carrier classification until direct
access is granted. The bill, however, would link the removal of the
existing 10% ownership limitation on COMSAT's common stock under the
Satellite Act to the point in time when direct access is granted. The bill
also specifies criteria for the privatization and proposed restructuring of
INTELSAT that, if not agreed to by the other member nations of INTELSAT,
might restrict INTELSAT's proposed new commercial affiliate, INC, from
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accessing the U.S. market. In addition, if the privatization of INTELSAT
and Inmarsat is not completed by a mandatory timetable in accordance with
the criteria, non-core INTELSAT and Inmarsat services might be foreclosed
from U.S. markets.
The corporation is, and will continue, opposing the bill, unless it is
modified in an acceptable, pro-competitive manner that would not adversely
affect the corporation's business and the value of its shareholders'
investments in the INTELSAT and Inmarsat satellite systems.
Effective January 1, 1998, the corporation changed its accounting
policy with respect to the cost of series satellites lost at launch or in
orbit. Such costs will be expensed in the period in which the satellite is
lost at launch or experiences a total failure in orbit. Previously, the
costs of such failed series satellites were amortized over their original
useful lives. Partial in-orbit failures will be evaluated for impairment
according to the provisions of Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed of." Effective January 1, 1998, the
corporation also changed its accounting policy with respect to satellite
performance incentives paid to manufacturers to capitalize the net present
value of such payments as a component of the cost of the satellite.
Previously, certain of these payments were expensed as paid. These changes
will not have a material effect on the corporation's financial statements.
COMSAT World Systems (CWS) continues to be well positioned with major
international carriers through long-term agreements to provide
cost-competitive services for bulk usage beyond the year 2000. In addition,
CWS expects growth from the provision of services in emerging markets,
including international VSAT and Asynchronous Transfer Mode (ATM) services.
CWS is expected to face increasing competition over the longer term.
In addition to seven satellites currently on order, INTELSAT has
signed a lease for capacity aboard the INSAT-2E satellite in the
Asia-Pacific region, planned for launch in the second half of 1998.
INTELSAT launched four VIII series satellites successfully in 1997 and
plans for two launches in 1998. The new INTELSAT VIII series satellites
offer higher-power C-band capabilities to address various markets.
COMSAT Mobile Communications (CMC) plans to continue to expand its
service offerings and value-added products to meet anticipated growth in
customers' needs. The increasing number of digital terminals with improved
operating efficiency and reduced service charges are expected to continue
to provide traffic growth in land mobile, small commercial and pleasure
boat, and business traveler markets. CMC expects to continue to face
increasing competition from existing Inmarsat service providers, other
wireless communications services (including C-band) and other potential
market entrants.
In late 1996, the Federal Aviation Administration (FAA) selected CMC
to provide satellite and uplink services for the Wide Area Augmentation
System (WAAS). The initial contract is expected to generate revenues of $57
million through 2001 and could generate revenues of up to $100 million if
all options are exercised through 2006.
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In late 1996 and early 1997, the corporation reduced its direct
ownership in ICO and presently owns 1.7%. The corporation also continues to
hold an indirect share of ICO through its ownership in Inmarsat, which is
also an ICO shareholder. The corporation is evaluating its plans with
respect to distribution of ICO products and services and will continue to
assess whether its direct ownership is properly aligned with those plans.
As with any new product, there are a number of factors that may affect
the corporation's ability to offer Planet 1 and ICO services on a
profitable basis. Such factors include the level of consumer acceptance and
demand, the quality and pricing of competitive services, and the
performance of ground and space systems and customer terminals. In order to
offer Planet 1 and ICO services, the corporation must obtain certain
regulatory approvals. See Notes 8 and 9 to the financial statements. In
addition, ICO must receive the funding required to complete its satellite
system.
NETWORK SERVICES
COMSAT International (CI) will continue to operate an integrated group
of telecommunications companies that are engaged principally in providing
individualized digital network solutions to business clients and carriers
in selected markets. CI also plans to develop prospective international
telecommunications opportunities that are consistent with its digital
networking strategy. In this regard, CI will continue to target those
rapidly growing markets where a significant number of CI's existing or
targeted clients are located (or in which they intend to locate).
CI's general financial performance benchmark is for individual
companies to be operationally cash-flow positive within three years and
profitable after five years of operation absent unforeseen circumstances or
problems. As part of its integrated approach to management of those
companies, CI evaluates operating performance, strategic fit and overall
effectiveness of managerial control to determine whether to continue to
increase or reduce its investment in individual companies. CI is currently
reviewing its investment in BelCom.
In early 1997, the Communications Secretariat of Argentina
(Secretariat) issued resolutions which reserve for Nahuelsat, the domestic
Argentine satellite operator, certain exclusive rights for the sale of
domestic Ku-band satellite services in Argentina. COMSAT Argentina has
reserved sufficient Ku-band capacity to address its current and future
business requirements through 1998. Following 1998, however, COMSAT
Argentina will be required to secure additional capacity from Nahuelsat for
new business. There can be no assurance that adequate Ku-band space segment
will be available at that time, or that Nahuelsat will have adequate
back-up capacity in the event of a satellite failure, or that if space
segment is available, it will be priced competitively.
In September 1997, the 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 also may
be 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 domestic data services. COMSAT Argentina
challenged the resolution on the ground that domestic switching of Internet
and/or data services by Telintar is not permitted under its franchise. In
November 1997, COMSAT Argentina received a preliminary injunction
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suspending the resolution. The injunction will remain in effect until the
Secretariat rules on COMSAT Argentina's request for administrative relief
from the resolution. The Secretariat has also appealed the imposition of
the preliminary injunction. The resolution, together with other recent
actions of 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. The corporation intends to monitor
regulatory developments in Argentina closely. There can be no assurance,
however, that the recent actions of the Secretariat or other regulatory
developments in respect to those actions will be resolved without any
material affect on COMSAT Argentina's future business prospects.
YEAR 2000 ISSUE
The year 2000 issue is the result of computer programs being written
using two digits rather than four digits to define the applicable year
(i.e. "97" for 1997). Certain of the corporation's computer programs that
have date-sensitive software may not operate properly when the last two
digits become "00", as will occur on January 1, 2000. To the extent that
this situation may exist, there is a potential for computer system failure
or miscalculations, which could cause disruption of operations. The problem
is not limited to computer programs, as some of the corporation's equipment
that has date-sensitive processors may not be able to process dates after
December 31, 1999.
In the second half of 1996, the corporation initiated a program to
identify and properly address issues associated with the year 2000 problem
in order to avoid interruption to the corporation's operations at the turn
of the century. The corporation has made substantial progress in assessing
how it will be impacted by the year 2000 issue. Currently, the corporation
is in the process of modifying or replacing computer systems and other
date-sensitive equipment, so that the corporation's key systems will be
year 2000 compliant. The corporation presently believes that such changes
to the corporation's key systems and equipment will be completed and tested
by the end of the second quarter of 1999.
The corporation's current estimate is that it will cost between $3
million and $5 million prior to January 1, 2000, to modify its in-house
management information systems, customer products, and other systems and
equipment impacted by the year 2000 issue. The corporation does not expect
the costs directly attributable to the year 2000 issue to have a material
effect on its consolidated results from operations in a given year.
Year 2000 modifications and replacements are based on management's
best estimates, which were derived using assumptions of future events,
including the continued availability of resources and the reliability of
third party modification plans. Specific factors that might cause material
differences in the estimates include, but are not limited to, the
availability and cost of personnel with appropriate necessary skills, the
ability to locate and correct all relevant computer code and similar
uncertainties.
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ANALYSIS OF CONSOLIDATED BALANCE SHEETS
ASSETS
The corporation ended 1997 with $1.9 billion of assets, as compared to
$2.1 billion at December 31, 1996. Included in current assets in each of
their respective periods were $142 million and $378 million associated with
the net assets of discontinued operations.
Current assets decreased during 1997 by $220 million, of which $209
million was related to the spinoff of Ascent which occurred in June 1997.
See Note 2 to the financial statements.
Property and equipment additions amounted to $259 million for 1997.
The increase in property and equipment was primarily related to the
investment in new communication property and equipment at CI and additions
related to CWS's and CMC's share of INTELSAT and Inmarsat satellite
programs.
Investments decreased $33 million during 1997 as the corporation sold
its remaining interest in PhilCom in January 1997 at book value of $34
million. See Notes 3 and 5 to the financial statements.
LIABILITIES
The corporation's total liabilities increased during 1997 by $53
million. This was primarily the result of a $15 million increase in
borrowings and an increase of $36 million related to the Clarksburg,
Maryland building financing transaction. See Note 4 to the financial
statements.
ANALYSIS OF CASH FLOWS, LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Cash from operating activities for 1997 was $169 million, 14% below
1996. The Satellite Services segment generated the majority of the
corporation's cash from operations. The corporation made interest payments,
net of amounts capitalized, of $40 million and tax payments of $11 million.
During 1997, the corporation used $221 million in investing
activities, a 5% decrease from 1996. The 1997 purchases of property and
equipment occurred in both the Satellite Services and Network Services
segments, as the corporation continued to make capital investments equal to
its related shares of INTELSAT's and Inmarsat's satellite programs and
purchased communications plant and equipment predominantly in CI's Latin
American companies. The corporation expects to make additional investments
in property and equipment in 1998 at approximately the same level as 1997.
Cash proceeds from financing activities in 1997 were a net $50
million, as the corporation received $34 million as a result of the
Clarksburg financing transaction. See Note 4 to the financial statements.
Of the total increase in short-term borrowings, $106 million was used to
repurchase $100 million of long-term debt. See Note 6 to the financial
statements. The quarterly dividend throughout 1996 and the first quarter of
1997 was $0.195 per share and for the last three quarters of 1997 was $0.05
per share.
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LIQUIDITY AND CAPITAL RESOURCES
The corporation's working capital at December 31, 1997, was $22
million, $354 million lower than at December 31, 1996. The decrease in
working capital during 1997 was primarily the result of the reduction in
current assets of $209 million due to the spinoff of Ascent on June 27,
1997 (see Note 2 to the financial statements), and the use of $106 million
of commercial paper to repurchase long-term debt (see Note 6 to the
financial statements). Cash from operating activities and short-term
borrowings will be used for the near term to fund growth and to finance
working capital needs.
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 $150
million in borrowings outstanding at December 31, 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 with the
proceeds from the sale of substantially all of the assets and operations of
CRSI. Consummation of the sale of CRSI, however, remains subject to certain
conditions. See Management's Discussion and Analysis - Outlook.
During 1997, the corporation repurchased a total of $90 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 million at December 31,
1996, to $70 million at December 31, 1997. In addition, the corporation
repurchased $10 million of its 7.7% medium-term notes using proceeds from
short-term debt. This reduced the corporation's total outstanding
medium-term notes from $74 million at December 31, 1996, to $64 million at
December 31, 1997. The corporation had $36 million remaining under a $100
million medium-term note program at December 31, 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 guidelines
at December 31, 1997, with a long-term, debt-to-total-capital ratio of
44.1%, $163 million in short-term debt outstanding and an interest coverage
ratio of 2.6 to 1.
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.
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ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
COMSAT Corporation:
We have audited the accompanying consolidated balance sheets of COMSAT
Corporation and its subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, stockholders' equity and cash
flow for each of the three years in the period ended December 31, 1997. Our
audit also included the financial statement schedule listed in the index at
Item 14(a)2. These financial statements and the financial statement
schedule are the responsibility of the corporation's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion such consolidated financial statements present fairly, in
all material respects, the financial position of the corporation and its
subsidiaries at December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly in all material respects, the information set
forth therein.
Deloitte & Touche LLP
Washington, D.C.
February 12, 1998
(March 16, 1998 as to the tenth paragraph of Note 2)
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COMSAT CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C>
In thousands, except per share amounts 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
REVENUES $ 562,651 $ 545,100 $ 507,687
------------ ------------ ------------
OPERATING EXPENSES:
Cost of services 263,934 247,120 214,244
Depreciation and amortization 184,206 155,296 140,757
Research and development 9,296 11,518 9,114
General and administrative 23,247 23,941 19,856
Provision for restructuring - - 3,902
------------ ------------ ------------
Total operating expenses 480,683 437,875 387,873
------------ ------------ ------------
OPERATING INCOME 81,968 107,225 119,814
Other income (expense), net (3,016) (7,409) (2,166)
Interest cost (51,426) (50,455) (59,215)
Interest capitalized 9,394 15,760 20,355
Gain on sale of land 7,261 - -
------------ ------------ ------------
Income from continuing operations before taxes and extraordinary item 44,181 65,121 78,788
Income tax expense 15,613 28,924 35,281
------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY ITEM 28,568 36,197 43,507
DISCONTINUED OPERATIONS, NET TAX:
Loss from operations (17,572) (27,575) (5,690)
Loss on disposal (71,496) - -
------------ ------------ ------------
Loss from discontinued operations (89,068) (27,575) (5,690)
------------ ------------ ------------
Income (loss) before extraordinary item (60,500) 8,622 37,817
Extraordinary loss from early extinguishment of debt (net of tax) (3,946) - -
------------ ------------ ------------
NET INCOME (LOSS) $ (64,446) $ 8,622 $ 37,817
============ ============ ============
EARNINGS (LOSS) PER COMMON SHARE - BASIC:
Income from continuing operations before extraordinary item $ 0.58 $ 0.76 $ 0.93
Discontinued operations (1.82) (0.58) (0.12)
Extraordinary item (0.08) - -
------------ ------------ ------------
Net income (loss) $ (1.32) $ 0.18 $ 0.81
============ ============ ============
EARNINGS (LOSS) PER COMMON SHARE-ASSUMING DILUTION:
Income from continuing operations before extraordinary item $ 0.57 $ 0.74 $ 0.91
Discontinued operations (1.78) (0.56) (0.12)
Extraordinary item (0.08) - -
------------ ------------ ------------
Net income (loss) $ (1.29) $ 0.18 $ 0.79
============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
44
<PAGE>
COMSAT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
<TABLE>
<CAPTION>
<S> <C> <C>
In thousands 1997 1996
- ---------------------------------------------------------------------------------------------------------------
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 5,757 $ 7,659
Receivables 147,621 133,952
Deferred income taxes 7,469 6,050
Other 14,918 12,348
Net assets of discontinued operations 142,484 378,175
------------- -------------
Total current assets 318,249 538,184
------------- -------------
Property and equipment 1,359,293 1,322,985
Investments 91,543 124,442
Goodwill 12,722 13,189
Other assets 112,968 98,486
------------- -------------
TOTAL ASSETS $ 1,894,775 $ 2,097,286
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 13,785 $ 13,802
Commercial paper 149,506 17,993
Accounts payable and accrued liabilities 89,772 73,426
Due to related parties 34,664 42,263
Accrued income taxes 5,743 9,741
Accrued interest 3,176 5,377
------------- -------------
Total current liabilities 296,646 162,602
------------- -------------
Long-term debt 461,960 578,379
Deferred income taxes 112,226 112,894
Deferred investment tax credits 9,523 12,350
Accrued post-retirement benefit costs 49,246 50,423
Other long-term liabilities 178,903 138,821
Commitments and contingencies (notes 8, 9 & 14) - -
Preferred securities issued by subsidiary 200,000 200,000
STOCKHOLDERS' EQUITY:
Common stock, without par value, 100,000 shares authorized,
50,197 shares issued in 1997 and 49,090 in 1996 366,901 340,691
Preferred stock, 5,000 shares authorized, no shares issued or outstanding - -
Retained earnings 226,785 502,839
Treasury stock, at cost, 141 shares in 1997 and 269 in 1996 (1,758) (3,006)
Unearned compensation (4,739) (3,757)
Other (918) 5,050
------------- -------------
Total stockholders' equity 586,271 841,817
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,894,775 $ 2,097,286
============= =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
45
<PAGE>
COMSAT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENTS
For the Years Ended December 31, 1997, 1996
and 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C>
In thousands 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income (loss) $ (64,446) $ 8,622 $ 37,817
Adjustments to reconcile net income (loss) to net cash
provided by continuing operations:
Depreciation and amortization 184,206 155,296 140,757
Loss from discontinued operations 89,068 27,575 5,690
Provision for restructuring - - 3,902
Gain on sale of land (7,261) - -
Extraordinary loss from early extinguishment of debt 3,946 - -
Changes in assets and liabilities:
Receivables and other current assets 3,953 (12,539) 4,623
Current liabilities (4,709) 34,935 (27,973)
Non-current liabilities 1,665 15,770 18,676
Other (822) 2,092 27,260
------------ ------------- -------------
Net cash provided by operating activities of continuing operations 205,600 231,751 210,752
Net cash provided (used) by discontinued operations (36,865) (35,009) 3,691
------------ ------------- -------------
Net cash provided by operating activities 168,735 196,742 214,443
------------ ------------- -------------
INVESTING ACTIVITIES:
Purchase of property and equipment (254,291) (267,279) (212,754)
Investments in unconsolidated businesses (19,950) (59,923) (30,591)
Proceeds from sale of property 9,293 - -
Proceeds from note on sale of investments 19,097 - -
Proceeds from sale of investments 9,060 26,076 -
Insurance proceeds from satellite launch failure - 54,443 -
Decrease (increase) in INTELSAT ownership 23,232 (1,238) 17,919
Decrease (increase) in Inmarsat ownership 213 5,746 (6,978)
Other (7,704) 8,328 (1,132)
------------ ------------- -------------
Net cash used in investing activities (221,050) (233,847) (233,536)
------------ ------------- -------------
FINANCING ACTIVITIES:
Net short-term borrowings (repayments) 131,513 17,993 (121,356)
Borrowings (repayments) against company-owned
life insurance policies (3,962) (51,443) 2,542
Common stock issued 20,398 13,837 10,834
Proceeds from issuance of preferred securities of subsidiary - - 200,000
Repayment of long-term debt (114,903) (9,848) (2,975)
Proceeds from issuance of long-term debt - - 81,986
Cash dividends paid (16,975) (37,698) (36,874)
Proceeds from Clarksburg financing 34,342 - -
Other - - (12,617)
------------ ------------- -------------
Net cash provided (used) by financing activities 50,413 (67,159) 121,540
------------ ------------- -------------
Net increase (decrease) in cash and cash equivalents (1,902) (104,264) 102,447
Cash and cash equivalents, beginning of year 7,659 111,923 9,476
------------ ------------- -------------
Cash and cash equivalents, end of year $ 5,757 $ 7,659 $ 111,923
============ ============= =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid, net of amount capitalized $ 39,732 $ 29,519 $ 36,438
Income taxes paid 11,404 1,945 19,209
Non-cash financing of Inmarsat satellites 5,403 5,602 7,551
Distribution of Ascent Entertainment Group, Inc. shares 194,633 - -
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
46
<PAGE>
COMSAT CORPORATION AND SUBSIDIARIES
STATEMENTS OF CHANGES IN CONSOLIDATED STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Shares Shares Common Retained Treasury Unearned
In thousands Issued Outstanding Stock Earnings Stock Compensation Other
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 48,054 46,811 $312,143 $532,229 $(12,502) $(7,249) $2,295
Net income 37,817
Cash dividends (36,874)
Stock awards and options, 401(k) and employee
stock purchase plan activity 413 799 8,905 3,482 1,147
Investors' Plus plan 145 145 3,026
Minimum pension liability adjustment (2,006)
Translation adjustment (3,664)
Other 66 618
-----------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 48,612 47,755 324,074 533,238 (9,020) (5,484) (3,375)
Net income 8,622
Cash dividends (37,698)
Stock awards and options, 401(k) and employee
stock purchase plan activity 398 986 12,862 6,014 468
Investors' Plus plan 80 80 1,777
Minimum pension liability adjustment 383
Translation adjustment 924
Unrealized gain on available for sale securities,
net of taxes 8,624
Other 1,978 (1,323) 1,259 (1,506)
-----------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 49,090 48,821 340,691 502,839 (3,006) (3,757) 5,050
Net loss (64,446)
Cash dividends (16,975)
Distribution of Ascent Entertainment Group, Inc. shares (194,633)
Stock awards and options, 401(k) and employee
stock purchase plan activity 1,027 1,155 24,296 1,248 (982)
Investors' Plus plan 80 80 1,914
Minimum pension liability adjustment 958
Translation adjustment (1,515)
Unrealized loss on available for sale securities,
net of taxes (5,565)
Other 154
------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 50,197 50,056 $366,901 $226,785 $ (1,758) $(4,739) $ (918)
========================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
47
<PAGE>
COMSAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS For the Years Ended December 31,
1997, 1996 and 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. Accounts of COMSAT Corporation and its
majority-owned subsidiaries (COMSAT or the corporation) have been
consolidated. Significant intercompany transactions have been
eliminated. Ascent Entertainment Group, Inc. and COMSAT RSI are
accounted for as discontinued operations (see Note 2).
The corporation has consolidated its shares of the accounts of the
International Telecommunications Satellite Organization (INTELSAT) and
the International Mobile Satellite Organization (Inmarsat). The
corporation's ownership interests in INTELSAT and Inmarsat are based
primarily on the corporation's usage of these systems. As of December
31, 1997, the corporation owned 18.0% of INTELSAT and 23.0% of
Inmarsat.
USE OF ESTIMATES. The preparation of financial statements in
conformity with generally accepted accounting principles requires
estimates and assumptions that directly affect the amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results may
differ from those estimates. Estimates are used in determining the
loss on disposal of discontinued operations and in accounting for
long-term contracts, allowance for doubtful accounts, depreciation and
amortization, employee benefit plans, taxes and contingencies.
REVENUE RECOGNITION. Revenue from satellite services is recognized
over the period during which the satellite services are provided.
Revenue from long-term product, system integration and related
services contracts is accounted for using the percentage-of-completion
(cost-to-cost) method. Revenue from other services is recorded as
services are provided.
INCOME TAXES AND INVESTMENT TAX CREDITS. The provision for income
taxes includes taxes currently payable and those deferred because of
differences between the financial statement and tax bases of assets
and liabilities. The corporation has earned investment tax credits on
certain INTELSAT and Inmarsat satellite costs. These tax credits have
been deferred and are being recognized as reductions to the tax
provision over the estimated service lives of the related assets.
EVALUATION OF LONG-LIVED ASSETS. In accordance with Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of," the corporation evaluates the potential impairment of
long-lived assets, including goodwill, based upon projections of
undiscounted cash flows whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be fully
recoverable. Management believes no material impairment of these
assets exists at December 31, 1997.
48
<PAGE>
MARKETABLE SECURITIES. The corporation's marketable securities are
categorized as available for sale securities, as defined in SFAS No.
115, "Accounting for Certain Investments in Debt and Equity
Securities." Unrealized holding gains and losses are reflected, net of
tax, as a separate component of stockholders' equity until realized.
For the purpose of computing realized gains and losses, cost is
identified on a specific identification basis. Realized gains and
losses are reported in "Other income (expense), net" on the income
statement.
GOODWILL. Goodwill is amortized over 10 to 25 years. Accumulated
goodwill amortization was $2,077,000 and $1,276,000 at December 31,
1997 and 1996, respectively.
OTHER ASSETS. The cash surrender values of life insurance policies
(net of loans) totaling $86,597,000 and $71,724,000 at December 31,
1997 and 1996, respectively, are included in "Other assets." "Other
income (expense), net" on the income statement includes the increases
in the cash surrender values of these policies.
STOCK-BASED COMPENSATION. SFAS No. 123, "Accounting for Stock-Based
Compensation," requires expanded disclosures of stock-based
compensation arrangements with employees and encourages (but does not
require) compensation cost to be measured based on fair value of the
equity instrument awarded (see Note 10). The corporation has chosen to
continue to account for employee stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations. Accordingly, compensation costs for stock
options are measured as the excess, if any, of the quoted market price
of the corporation's stock at the date of the grant over the amount an
employee must pay to acquire the stock.
CASH FLOW INFORMATION. The corporation considers highly liquid
investments with a maturity of three months or less at the time of
purchase to be cash equivalents.
STATEMENT PRESENTATION. Certain prior period amounts have been
reclassified to conform with the current year's presentation. Most
notably, costs that are passed through to customers in the Government
Programs segment are now netted against the associated revenues. In
addition, the corporation's share of Inmarsat revenues, net of the
amount paid for using the Inmarsat satellite system, is presented in
revenues. These reclassifications had no impact on previously reported
results of operations or stockholders' equity.
NEW ACCOUNTING PRONOUNCEMENTS. In June 1997, the Financial Accounting
Standards Board (FASB) issued SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." 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. 130 will require the
corporation to display its minimum pension liability adjustment,
foreign currency translation adjustment and unrealized gain (loss) on
available for sale securities as a component of comprehensive income
rather than a component of changes in stockholders' equity. SFAS No.
131 establishes standards for the way public business enterprises
report information about operating segments and the related
disclosures
49
<PAGE>
about products and services, geographic areas and major customers.
Adoption of SFAS No. 131 will not have a material effect on the
corporation's presentation of operating segments and related
disclosures. Both statements are effective for financial statements
issued for fiscal years beginning after December 15, 1997.
2. DISCONTINUED OPERATIONS
The corporation began accounting for Ascent Entertainment Group, Inc.
(Ascent), its entertainment subsidiary, and substantially all of the
assets and operations of COMSAT RSI, Inc. (CRSI), its manufacturing
subsidiary, as discontinued operations in the second quarter of 1997.
The 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.
The income (loss) from discontinued operations, net of tax, for Ascent
and CRSI for the three years ended December 31, 1997, is summarized
below:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
In thousands 1997 1996 1995
-------------------------------------------------------------------------------------------------------
Ascent $ (29,068) $ (28,148) $ (6,360)
CRSI (60,000) 573 670
------------- ------------ ------------
Total $ (89,068) $ (27,575) $ (5,690)
============= ============ ============
</TABLE>
ASCENT ENTERTAINMENT GROUP, INC.
--------------------------------
The corporation distributed its 80.67% interest in Ascent through a
tax-free dividend to shareholders on June 27, 1997. 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 accounted for as a discontinued operation beginning on May
16, 1997, the date on which the corporation's Board of Directors
adopted a formal plan to effect the distribution.
The loss from the discontinued Ascent operations, net of tax, is
composed of :
<TABLE>
<CAPTION>
<S> <C> <C> <C>
In thousands 1997 1996 1995
-------------------------------------------------------------------------------------------------------
Revenues $ 177,481 $ 258,120 $ 202,332
============= ============ ============
Loss from operations before taxes $ (22,826) $ (38,785) $ (8,137)
Income tax benefit 5,047 10,637 1,777
------------- ------------ ------------
Loss from operations (17,779) (28,148) (6,360)
Loss on disposal before taxes (9,095)
Income tax expense (2,194)
-------------
Loss on disposal (11,289)
------------- ------------ ------------
Loss from discontinued operations $ (29,068) $ (28,148) $ (6,360)
============= ============ ============
</TABLE>
50
<PAGE>
The loss on disposal includes an operating loss of $5,020,000
($3,861,000 net of tax) for the period May 17, 1997, through June 27,
1997, and costs of $4,075,000 incurred by COMSAT to facilitate the
distribution. The tax expense associated with the loss on disposal
includes $4,421,000 to recognize additional taxes on deferred
intercompany gains while Ascent was included in COMSAT's consolidated
tax return. The operating results are net of minority interest in net
losses of consolidated subsidiaries.
In December 1995, Ascent completed a public offering of 5,750,000
shares of its common stock. COMSAT retained 24,000,000 shares or
80.67% of Ascent. Concurrent with the public offering, Ascent repaid a
$140,000,000 intercompany note payable to COMSAT. Included in the 1995
loss from operations is a pre-tax gain of $19,286,000 as a result of
the public offering.
The tax-free dividend of Ascent common stock was recorded as a
reduction of COMSAT's consolidated retained earnings. At June 27,
1997, the book value of the net assets of Ascent totaled $194,633,000
and consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
In thousands 1997
-------------------------------------------------------------------------------------------------------
Current assets $ 89,170
Fixed assets, net 308,174
Intangible and other assets 343,330
Short-term debt 176,000
Other current liabilities 151,317
Long-term debt 50,000
Other non-current liabilities 168,724
------------
Net assets $ 194,633
============
</TABLE>
COMSAT RSI, INC
---------------
Substantially all of CRSI was accounted for as discontinued operations
beginning on June 30,1997. CRSI designs, manufactures and integrates
earth stations as well as wireless and advanced antenna systems.
In February 1998, the corporation sold substantially all of the assets
of JEFA Wireless Systems (JEFA), a wholly owned subsidiary of CRSI
engaged in the wireless communications integration and intelligent
transportation systems business in a separate transaction. Pursuant to
the sale agreement, the corporation assigned to the buyer its rights
in certain contracts and made a payment of $4,663,000, net of a
working capital adjustment at closing, to complete the transaction.
51
<PAGE>
On March 16, 1998, the corporation entered into a stock purchase
agreement to sell substantially all of the remainder of CRSI's
businesses for cash of $116,500,000, subject to an adjustment based on
intercompany loans and advances between the corporation and CRSI at
closing. Closing for the CRSI sale is expected to occur on or before
June 30, 1998, and is dependent upon completion of certain conditions
agreed to by the parties, third party consents and regulatory filings.
As part of the agreement, the corporation is retaining
Electromechanical Systems, Inc. and Plexsys International Corporation,
pending evaluation of available alternatives. COMSAT will also retain
and complete a long-term construction contract for a radio telescope
in Green Bank, West Virginia.
Discontinued operations include management's best estimates of the
amounts expected to be realized on the sale of net assets, operating
losses through anticipated disposal dates, facility closure costs and
the estimated costs to complete the long-term contract retained by the
corporation. These estimates could change as additional costs are
incurred to complete the disposal and the long-term contract.
The income (loss) from the discontinued CRSI operations, net of tax,
is composed of:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
In thousands 1997 1996 1995
-------------------------------------------------------------------------------------------------------
Revenues $ 121,291 $ 217,183 $ 161,823
============= ============ ============
Income from operations before taxes $ 253 $ 805 $ 2,097
Income tax expense (46) (232) (1,427)
------------- ------------ ------------
Income from operations 207 573 670
-------------
Estimated loss on disposal before taxes (80,133)
Income tax benefit 19,926
-------------
Estimated loss on disposal (60,207)
------------- ------------ ------------
Income (loss) from discontinued operations $ (60,000) $ 573 $ 670
============= ============ ============
</TABLE>
The estimated loss on disposal includes a provision of $50,296,000
($39,603,000 net of tax) to writedown CRSI's and JEFA's assets to
their net realizable value. The estimated loss on disposal also
includes the estimated loss from CRSI and JEFA operations through the
anticipated disposal dates of $29,837,000 ($20,604,000 net of tax).
The estimated loss from operations of CRSI and JEFA includes operating
losses, facility closure costs and the estimated cost to complete the
long-term contract to be retained and completed by the corporation
pursuant to the sale terms. Certain of the losses are not deductible,
causing the effective tax benefit to be lower than the benefit at the
federal statutory rate of 35%.
52
<PAGE>
The net assets of the discontinued operations included in the
consolidated balance sheets as of December 31, 1997 and 1996, are as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1997 1996
---------- -------------------------------------------
In thousands CRSI Ascent CRSI Total
------------------------------------------------------------------------------------------------------------
Current assets $ 181,456 $ 76,809 $ 173,021 $ 249,830
Fixed assets, net 33,871 301,498 32,280 333,778
Intangible and other assets 12,989 351,364 11,720 363,084
Short-term debt 4,422 145,500 417 145,917
Other current liabilities 28,790 136,789 39,775 176,564
Provision for estimated loss on disposal 49,504 - - -
Long-term debt 1,540 52,000 5,095 57,095
Other non-current liabilities 1,576 186,182 2,759 188,941
---------- ---------- ---------- ----------
Net assets of discontinued operations $ 142,484 $ 209,200 $ 168,975 $ 378,175
========== ========== ========== ==========
</TABLE>
3. RECEIVABLES
Receivables are composed of:
<TABLE>
<CAPTION>
<S> <C> <C>
In thousands 1997 1996
------------------------------------------------------------------------------------------------------------
Commercial receivables $ 120,320 $ 112,376
Receivables under long-term contracts:
U.S. Government:
Amounts billed 5,991 6,499
Unbilled costs and accrued profits 9,577 7,695
Commercial customers:
Amounts billed 4,197 1,442
Unbilled costs and accrued profits 239 2,151
Related party receivables 6,422 2,825
Other 15,610 12,123
---------- ----------
Total 162,356 145,111
Less allowance for doubtful accounts (14,735) (11,159)
---------- ----------
Net $ 147,621 $ 133,952
========== ==========
</TABLE>
Unbilled amounts represent accumulated costs and accrued profits that
will be billed at future dates in accordance with contract terms and
delivery schedules. All of the 1997 amounts are expected to be
collected within one year.
In January 1997, the corporation sold its remaining 19.66% interest in
Philippine Global Communications, Inc. (PhilCom) at book value for
$34,292,000. At closing, the corporation received $1,702,000 in cash
and the balance in the form of notes and contractual rights that
provide for payments, including interest, through December 31, 1998.
The corporation received payments amounting to $22,021,000 during
1997. At December 31, 1997, the balance of $12,731,000 is recorded
above in other receivables and is due in two payments during 1998 (see
Note 5).
53
<PAGE>
4. PROPERTY AND EQUIPMENT
Property and equipment include the corporation's shares of INTELSAT
and Inmarsat property and equipment.
<TABLE>
<CAPTION>
<S> <C> <C>
In thousands 1997 1996
-------------------------------------------------------------------------------------------------------
Property and equipment at cost:
Satellites $ 1,695,352 $ 1,546,891
Furniture, fixtures and equipment 595,812 463,593
Buildings and improvements 108,635 106,270
Land 3,244 5,219
------------ ------------
Total 2,403,043 2,121,973
Less accumulated depreciation (1,161,242) (1,027,437)
------------ ------------
Net property and equipment in service 1,241,801 1,094,536
Property and equipment under construction:
INTELSAT satellites 88,540 111,222
Inmarsat third-generation satellites 5,353 53,323
Other 23,599 63,904
------------ ------------
Total $ 1,359,293 $ 1,322,985
============ ============
</TABLE>
Depreciation is calculated using the straight-line method over the
estimated service life of each asset. The service lives for property
and equipment are: satellites, 10 to 13 years; furniture, fixtures and
equipment, 3 to 15 years; buildings and improvements, 3 to 40 years.
Satellites include construction costs, launch costs, direct
development costs, insurance costs and capitalized interest. Costs of
series satellites that are lost at launch or that fail in orbit are
carried, net of any insurance proceeds, in the property accounts. The
remaining net amounts are depreciated over the estimated service life
of a satellite of the same series. At December 31, 1997 and 1996, no
failed series satellites were included in property. Non-series
satellites that are lost at launch or fail in orbit are charged to
operations.
On February 14, 1996, the launch of the INTELSAT 708 satellite failed.
The corporation's share of the satellite's costs was fully insured.
Insurance proceeds totaling $54,443,000 were received in the second
quarter of 1996.
SALE OF LAND. In September 1997, COMSAT sold its Clarksburg, Maryland
office building and the surrounding land for $45,750,000 in an
all-cash transaction. A gain of $7,261,000 ($4,211,000 net of tax) was
recognized on the sale of land. The corporation also entered into a
10-year lease agreement with the new owner to continue occupying the
office building, that principally houses COMSAT Laboratories. In
addition to lease payments, the corporation is responsible for taxes,
insurance and maintenance of the building. The sale-leaseback of the
office building has been accounted for as a financing due to COMSAT's
continuing involvement as the lessor of floor space in the building to
non-COMSAT tenants. As a result, the historical cost of the building
remains in property and will be depreciated over the 10-year lease
term.
54
<PAGE>
A financing obligation of $36,219,000, representing the proceeds
received for the building, was recorded at the time of sale. This
obligation is being amortized at an interest rate of 8.50% as the
lease payments are made. The net present value at December 31, 1997,
totals $35,645,000, of which $2,042,000 is reflected in other current
liabilities and the remainder in other long-term liabilities.
At December 31, 1997, the future lease payments pursuant to the
sale-leaseback are $4,994,000 in 1998, $5,131,000 in 1999, $5,273,000
in 2000, $5,418,000 in 2001, $5,567,000 in 2002 and $28,488,000
thereafter. Rental income expected to be received through
non-cancellable sub-leases is $1,254,000 in 1998, $869,000 in 1999,
$236,000 in 2000, $81,000 in 2001, $3,000 in 2002 and $74,000
thereafter.
5. INVESTMENTS
ICO. At December 31, 1997 and 1996, the corporation's direct
investment in ICO Global Communications (Holdings) Limited (ICO)
amounted to $35,985,000 and $30,794,000, respectively. The
accompanying balance sheet also includes the corporation's $35,800,000
and $30,713,000 share of Inmarsat's investment in ICO as of December
31, 1997 and 1996, respectively (See Note 8).
In December 1996, the corporation reduced its direct investment in ICO
by selling 777,701 of its shares to other ICO shareholders for
$29,941,000. The corporation recognized a gain of $2,722,000 that is
included in "Other income (expense), net" on the income statement.
PHILCOM. In June 1994, the corporation acquired an interest of
approximately 17% in PhilCom, a provider of international
communications services in the Philippines, for $42,141,000. The
corporation's share of PhilCom's income or losses was recorded using
the "equity method" of accounting through the third quarter of 1996
and is included in "Other income (expense), net" on the income
statement. In the fourth quarter of 1996, the corporation sold a
portion of its interest in PhilCom at book value for $3,517,000. The
remainder of its investment in PhilCom was sold in January 1997 at
book value (see Note 3).
MARKETABLE SECURITIES. Marketable equity securities classified as
available for sale are summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Unrealized
In thousands Cost Fair Value Holding Gain
---------------------------------------------------------------------------------------------------
December 31, 1997 $10,583 $13,209 $ 2,626
December 31, 1996 11,592 22,780 11,188
</TABLE>
55
<PAGE>
The corporation realized a gain of $1,987,000 from the sale of
marketable equity securities during 1997. The corporation recognized
losses of $1,008,000 and $1,105,000 during 1997 and 1996,
respectively, for a decline in value of a marketable equity security
that was deemed other than temporary. The gains and losses are
recorded in "Other income (expense), net" on the income statement.
6. DEBT
The corporation's capital and debt-financing activities are regulated
by the Federal Communications Commission (FCC). The corporation is
required to submit a financial plan to the FCC for review annually.
Under existing FCC guidelines, the corporation is subject to a limit
of $200,000,000 in short-term borrowings, a maximum long-term, debt-
to-total-capital ratio of 45% and an interest coverage ratio, as
defined, of 2.3 to 1. At December 31, 1997, the corporation was in
compliance with those guidelines.
COMMERCIAL PAPER. The corporation issues short-term commercial paper
as needed with repayment terms of 90 days or less under a $200,000,000
program. The corporation had outstanding borrowings of $149,506,000 at
December 31, 1997 and $17,993,000 at December 31, 1996. The weighted
average interest rate on these borrowings was 6.51% and 7.25% at
December 31, 1997 and 1996, respectively.
CREDIT FACILITIES. The corporation has a $200,000,000 revolving credit
agreement, which expires in December 1999, as a backup to the
commercial paper program. There have been no borrowings under this
agreement.
LONG-TERM DEBT. Long-term debt, including the corporation's share of
INTELSAT and Inmarsat debt, at each year end consists of:
<TABLE>
<CAPTION>
<S> <C> <C>
In thousands 1997 1996
-----------------------------------------------------------------------------------------------------
8.125% notes due 2004 $ 70,475 $ 160,000
8.95% notes due 2001 75,000 75,000
6.75% INTELSAT Eurobonds due 2000 26,932 28,693
7.375% INTELSAT Eurobonds due 2002 35,910 38,258
8.375% INTELSAT Eurobonds due 2004 35,910 38,258
6.625% INTELSAT Asian bonds due 2004 35,910 38,258
8.125% INTELSAT Eurobonds due 2005 35,910 38,258
Inmarsat lease financing obligations 96,504 103,186
Medium-term notes, 7.7% - 8.66%, due 2006 - 2007 64,000 74,000
Discounts on notes payable (806) (1,730)
----------- ----------
Total 475,745 592,181
Less current maturities (13,785) (13,802)
----------- ----------
Total long-term debt $ 461,960 $ 578,379
=========== ==========
</TABLE>
The principal amount of debt (excluding the Inmarsat lease financing
obligations) maturing over the next five years is $0 in 1998 and 1999,
$26,932,000 in 2000, $75,000,000 in 2001 and $35,910,000 in 2002.
56
<PAGE>
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 $89,525,000 of the 8.125% notes and also
$10,000,000 of its 7.7% medium-term notes using proceeds from
short-term debt. The early extinguishment of debt resulted in an
extraordinary loss of $6,231,000 ($3,946,000 net of tax).
INMARSAT LEASE FINANCING OBLIGATIONS. Inmarsat borrowed
(pound)140,400,000 sterling under a capital lease agreement to finance
the construction of second-generation Inmarsat satellites. Inmarsat
also entered into another capital lease arrangement to finance the
construction costs of its third-generation satellites. As of December
31, 1997, (pound)131,800,000 sterling of the (pound)197,000,000
sterling available for this purpose has been borrowed. The
corporation's share of these lease obligations is included in
long-term debt. Inmarsat has hedged its obligations through various
foreign exchange transactions to minimize the effect of fluctuating
interest and exchange rates (see Note 14).
The corporation's share of the payments under these lease obligations
for each of the next five years is $19,130,000 in 1998, $19,616,000 in
1999, $20,765,000 in 2000, $21,450,000 in 2001, $12,222,000 in 2002
and $29,402,000 thereafter. These payments include interest totaling
$26,081,000 and a current maturity of $13,785,000.
7. MONTHLY INCOME PREFERRED SECURITIES
In July 1995, COMSAT Capital I, L.P. (COMSAT Capital) issued
$200,000,000 of Monthly Income Preferred Securities (MIPS). COMSAT
Capital is a limited partnership formed for the sole purpose of
issuing the MIPS and loaning the proceeds to COMSAT, the managing
general partner. The MIPS were issued at a par value of $25 per share,
and dividends are payable monthly at an annual rate of 8.125%. The
MIPS are callable by the issuer after July 2000 at par value.
The proceeds of the MIPS were loaned to COMSAT under the terms of a
8.125%, 30-year subordinated debenture agreement. This agreement
allows COMSAT to extend the maturity of the debentures until 2044,
provided that COMSAT satisfies certain financial covenants. COMSAT
Capital has been consolidated in the financial statements of the
corporation since the third quarter of 1995. The loan between the
partnership and COMSAT has been eliminated in consolidation. The
$200,000,000 of MIPS is shown on the corporation's consolidated
balance sheet as "preferred securities issued by subsidiary." The
dividends on these securities are recorded as minority interest
expense of $16,250,000, $16,250,000 and $7,358,000 in 1997, 1996 and
1995, respectively, and are included in "Other income (expense), net"
on the income statement.
57
<PAGE>
8. COMMITMENTS AND CONTINGENCIES
PROPERTY AND EQUIPMENT. As of December 31, 1997, the corporation had
commitments to acquire property and equipment totaling $194,543,000.
Of this total, $166,957,000 is payable over the next three years.
These commitments are related principally to the corporation's share
of INTELSAT and Inmarsat satellite acquisition programs.
LEASES. The corporation leases its headquarters building from a
partnership in which the corporation owns a 50% interest. The initial
term of the lease expires in 2008. In addition to lease payments, the
corporation is responsible for taxes, insurance and maintenance of the
building. The corporation also has leases of other property and
equipment. Rental expense under operating leases was $10,242,000 in
1997, $5,179,000 in 1996 and $5,096,000 in 1995. The future rental
payments under operating leases are $17,677,000 in 1998, $19,858,000
in 1999, $21,874,000 in 2000, $13,607,000 in 2001, $13,645,000 in 2002
and $55,317,000 thereafter.
GOVERNMENT CONTRACTS. The corporation and its subsidiaries are subject
to, and are currently a party to, audits and investigations by various
agencies which oversee contract performance in connection with the
corporation's contracts with the U.S. Government. If the corporation
is found liable for wrongdoing as a result of such an audit or
investigation, the corporation could be fined or subjected to other
punitive actions.
ENVIRONMENTAL ISSUES. The corporation reviews, on a quarterly basis,
its estimates of costs of compliance with environmental laws and the
cleanup of various sites, including sites which governmental agencies
have designated the corporation as a potentially responsible party.
When it is probable that obligations have been incurred and where a
minimum cost or a reasonable estimate of the cost of compliance or
remediation can be determined, the applicable amount is accrued.
Because of the uncertainties associated with environmental assessment
and remediation activities, future expense to remediate currently
identified sites could be higher than the liability currently accrued.
Based on currently available information, however, management does not
believe that any costs incurred in excess of those currently accrued
will have a materially adverse effect on the financial condition of
the corporation.
INVESTMENT IN ICO. In 1994, the corporation and Inmarsat committed to
invest in ICO (see Note 5). ICO plans to build and operate spacecraft
and related terrestrial facilities for the provision of worldwide
mobile communications via handheld devices. As of December 31, 1997,
the corporation's investment totaled $35,985,000, and the
corporation's share of Inmarsat's investment totaled $35,800,000. As
of December 31, 1997, the corporation had fulfilled its direct and,
through Inmarsat, its indirect investment commitments to ICO.
58
<PAGE>
The corporation has applied to the FCC for authority to participate as
an investor and service provider in ICO. In acting on the application,
which is being opposed by ICO's competitors, the FCC will determine
whether the corporation satisfies the requisite legal and policy
criteria to participate in ICO. The corporation believes that all
necessary operating authorizations with respect to ICO will be
obtained, although the FCC may condition the use of ICO telephones in
the U.S. on reciprocal access by ICO's U.S. competitors to foreign
markets. In addition, the provision of ICO service in the U.S. may be
subject to the availability of adequate spectrum on an economic basis.
In May 1996 TRW, Inc. (TRW) filed a lawsuit against ICO in the U.S.
District Court for the Central District of California seeking
injunctive relief and unspecified monetary damages. The lawsuit, as
amended, alleged that the proposed ICO satellite system would infringe
two patents held by TRW. In December 1997, TRW and ICO reached an
agreement that settled this dispute.
9. REGULATORY ENVIRONMENT AND LITIGATION
REGULATORY ENVIRONMENT. Under the Communications Act of 1934 and the
Communications Satellite Act of 1962, as amended, the corporation is
subject to regulation by the FCC with respect to communications
facilities and services provided through the INTELSAT and Inmarsat
systems and to the rates charged for those services. In addition, the
telecommunications companies which the corporation operates in various
developing countries are subject to regulation by the local regulatory
bodies in those countries. Because the regulatory environment in those
countries is rapidly evolving as the local economies are developing,
these companies face increasing business uncertainties which could
have an adverse effect on their operations in those countries.
Until 1985, the corporation was, with minor exceptions, the sole U.S.
provider of international fixed satellite communications services.
Since then, the FCC has authorized several international satellite
systems separate from INTELSAT. These separate U.S. systems currently
compete against the corporation for voice, video and data traffic. In
1993, the FCC substantially eliminated prior restrictions on the
ability of separate systems to offer public switched telephony
services, thereby increasing competition to the corporation in the
voice market. The remaining FCC restrictions on competitive systems
expired on December 31, 1996.
In April 1997, the corporation petitioned the FCC for classification
as a non-dominant carrier and for regulatory forbearance. The petition
requests that limits on the corporation's rate of return and
structural separation requirements be removed and that the corporation
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, but
cannot predict with accuracy the outcome and timing of FCC regulatory
action nor whether the FCC may impose conditions on a grant of the
corporation's petition, such as allowing customers some form of direct
access to the INTELSAT system, abrogating certain provisions of the
corporation's inter-carrier agreements with its largest carrier
customers or requiring the corporation to waive its privileges and
immunities as an INTELSAT signatory.
59
<PAGE>
In May 1996, the corporation received authority to provide
communication services, including Planet 1 and other land mobile
services outside of North America, over the Inmarsat-3 satellites. The
corporation has applied to the FCC for authorization to offer Planet 1
and other mobile services in the U.S. Those applications, which have
been opposed by certain of the corporation's competitors, are pending
before the FCC.
LITIGATION. The corporation 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 affect consolidated results of operations in a given year
or quarter.
The FCC has adopted a rule requiring any common carrier that provides
interstate service in the U.S. to contribute to a universal service
fund based on the carrier's total interstate and international
revenues. In addition to its international services, the corporation
provides a small amount of interstate services which the FCC has ruled
makes the corporation subject to the full contribution requirements.
The corporation has appealed the FCC's ruling to the U.S. Court of
Appeals for the Fifth Circuit and has also petitioned the FCC for a
partial waiver of the contribution requirement. If the corporation
were to lose both proceedings, the corporation would be required to
make contributions estimated at between $4,000,000 and $5,000,000 per
year, based on its 1997 interstate and international revenues, which
is more than its annual interstate revenues.
10. COMMON STOCK
EARNINGS PER SHARE. The corporation has implemented SFAS No. 128,
"Earnings Per Share," which is effective for fiscal periods ending
after December 15, 1997. Accordingly, the corporation has restated
earnings (loss) per share amounts for all prior periods reported. SFAS
No. 128 requires the presentation of basic earnings per share (EPS)
and diluted earnings per share, instead of the primary and fully
diluted EPS that was required by Accounting Principles Board No. 15.
60
<PAGE>
The following reconciliation illustrates the calculation of the
corporation's basic and diluted earnings per share amounts:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
In thousands, except per share amounts 1997 1996 1995
-------------------------------------------------------------------------------------------------------
Income from continuing operations before
extraordinary item $ 28,568 $ 36,197 $ 43,507
============ ============ ============
Basic:
Weighted average shares 48,924 47,870 46,848
============ ============ ============
Per share $ 0.58 $ 0.76 $ 0.93
============ ============ ============
Assuming dilution:
Weighted average shares 48,924 47,870 46,848
Stock options 766 647 410
Restricted stock awards and units 313 402 539
------------ ------------ ------------
Total 50,003 48,919 47,797
============ ============ ============
Per share $ 0.57 $ 0.74 $ 0.91
============ ============ ============
</TABLE>
STOCK INCENTIVE PLANS. The corporation has stock incentive plans that
provide for the issuance of stock options, restricted stock awards,
stock appreciation rights and restricted stock units. A total of
6,441,000 shares of common stock may be granted under the current
plans. As of December 31, 1997, 133,000 shares of the corporation's
treasury stock and 6,308,000 unissued common shares were reserved for
these plans. As of December 31, 1997, no stock appreciation rights
were outstanding.
Adjustments were made to equitably increase the number of shares and
decrease the exercise price for all outstanding stock options as a
result of the tax-free spinoff of Ascent. Vested stock options held by
Ascent employees generally expired 90 days after the date of the
spinoff. Unvested stock options held by Ascent employees continue to
vest as long as the employee is employed by Ascent and then expire 90
days after vesting.
Adjustments were also made to increase the number of restricted stock
awards and restricted stock units outstanding for the effect of the
Ascent spinoff.
STOCK OPTIONS. Under the current plans, the exercise price for stock
options may not be less than the fair market value of the stock when
granted. Options vest over three years and expire after 10 to 15
years. The exercise price of certain options granted prior to 1993,
pursuant to an expired plan, is equal to 50% of the market price on
the grant date. The cost of these awards, which is the 50% discount to
market when granted, was recorded as unearned compensation in
stockholders' equity. This unearned compensation has been amortized to
expense over the three-year vesting period.
61
<PAGE>
Stock option activity was as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
In thousands 1997 1996 1995
-------------------------------------------------------------------------------------------------
Outstanding at January 1 4,478 4,415 3,742
Granted 655 899 1,204
Exercised (848) (481) (327)
Canceled (283) (355) (204)
Adjustment due to Ascent spinoff 1,150 - -
------ ------ ------
Outstanding at December 31 5,152 4,478 4,415
====== ====== ======
Exercisable at December 31 3,300 2,270 1,792
====== ====== ======
Weighted average option exercise price information is as follows:
Per share 1997 1996 1995
--------------------------------------------------------------------------------------------------
Outstanding at January 1 $22.20 $22.08 $22.31
Granted 25.01 19.44 19.31
Exercised 18.26 17.24 12.80
Canceled 18.68 20.37 24.00
Adjustment due to Ascent spinoff 17.84 - -
Outstanding at December 31 18.33 22.20 22.08
Exercisable at December 31 18.92 23.00 20.19
The weighted average fair value at date of grant for options granted
during 1997, 1996 and 1995 was $6.89, $5.59 and $6.04, respectively.
The fair value of options at date of grant was estimated using the
Black-Scholes model assuming an expected option life of seven years
and the following weighted average assumptions:
Per share 1997 1996 1995
-------------------------------------------------------------------------------------------------
Dividend yield 3.29% 3.37% 3.29%
Interest rate 6.47 5.70 7.30
Volatility 37.21 29.47 28.82
</TABLE>
Stock options outstanding and exercisable at December 31, 1997, are as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
In thousands, except per share amounts and years
-----------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
-------------------------------------------- -------------------------------
Weighted Average
----------------------------
Exercise Price Number Remaining Exercise Number Weighted Average
Range Outstanding Term in Years Price Exercisable Exercise Price
------------------ ------------ ------------- ------------ ----------- ----------------
$ 4.81 - $ 8.59 211 3.37 $ 6.93 211 $ 6.93
10.94 - 14.51 829 3.44 14.09 324 13.44
15.02 - 18.85 1,310 7.52 16.36 670 16.59
20.06 - 24.44 2,802 7.64 21.37 2,095 21.72
------------ -----------
$ 4.81 - $24.44 5,152 6.24 $18.33 3,300 $18.92
============ ===========
</TABLE>
62
<PAGE>
RESTRICTED STOCK AWARDS. Restricted stock awards are shares of stock
that are subject to restrictions on their sale or transfer. In 1997,
1996 and 1995, 152,470, 66,000 and 91,000 "performance-based"
restricted stock awards were granted, respectively. The 1997 amount
includes an adjustment of outstanding awards due to the Ascent
spinoff. Grantees have record ownership of the underlying securities,
however all such securities are subject to forfeiture at the end of a
two-year performance period. In addition to the two-year performance
period, the awards are further subject to a three-year vesting
schedule. The weighted average fair value at date of grant for
restricted stock awards granted during 1997, 1996 and 1995 was $23.71,
$18.00 and $19.69 per share, respectively, which in each case was
equal to the market value of the common stock at the date of grant.
At the end of the two-year performance period with respect to the 1996
and 1995 grants, 37,250 and 76,000 shares, net of amounts forfeited,
had met the performance criteria. The expected cost of all grants is
amortized over the performance and vesting period. The expense for all
outstanding grants was $870,000 in 1997, $1,296,000 in 1996 and
$939,000 in 1995.
RESTRICTED STOCK UNITS. Restricted stock units entitle the holder to
receive a combination of stock and cash equal to the market price of
common stock for each unit, when vested. These units vest over three
years. During 1997, 1996 and 1995, respectively, 54,360, 34,000 and
71,000 restricted stock units were granted . The 1997 amount includes
an adjustment of outstanding units due to the Ascent spinoff. The
weighted average fair value for the units granted during 1997, 1996
and 1995 was $25.50, $18.99 and $19.67 per unit, respectively, which
in each case was equal to the market value of the common stock at the
date of grant. Partially vested restricted stock units outstanding
totaled 110,200 at December 31, 1997, and 197,000 at December 31,
1996. The cost of these awards is amortized to expense over the
three-year vesting period. The expense in 1997, 1996 and 1995 was
$575,000, $924,000 and $679,000, respectively.
EMPLOYEE STOCK PURCHASE PLAN. Employees may purchase stock at a
discount through the corporation's Employee Stock Purchase Plan. The
purchase price of the shares is the lower of 85% of the fair market
value of the stock on the offering date, or 85% of the fair market
value of the stock on the last business day of each month throughout
the one-year offering period. The purchase price on the respective
offering dates for 1997, 1996 and 1995, was $21.36 (adjusted to $17.22
subsequent to Ascent spinoff), $16.04 and $16.74, respectively.
There were 181,000 shares, 254,000 shares and 236,000 shares issued
under this plan at weighted average prices of $18.26, $16.03 and
$16.37 for the years ended December 31, 1997, 1996 and 1995,
respectively. As of December 31, 1997, a total of 1,578,000 shares of
the corporation's unissued common stock has been reserved for this
plan.
63
<PAGE>
The weighted average fair value of the purchase rights granted
pursuant to this plan in 1997, 1996 and 1995 was $5.95, $4.07 and
$4.56, respectively. The fair value of each purchase right was
estimated using the Black-Scholes model as of January 1 of each year
assuming each plan year consisted of 12, one-month options, and the
following weighted average assumptions:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Per share 1997 1996 1995
-------------------------------------------------------------------------------------------------
Dividend yield 3.30% 3.89% 3.15%
Interest rate 5.39 5.11 6.40
Volatility 35.79 27.33 32.15
</TABLE>
PRO FORMA DISCLOSURES. Had stock-based compensation cost for the
corporation's stock incentive plans been determined based on the fair
value at the grant dates for awards under those plans, the
corporation's income from continuing operations before extraordinary
item would have been decreased by $2,544,000, $1,928,000 and
$1,451,000 in 1997, 1996 and 1995, respectively. Assuming dilution,
the earnings per share for income from continuing operations before
extraordinary item would have decreased by $0.05, $0.04 and $0.03 in
1997, 1996 and 1995, respectively. The pro forma effect on income from
continuing operations before extraordinary item for 1997, 1996 and
1995 is not representative of the pro forma effect on income from
continuing operations before extraordinary item in future years
because it does not take into consideration pro forma compensation
expense related to grants made prior to 1995.
11. PENSION AND OTHER BENEFIT PLANS
The corporation has a non-contributory, defined benefit pension plan
for qualifying employees. Pension benefits are based on years of
service and compensation prior to retirement.
The components of net pension expense (benefit) for each year are:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
In thousands 1997 1996 1995
----------------------------------------------------------------------------------------------------------
Service cost for benefits earned during the year $ 2,205 $ 2,590 $ 2,606
Interest cost on projected benefit obligation 7,690 7,213 6,995
Credit for actual return on pension plan assets (28,627) (15,323) (23,924)
Net amortization and deferral 18,566 5,981 15,197
---------- ---------- ----------
Net pension expense (benefit) $ (166) $ 461 $ 874
========== ========== ==========
</TABLE>
The corporation recognized a $1,380,000 curtailment gain in the second
quarter of 1995 which arose from the reduction of pension benefits for
a group of employees.
64
<PAGE>
The following table shows the pension plan's obligations and assets as
well as the liability recorded in the corporation's balance sheet at
each year end:
<TABLE>
<CAPTION>
<S> <C> <C>
In thousands 1997 1996
-------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefit obligation $ 105,726 $ 89,773
============ ============
Accumulated benefit obligation $ 108,108 $ 92,095
============ ============
Actuarial present value of projected benefit obligation for
service rendered to date $ 119,826 $ 103,608
Pension plan assets at fair value 150,874 126,936
------------ ------------
Plan assets greater than projected benefit obligation 31,048 23,328
Unrecognized net gain (34,273) (25,512)
Unrecognized transition asset at January 1, 1986, being
amortized over 13 years (1,195) (2,402)
------------ ------------
Net pension liability $ (4,420) $ (4,586)
============ ============
Assumed discount rate 7.00% 7.50%
Assumed rate of compensation increase 5.00% 5.00%
Expected rate of return on pension plan assets 9.00% 9.00%
</TABLE>
The plan's assets consist primarily of common stocks, corporate and
government bonds and short-term investments. The corporation's policy
is to fund the minimum actuarially computed contributions required by
law. The corporation made a $1,065,000 cash contribution to the plan
in 1996. No contribution was required for 1997.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. The corporation has an
unfunded supplemental pension plan for executives. The expense for
this plan was $2,163,000, $2,817,000 and $2,505,000 for 1997, 1996 and
1995, respectively.
The corporation recorded a minimum plan liability for the excess of
the accumulated benefit obligation over the accrued plan liability.
This was reported as a reduction to stockholders' equity of $2,222,000
as of December 31, 1997 and $3,180,000 as of December 31, 1996. These
amounts are net of deferred income taxes and an intangible asset
recorded for the unrecognized transition obligation.
65
<PAGE>
The following table shows the plan's obligations as well as the
liability recorded in the corporation's balance sheet at each year
end:
<TABLE>
<CAPTION>
<S> <C> <C>
In thousands 1997 1996
-------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Accumulated benefit obligation $ 19,941 $ 20,913
============ ============
Projected benefit obligation $ 21,193 $ 22,136
============ ============
Accrued liability $ 19,941 $ 20,913
============ ============
Assumed discount rate 7.00% 7.50%
Assumed rate of compensation increase 5.00% 5.00%
</TABLE>
401(K) PLAN. The corporation has a 401(k) plan for qualifying
employees. A portion of employee contributions is matched by the
corporation with shares of its common stock. The number of shares
contributed to the plan and the respective market values each year
were as follows: 1997 - 108,000 shares ($2,433,000), 1996 - 140,000
shares ($3,035,000) and 1995 - 177,000 shares ($3,386,000).
POST-RETIREMENT BENEFITS. The corporation provides health and life
insurance benefits to qualifying retirees. The expected cost of these
benefits is recognized during the years in which employees render
service.
The components of the net post-retirement benefit expense for each
year were:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
In thousands 1997 1996 1995
----------------------------------------------------------------------------------------------------
Service cost for benefits earned during the year $ 666 $ 1,019 $ 1,128
Interest cost on accumulated post-retirement
benefit obligation 1,877 2,496 2,778
Net amortization and deferral (2,360) (1,219) (1,241)
--------- --------- ---------
Net post-retirement benefit expense $ 183 $ 2,296 $ 2,665
========= ========= =========
</TABLE>
The corporation recognized a $1,300,000 curtailment gain in the second
quarter of 1995 which arose from the elimination of post-retirement
health care benefits for a group of employees.
66
<PAGE>
The following table shows the plan's obligations as well as the
liability recorded in the corporation's balance sheet at each year
end.
<TABLE>
<CAPTION>
<S> <C> <C>
In thousands 1997 1996
-----------------------------------------------------------------------------------------------------
Accumulated post-retirement benefit obligation:
Retirees $ 17,022 $ 16,792
Fully eligible active participants 4,158 4,038
Other active participants 7,710 8,630
---------- ----------
Total 28,890 29,460
Unrecognized gain from plan changes 13,527 15,368
Unrecognized net gain 6,829 5,595
---------- ----------
Net post-retirement benefit liability $ 49,246 $ 50,423
========== ==========
Assumed discount rate 7.00% 7.50%
Assumed rate of compensation increase 5.00% 5.00%
</TABLE>
An 8.50% increase in health care costs was assumed for 1997 with the
rate decreasing 0.5% each year to an ultimate rate of 5.50%.
Increasing the assumed trend rate by 1.0% each year would have
increased the accumulated post-retirement benefit obligation as of
December 31, 1997, by $3,200,000 and the benefit expense for 1997 by
$299,200.
12. INCOME TAXES
Income (loss) from continuing operations before taxes and
extraordinary item consisted of:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
In thousands 1997 1996 1995
-------------------------------------------------------------------------------------------------------
United States $ 47,927 $ 73,707 $ 89,724
Foreign (3,746) (8,586) (10,936)
------------ ------------ ------------
Total $ 44,181 $ 65,121 $ 78,788
============ ============ ============
The components of income tax expense on continuing operations are:
In thousands 1997 1996 1995
-------------------------------------------------------------------------------------------------------
Federal:
Current $ 15,783 $ 22,910 $ 18,301
Deferred (2,162) (1,076) 15,031
Investment tax credits (net) (1,837) (1,844) (2,150)
State and local 1,487 6,779 4,282
Foreign 2,342 2,155 (183)
------------ ------------ ------------
Total $ 15,613 $ 28,924 $ 35,281
============ ============ ============
</TABLE>
67
<PAGE>
The difference between income tax expense computed at the statutory
Federal tax rate and the corporation's effective tax rate is:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
In thousands 1997 1996 1995
-------------------------------------------------------------------------------------------------------
Federal income taxes computed at the statutory rate $ 15,463 $ 22,792 $ 27,576
Foreign losses 3,654 4,335 3,951
Investment tax credits (net) (1,837) (1,844) (2,150)
Losses (income) with no tax benefit (839) (506) 3,833
State income taxes, net of Federal income tax benefit 972 4,408 2,777
Life insurance (net) (1,183) (1,173) (842)
Other (617) 912 136
------------ ------------ ------------
Income tax expense $ 15,613 $ 28,924 $ 35,281
============ ============ ============
</TABLE>
The current and net non-current components of deferred tax accounts as
shown on the balance sheet at December 31, 1997 and 1996 are:
<TABLE>
<CAPTION>
<S> <C> <C>
In thousands 1997 1996
-------------------------------------------------------------------------------------------------------
Current deferred tax asset $ 7,469 $ 6,050
Non-current deferred tax liability (112,226) (112,894)
------------ ------------
Net liability $ (104,757) $ (106,844)
============ ============
</TABLE>
The deferred tax assets and liabilities at December 31, 1997 and 1996
are:
<TABLE>
<CAPTION>
<S> <C> <C>
In thousands 1997 1996
-------------------------------------------------------------------------------------------------------
Assets:
Post-retirement benefits $ 22,042 $ 22,267
Accrued expenses 45,803 45,655
Alternative minimum tax credit 30,476 26,887
Long-term contract revenues 7,946 7,915
Other 3,181 3,820
------------ ------------
Total deferred tax assets 109,448 106,544
------------ ------------
Liabilities:
Property and equipment (214,025) (209,717)
Investments - unrealized gains (180) (3,501)
Other - (170)
------------ ------------
Total deferred tax liabilities (214,205) (213,388)
------------ ------------
Net liability $ (104,757) $ (106,844)
============ ============
</TABLE>
The Internal Revenue Service (IRS) has completed examinations of the
Federal income tax returns of the corporation through 1989. The IRS is
currently in the process of completing examinations of the
corporation's Federal income tax returns for 1990 through 1994. The
corporation has also amended its returns and filed claims for refunds
for 1979 through 1987, which the IRS has denied. The corporation is
contesting the IRS's denial. In the opinion of the corporation,
adequate provision has been made for income taxes for all periods
through 1997.
68
<PAGE>
13. PROVISION FOR RESTRUCTURING
In the third quarter of 1995, the corporation recorded a pre-tax
charge of $3,902,000, net of discontinued operations, to strategically
restructure elements of the business units included in continuing
operations. About 110 employees were severed as part of these
activities. The provision included $1,858,000 for employee severance
costs in COMSAT World Systems (CWS), COMSAT Mobile Communications
(CMC) and COMSAT International (CI), and $2,044,000 to downsize one of
its divisions at COMSAT Laboratories. The actions taken in CWS and CMC
were associated with the consolidation of the management and
administration of these two businesses into one business unit. As a
result, various administrative, marketing and other positions were
eliminated. All of the restructuring actions were substantially
completed at the end of 1995.
14. FINANCIAL INSTRUMENTS AND OFF-BALANCE-SHEET RISKS
The corporation owns a 50% interest in a partnership which owns the
headquarters building leased by the corporation (see Note 8). The
corporation has guaranteed repayment of a portion of the partnership's
mortgage on the building. The balance of the guarantee was $1,745,000
as of December 31, 1997. The guarantee will be reduced as the loan's
principal balance is repaid. The corporation was also contingently
liable to banks for $12,889,000 as of December 31, 1997, for
outstanding letters of credit securing performance of certain
contracts. The estimated fair value of these instruments is not
significant.
Inmarsat has entered into foreign currency contracts designed to
minimize exposure to exchange rate fluctuations on fixed operating
expenses denominated primarily in British pounds sterling. At December
31, 1997, Inmarsat had several contracts maturing primarily in 1998 to
purchase foreign currency for a total of $119,714,000. The
corporation's share of the estimated fair value of these contracts, as
determined by a bank, is an unrealized gain of approximately
$1,319,000 at December 31, 1997.
Inmarsat has entered into interest rate and foreign currency swap
arrangements to minimize the exposure to interest rate and foreign
currency exchange fluctuations related to its satellite financing
obligations. Inmarsat borrowed and is obligated to repay pounds
sterling. The pounds sterling borrowed were swapped for U.S. dollars
with an agreement to exchange the dollars for pounds sterling in order
to meet the future lease payments. Inmarsat pays interest on the
dollars at an average fixed rate of 8.8%, and it receives variable
interest on the sterling amounts based on short-term LIBOR rates. The
differential to be paid or received is accrued as interest rates
change and is recognized over the life of the agreements. The currency
swap arrangements have been designated as hedges, and any gains or
losses are included in the measurement of the debt. The effect of
these swaps is to change the sterling lease obligation into
fixed-interest-rate dollar debt. As of December 31, 1997, Inmarsat had
$367,060,000 of swaps to be exchanged for (pound)233,615,000 sterling
at various dates through 2007. Inmarsat is exposed to loss if one or
more of the counter parties defaults. However, Inmarsat does not
anticipate non-performance by the counter parties as all are major
financial institutions. The corporation's share of the estimated fair
value of these swaps is an unrealized loss of
69
<PAGE>
$8,427,000 at December 31, 1997. The fair value was estimated by
computing the present value of the dollar obligations using current
rates available for issuance of debt with similar terms and the
current value of the sterling at year-end exchange rates.
The fair value of long-term debt (excluding capitalized leases) shown
below was estimated by obtaining a yield-adjusted price as of December
31, 1997, for each obligation from an investment banker.
<TABLE>
<CAPTION>
<S> <C> <C>
Book Fair
In thousands Amount Value
-----------------------------------------------------------------------------------------------------
8.125% notes due 2004 $ 70,475 $ 74,971
8.95% notes due 2001 75,000 80,123
INTELSAT bonds 170,572 180,425
Medium-term notes 64,000 69,035
</TABLE>
The fair values of the remaining long-term debt not itemized above and
the corporation's other financial instruments are approximately equal
to their carrying values.
15. BUSINESS SEGMENT INFORMATION
The corporation reports operating results and financial data in two
business segments: Satellite Services and Network Services. The
Satellite Services segment consists of activities undertaken by the
corporation in its COMSAT World Systems (CWS) and COMSAT Mobile
Communications (CMC) businesses. CWS provides voice, data, video and
audio communications services between the U.S. and other countries
using the INTELSAT satellite network. CMC provides voice, data, fax,
telex and information services for ships, aircraft and land mobile
applications throughout the world using the Inmarsat satellite system.
The Network Services segment consists of activities undertaken by the
corporation in its COMSAT International (CI), COMSAT Laboratories
(Labs) and Government Programs business. CI operates an integrated
group of telecommunications companies that are engaged principally in
providing individualized digital network solutions to business clients
and carriers in high-growth emerging markets overseas. Labs provides
technical consulting in the design and development of advanced digital
communication technologies and also designs, develops and licenses
communication products for satellite access, compression and
networking applications. Government Programs includes the Commercial
Satellite Communications Initiative (CSCI) contract, Satellite Control
Facility and Special Program Office. Labs and Government Programs
results now include certain non-manufacturing, telecommunications
contracts and businesses that were previously reported as part of CRSI
in the Technology Services segment.
70
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SEGMENT INFORMATION
In thousands 1997 1996 1995
-------------------------------------------------------------------------------------------------------
REVENUES (1)
------------
Satellite Services:
World Systems $ 262,906 $ 272,969 $ 254,683
Mobile Communications 167,850 160,922 180,384
------------- ------------- ------------
Total Satellite Services 430,756 433,891 435,067
------------- ------------- ------------
Network Services:
International 89,661 58,084 37,708
Laboratories 36,371 43,686 25,924
Government Programs 44,048 40,716 26,761
------------- ------------- ------------
Total Network Services 170,080 142,486 90,393
Eliminations and other (38,185) (31,277) (17,773)
------------- ------------- ------------
Total $ 562,651 $ 545,100 $ 507,687
============= ============= ============
OPERATING INCOME (LOSS) (2)
---------------------------
Satellite Services:
World Systems $ 100,408 $ 104,593 $ 109,815
Mobile Communications 23,114 31,872 54,864
------------- ------------- ------------
Total Satellite Services 123,522 136,465 164,679
------------- ------------- ------------
Network Services:
International (13,975) (17,281) (20,708)
Laboratories (2,043) 7,098 (4,004)
Government Programs (434) 5,126 6,586
------------- ------------- ------------
Total Network Services (16,452) (5,057) (18,126)
------------- ------------- ------------
Total segment operating income 107,070 131,408 146,553
Provision for restructuring (3) - - (3,902)
General and administrative expenses (23,247) (23,941) (19,856)
Other (1,855) (242) (2,981)
------------- ------------- ------------
Total $ 81,968 $ 107,225 $ 119,814
============= ============= ============
</TABLE>
71
<PAGE>
SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
In thousands 1997 1996 1995
-------------------------------------------------------------------------------------------------------
IDENTIFIABLE ASSETS AS OF DECEMBER 31:
Satellite Services:
World Systems $ 742,908 $ 791,497 $ 832,823
Mobile Communications 436,886 440,856 418,878
------------- ------------- ------------
Total Satellite Services 1,179,794 1,232,353 1,251,701
------------- ------------- ------------
Network Services:
International 308,148 199,510 116,861
Laboratories 12,183 14,643 8,895
Government Programs 18,430 17,149 11,597
------------- ------------- ------------
Total Network Services 338,761 231,302 137,353
Corporate and other assets (4) 376,220 633,631 633,193
------------- ------------- ------------
Total $ 1,894,775 $ 2,097,286 $ 2,022,247
============= ============= ============
PROPERTY AND EQUIPMENT ADDITIONS:
Satellite Services:
World Systems $ 87,939 $ 110,231 $ 137,762
Mobile Communications 54,457 70,616 39,795
------------- ------------- ------------
Total Satellite Services 142,396 180,847 177,557
------------- ------------- ------------
Network Services:
International 114,110 89,857 41,025
Laboratories 1,173 1,009 1,439
Government Programs 181 - -
------------- ------------- ------------
Total Network Services 115,464 90,866 42,464
Corporate and other assets 1,639 1,193 717
------------- ------------- ------------
Total $ 259,499 $ 272,906 $ 220,738
============= ============= ============
DEPRECIATION AND AMORTIZATION:
Satellite Services:
World Systems $ 97,379 $ 91,729 $ 87,980
Mobile Communications 57,204 45,207 40,096
------------- ------------- ------------
Total Satellite Services 154,583 136,936 128,076
------------- ------------- ------------
Network Services:
International 25,623 14,814 8,244
Laboratories 991 956 1,242
Government Programs 442 456 910
------------- ------------- ------------
Total Network Services 27,056 16,226 10,396
Corporate and other assets 2,567 2,134 2,285
------------- ------------- ------------
Total $ 184,206 $ 155,296 $ 140,757
============= ============= ============
</TABLE>
72
<PAGE>
(1) World Systems' revenues include intersegment sales totaling
$20,773,000 in 1997, $15,931,000 in 1996 and $7,124,000 in 1995.
The Laboratories revenues include intersegment sales totaling
$11,820,000 in 1997, $11,368,000 in 1996 and $8,596,000 in 1995.
Intersegment sales for other segments are not significant.
(2) The method of allocating certain research and development costs
was changed in 1997, and prior years' segment results have been
restated for this change.
(3) If the 1995 provision for restructuring (see Note 13) had been
charged to segment operating income, the amounts allocated to
each segment would have been: World Systems $315,000, Mobile
Communications $1,343,000, International $200,000 and
Laboratories $2,044,000.
(4) The corporation's net assets of discontinued operations and
investments in unconsolidated businesses are included in
Corporate and other assets.
GEOGRAPHIC INFORMATION. COMSAT International operations are located in
Latin America, India, China, Russia and Turkey. Revenues, operating
income and identifiable assets for COMSAT International's Latin
American operations are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
In thousands 1997 1996 1995
----------------------------------------------------------------------------------------------------
Revenues $ 80,217 $ 50,464 $ 26,701
Operating income 2,947 3,064 902
Identifiable assets at December 31 252,764 160,615 76,163
</TABLE>
RELATED PARTY TRANSACTIONS. The corporation provides support services
to INTELSAT and support services and satellite capacity to Inmarsat.
The revenues from these services were $16,364,000 in 1997, $17,996,000
in 1996 and $22,208,000 in 1995. These revenues were recorded
primarily in World Systems, Mobile Communications and Laboratories.
SIGNIFICANT CUSTOMERS. Revenues in 1997, 1996 and 1995 included sales
to the U.S. Government of $88,917,000, $70,502,000 and $55,855,000, to
AT&T of $61,044,000, $69,197,000 and $81,866,000, and to MCI of
$59,634,000, $57,261,000 and $59,001,000, respectively. Substantially
all of the U.S. Government sales are reported in Mobile Communications
and Government Programs. Substantially all of the sales to AT&T and
MCI are reported in World Systems and Mobile Communications.
73
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
In thousands, except per share amounts 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total Year
-----------------------------------------------------------------------------------------------------------------------
1997:
Revenues $ 133,531 $ 142,437 $ 145,332 $ 141,351 $ 562,651
Operating income 23,151 23,412 17,653 17,752 81,968
Income from continuing operations
before extraordinary item 8,099 9,098 (1) 9,395 (2) 1,976 (1) 28,568
Loss from discontinued operations (12,380) (16,481) (30,207) (30,000) (89,068)
Extraordinary loss (1,010) (2,936) - - (3,946)
Net income (loss) (5,291) (10,319) (20,812) (28,024) (64,446)
Earnings (loss) per share:
Basic:
Income from continuing operations
before extraordinary item 0.17 0.19 0.19 0.04 0.58
Loss from discontinued operations (0.26) (0.34) (0.62) (0.61) (1.82)
Extraordinary item (0.02) (0.06) - - (0.08)
Net income (loss) (0.11) (0.21) (0.42) (0.57) (1.32)
Assuming Dilution:
Income from continuing operations
before extraordinary item 0.16 0.18 0.19 0.04 0.57
Loss from discontinued operations (0.25) (0.33) (0.60) (0.59) (1.78)
Extraordinary item (0.02) (0.06) - - (0.08)
Net income (loss) (0.11) (0.21) (0.41) (0.55) (1.29)
Dividends per share 0.195 0.05 0.05 0.05 0.345
Stock price:
High 28 1/2 26 11/16 24 5/16 25 3/4 28 1/2
Low 23 19 5/8 20 13/16 20 5/16 19 5/8
Close 24 3/8 23 13/16 23 13/16 24 1/4 24 1/4
-----------------------------------------------------------------------------------------------------------------------
1996:
Revenues $ 128,192 $ 132,718 $ 141,914 (3) $ 142,276 $ 545,100
Operating income 27,386 26,217 30,912 22,710 107,225
Income from continuing operations 11,142 8,332 8,208 8,515 (4) 36,197
Loss from discontinued operations (1,815) (2,550) (3,171) (20,039) (27,575)
Net income (loss) 9,327 5,782 5,037 (11,524) 8,622
Earnings (loss) per share:
Basic:
Income from continuing operations 0.23 0.17 0.17 0.18 0.76
Loss from discontinued operations (0.04) (0.05) (0.07) (0.42) (0.58)
Net income (loss) 0.20 0.12 0.10 (0.24) 0.18
Assuming Dilution:
Income from continuing operations 0.23 0.17 0.17 0.17 0.74
Loss from discontinued operations (0.04) (0.05) (0.07) (0.41) (0.56)
Net income (loss) 0.19 0.12 0.10 (0.24) 0.18
Dividends per share 0.195 0.195 0.195 0.195 0.78
Stock price:
High 25 5/8 33 1/8 26 1/2 26 3/4 33 1/8
Low 16 3/4 23 3/8 18 3/4 21 1/2 16 3/4
Close 23 3/8 26 22 5/8 24 5/8 24 5/8
</TABLE>
(1) The second and fourth quarters of 1997 include a pre-tax gain of
$1,987,000 from the sale of marketable securities and a pre-tax
loss of $1,008,000 for a decline in value of a marketable
security, respectively.
(2) The third quarter of 1997 includes a pre-tax gain of $7,261,000
from a sale of land.
(3) Revenues in the third quarter of 1996 include $7,800,000 in
royalties related to a licensing agreement that resolved patent
infringement disputes.
(4) The fourth quarter of 1996 includes a pre-tax gain of $2,722,000
from the corporation's sale of ICO shares and a pre-tax loss of
$1,105,000 for a decline in value of a marketable security.
74
<PAGE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None.
PART III
Except for the portion of Item 10 relating to Executive Officers which
is included in Part I of this Report, the information called for by Items
10-13 is incorporated by reference from the COMSAT - 1998 Annual Meeting of
Shareholders - Notice and Proxy Statement - (to be filed pursuant to
Regulation 14A not later than 120 days after the close of the fiscal year)
which meeting involves the election of directors, in accordance with
General Instruction G to the Annual Report on Form 10-K.
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report
1. Consolidated Financial Statements and Supplementary
Data of Registrant
a. Independent Auditors' Report
b. Consolidated Financial Statements of COMSAT
Corporation and Subsidiaries
(i) Consolidated Income Statements for the
Years Ended December 31, 1997, 1996
and 1995
(ii) Consolidated Balance Sheets as of
December 31, 1997 and 1996
(iii) Consolidated Cash Flow Statements for
the Years Ended December 31, 1997,
1996 and 1995
(iv) Statements of Changes in Consolidated
Stockholders' Equity for the Years
Ended December 31, 1997, 1996 and 1995
(v) Notes to Consolidated Financial
Statements for the Years Ended
December 31, 1997, 1996 and 1995
75
<PAGE>
2. Financial Statement Schedule Relating to the
Consolidated Financial Statements of COMSAT
Corporation for Each of the Three Years in the Period
Ended December 31, 1997
a. Schedule II -- Valuation and Qualifying
Accounts
All Schedules (except as listed above) have been
omitted, because they are not applicable or not
required or because the required information is
included elsewhere in the financial statements in
this filing.
(b) Reports on Form 8-K
The corporation filed a Report on Form 8-K dated
October 22, 1997 related to the release of the
corporation's financial results for the quarter
ending September 30, 1997.
(c) Exhibits (listed according to the number assigned in the
table in Item 601 of Regulation S-K)
EXHIBIT NO. 3 - ARTICLES OF INCORPORATION AND BY-LAWS
3.1 Articles of Incorporation of Registrant, composite
copy, as amended through June 1, 1993 (Incorporated
by reference from Exhibit No. 4(a) to Registrant's
Registration Statement on Form S-3 (No. 33-51661)
filed on December 22, 1993)
3.2 By-laws of Registrant, as amended through February
16, 1996 (Incorporated by reference from Exhibit No.
3.2 to Registrant's Report on Form 10-K for the
fiscal year ended 1995)
3.3 Regulations adopted by Registrant's Board of
Directors pursuant to Section 5.02(c) of Registrant's
Articles of Incorporation (Incorporated by reference
from Exhibit No. 3(c) to Registrant's Report on Form
10-K for the fiscal year ended 1992)
EXHIBIT NO. 4 - INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS,
INCLUDING INDENTURES
4.1 Specimen of a certificate representing Series I
shares of COMSAT Common Stock, without par value,
which are held by citizens of the United States
(Incorporated by reference from Exhibit No. 4(a) to
Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1993)
4.2 Specimen of a certificate representing Series I
shares of COMSAT Common Stock, without par value,
which are held by aliens (Incorporated by reference
from Exhibit No. 4(b) to Registrant's Report on Form
10-K for the fiscal year ended December 31, 1982)
76
<PAGE>
4.3 Specimen of a certificate representing Series II
shares of COMSAT Common Stock, without par value
(Incorporated by reference from Exhibit No. 4(c) to
Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1982)
4.4 Standard Multiple-Series Indenture Provisions dated
March 15, 1991 (Incorporated by reference from
Exhibit No. 4(a) to Registrant's Registration
Statement on Form S-3 (No. 33-39472) filed on March
15, 1991)
4.5 Indenture dated as of March 15, 1991 between
Registrant and The Chase Manhattan Bank, N.A.
(Incorporated by reference from Exhibit No. 4(b) to
Registrant's Registration Statement on Form S-3 (No.
33-39472) filed on March 15, 1991)
4.6 Supplemental Indenture, dated as of June 29, 1994,
from the Registrant to The Chase Manhattan Bank, N.
A. (Incorporated by reference from Exhibit No. 4(c)
to Registrant's Registration Statement on Form S-3
(No. 33-54369) filed on June 30, 1994)
4.7 Officers' Certificate pursuant to Section 3.01 of the
Indenture, dated as of March 15, 1991, from the
Registrant to The Chase Manhattan Bank, N.A., as
Trustee, relating to the authorization of $75,000,000
aggregate principal amount of Registrant's 8.95%
Notes Due 2001 (with form of Note attached)
(Incorporated by reference from Exhibit No. 4 to
Registrant's Current Report on Form 8-K filed on May
15, 1991)
4.8 Officers' Certificate pursuant to Section 3.01 of the
Indenture, dated as of March 15, 1991, from the
Registrant to The Chase Manhattan Bank, N.A., as
Trustee, relating to the authorization of
$160,000,000 aggregate principal amount of
Registrant's 8.125% Debentures Due 2004 (with form of
Debenture attached) (Incorporated by reference from
Exhibit No. 4 to Registrant's Current Report on Form
8-K filed on April 9, 1992)
4.9 Officers' Certificate pursuant to Section 3.01 of the
Indenture, dated as of March 15, 1991, as
supplemented by the Supplemental Indenture, dated as
of June 29, 1994, from the Registrant to The Chase
Manhattan Bank, N.A., as Trustee, relating to the
authorization of $100,000,000 aggregate principal
amount of Registrant's Medium Term Notes, Series A
(with forms of Notes attached) (Incorporated by
reference from Exhibit No. 4(i) to Registrant's
Report on Form 10-K for the fiscal year ended
December 31, 1994)
4.10 Limited Partnership Agreement of COMSAT Capital I,
L.P., dated as of July 18, 1995, relating to issuance
of monthly income preferred securities (Incorporated
by reference from Exhibit No. 4(a) to Registrant's
Report on Form 10-Q for the quarter ended June 30,
1995)
77
<PAGE>
4.11 Guarantee Agreement for Preferred Securities of
COMSAT Capital I, L.P., dated as of July 18, 1995
(Incorporated by reference from Exhibit No. 4(b) to
Registrant's Report on Form 10-Q for the quarter
ended June 30, 1995)
4.12 Indenture between Registrant and the First National
Bank of Chicago, as Trustee, dated as of July 18,
1995 (Incorporated by reference from Exhibit No. 4(c)
to Registrant's Report on Form 10-Q for the quarter
ended June 30, 1995)
EXHIBIT NO. 10 - MATERIAL CONTRACTS
10.1 Agreement relating to the International
Telecommunications Satellite Organization (INTELSAT)
by Governments, which entered into force on February
12, 1973 (Incorporated by reference from Exhibit No.
10(a) to Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1980)
10.2 Operating Agreement relating to INTELSAT by
Governments which entered into force on February 12,
1973 (Incorporated by reference from Exhibit No.
10(b) to Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1980)
10.3 Agreement dated August 15, 1975, among COMSAT General
Corporation, RCA Global Communications, Inc., Western
Union International, Inc. and ITT World
Communications, Inc. relating to the establishment of
a joint venture for the purpose of participating in
the ownership and operation of a maritime
communications satellite system and Amendment Nos.
1-4 and Amendment No. 5 dated March 24, 1980
(Incorporated by reference from Exhibit No. 10(p) to
Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1980)
10.4 Amendment No. 6 to Exhibit 10.3 dated September 1,
1981 (Incorporated by reference from Exhibit No.
10(p)(ii) to Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1981)
10.5 Convention on the International Maritime Satellite
Organization (INMARSAT) dated September 3, 1976
(Incorporated by reference from Exhibit No. 11 to
Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1978)
10.6 Operating Agreement on INMARSAT dated September 3,
1976 (Incorporated by reference from Exhibit No. 12
to Registrant's Report on Form 10-K for the fiscal
year ended December 31, 1978)
10.7* Registrant's 1982 Stock Option Plan (Incorporated by
reference from Exhibit No. 10(x) to Registrant's
Report on Form 10-K for the fiscal year ended
December 31, 1981)
10.8* Registrant's Insurance and Retirement Plan for
Executives, as amended and restated effective January
1, 1997 (Incorporated by reference from Exhibit No.
78
<PAGE>
10.10 to Registrant'sReport on Form 10-K for the
fiscal year ended December 31, 1997)
10.9* Registrant's Non-Employee Directors Stock Plan
(Incorporated by reference from Exhibit No. 10.11 to
Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1996)
10.10 Agreement to Acquire and Lease (and Supplemental
Agreements thereto) dated September 28 and October
10, 1988, respectively, among the International
Maritime Satellite Organization (Inmarsat), the North
Sea Marine Leasing Company, British Aerospace Public
Limited Company, the European Investment Bank,
Kreditanstalt Fuer Wiederaufbau, European Investment
Bank (as Agent and as Trustee), Instituto Mobiliare
Italiano, Credit National, Hellenic Industrial
Development Bank, and Society Nationale de Credit a
L'Industrie relating to the financing of three
Inmarsat spacecraft (Incorporated by Reference from
Exhibit No. 3(a) to Registrant's Report on Form 10-K
for the fiscal year ended December 31, 1988)
10.11* Registrant's 1990 Key Employee Stock Plan
(Incorporated by reference from Exhibit No. 10 (p) to
Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1989)
10.12 Amended and Restated Agreement, dated November 14,
1990, of Limited Partnership of Rock Spring II
Limited Partnership (Incorporated by reference from
Exhibit No. 10(a) to Registrant's Current Report on
Form 8-K filed on February 24, 1992)
10.13 Amended and Restated Lease Agreement, dated November
14, 1990, of Limited Partnership of Rock Spring II
Limited Partnership (Incorporated by reference from
Exhibit No. 10(b) to Registrant's Current Report on
Form 8-K filed on February 24, 1992)
10.14 Amended and Restated Ground Lease Indenture, dated
November 14, 1990, between Anne D. Camalier
(Landlord) and Rock Spring II Limited Partnership
(Tenant) (Incorporated by reference from Exhibit No.
10(c) to Registrant's Current Report on Form 8-K
filed on February 24, 1992)
10.15 Finance Facility Contract (and Supplemental
Agreements thereto), dated December 20, 1991, among
the International Maritime Satellite Organization
(Inmarsat), Abbey National plc, General Electric
Technical Services Company, Inc., European Investment
Bank, Kreditanstalt Fuer Wiederaufbau, Instituto
Mobiliare Italiano S.p.A., Credit National, Societe
Nationale de Credit a L'Industrie,
Finansieringsinstituttet for Industri OG Haandvaerk
A/S, De Nationale Investeringsbank NV, and
Osterreichische Investitionkredit Aktiengesellschaft
relating to the financing of three Inmarsat
spacecraft (Incorporated by reference from Exhibit
No. 10 (dd) to Registrant's Report on Form 10-K for
the fiscal year ended December 31, 1991)
79
<PAGE>
10.16* Registrant's Directors and Executives Deferred
Compensation Plan, as amended by the Board of
Directors on July 15, 1993 (Incorporated by reference
from Exhibit No. 10.24 to the Registrant's Report on
Form 10-K for the fiscal year ended December 31,
1996)
10.17 Fiscal Agency Agreement, dated as of August 6, 1992,
between International Telecommunications Satellite
Organization and Morgan Guaranty Trust Company of New
York (Incorporated by reference from Exhibit No. 10
(dd) to Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1992)
10.18 Fiscal Agency Agreement, dated as of January 19,
1993, between International Telecommunications
Satellite Organization and Morgan Guaranty Trust
Company of New York (Incorporated by reference from
Exhibit No. 10 (ee) to Registrant's Report on Form
10-K for the fiscal year ended December 31, 1992)
10.19 Agreement dated July 1, 1993, between Registrant and
AT&T Easylink Services relating to exchange of telex
traffic (Incorporated by reference from Exhibit No.
10(bb) to Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1993)
10.20 Agreement dated July 27, 1993, between the Registrant
and American Telephone & Telegraph Company relating
to utilization of space segment (Incorporated by
reference from Exhibit No. 10(cc) to Registrant's
Report on Form 10-K for the fiscal year ended
December 31, 1993)
10.21 Amendment to Exhibit 10.20 dated as of December 1,
1995 (Incorporated by reference from Exhibit No.
10.34 to Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1995)
10.22 Amendment to Exhibit 10.20 dated as of January 8,
1997 (Incorporated by reference from Exhibit No.
10.32 to Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1996)
10.23 Agreement dated September 1, 1993, between Registrant
and MCI International, Inc. relating to exchange of
traffic (Incorporated by reference from Exhibit No.
10(dd) to Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1993)
10.24 Agreement dated November 30, 1993, between the
Registrant and Sprint Communications Company L.P.
relating to utilization of space segment
(Incorporated by reference from Exhibit No. 10(ee) to
Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1993)
10.25 Amendment to Exhibit 10.24 dated April 7, 1995
(Incorporated by reference from Exhibit No. 10(a)(i)
to Registrant's Report on Form 10-Q/A Amendment No. 2
dated June 29, 1995 for the quarter ended March 31,
1995)
80
<PAGE>
10.26 Agreement dated December 10, 1993, between Registrant
and Sprint International relating to the exchange of
traffic (Incorporated by reference from Exhibit No.
10(ff) to Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1993)
10.27 Credit Agreement dated as of December 17, 1993 among
Registrant, NationsBank of North Carolina, N.A., Bank
of America National Trust and Savings Association,
The First National Bank of Chicago, The Chase
Manhattan Bank, N.A., The Sumitomo Bank, Limited, New
York Branch, Swiss Bank Corporation, New York Branch,
as lenders, and NationsBank of North Carolina, N.A.,
as agent (Incorporated by reference from Exhibit No.
10(gg) to Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1993)
10.28 Amendment No. 1 to Exhibit 10.27 dated as of December
17, 1994 (Incorporated by reference from Exhibit No.
10(cc)(i) to Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1994)
10.29 Agreement dated January 24, 1994, between MCI
International, Inc. and Registrant relating to
utilization of space segment (Incorporated by
reference from Exhibit No. 10(ii) to Registrant's
Report on Form 10-K for the fiscal year ended
December 31, 1993)
10.30 Amendment to Exhibit 10.29 dated as of July 1, 1995
(Incorporated by reference from Exhibit No. 10.42 to
Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1995)
10.31 Amendment to Exhibit 10.29 dated as of September 17,
1996 (Incorporated by reference from Exhibit No.
10.41 to Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1996).
10.32 Agreement dated February 18, 1994, between Registrant
and AT&T relating to exchange of traffic
(Incorporated by reference from Exhibit No. 10(jj) to
Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1993)
10.33 Fiscal Agency Agreement between International
Telecommunications Satellite Organization, Issuer,
and Bankers Trust Company, Fiscal Agent and Principal
Paying Agent, dated as of March 22, 1994
(Incorporated by reference from Exhibit No. 10(kk) to
Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1993)
10.34 Distribution Agreement dated July 11, 1994 between
Registrant and CS First Boston Corporation, Salomon
Brothers Inc and Nationsbanc Capital Markets, Inc.,
as Distributors, of Registrant's Medium-Term Notes,
Series A (Incorporated by reference from Exhibit No.
10(ff) to Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1994)
81
<PAGE>
10.35 Fiscal Agency Agreement between International
Telecommunications Satellite Organization, Issuer,
and Morgan Guaranty Trust Company, Fiscal Agent and
Principal Paying Agent, dated as of October 14, 1994
(Incorporated by reference from Exhibit No. 10(gg) to
Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1994)
10.36* Registrant's Annual Incentive Plan (Incorporated by
reference from Exhibit No. 10(hh) to Registrant's
Report on Form 10-K for the fiscal year ended
December 31, 1994)
10.37 Fiscal Agency Agreement between International
Telecommunications Satellite Organization, Issuer,
and Morgan Guaranty Trust Company, Fiscal Agent and
Principal Paying Agent, dated as of February 28, 1995
(Incorporated by reference from Exhibit No. 10(ii) to
Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1994)
10.38* Registrant's 1995 Key Employee Stock Plan
(Incorporated by reference from Exhibit No. 10.51 to
the Registrant's Report on Form 10-K for the fiscal
year ended December 31, 1996)
10.39 Distribution Agreement, dated as of June 3, 1997
between the Registrant and Ascent (Incorporated by
reference from Exhibit 10.2 to the Registrant's
Report on Form 8-K dated June 18, 1997)
10.40 Tax Disaffiliation Agreement, dated as of June 3,
1997, between the Registrant and Ascent (Incorporated
by reference from Exhibit 10.3 to the Registrant's
Report on Form 8-K dated June 18, 1997)
10.41 Amended and Restated Employment Agreement, dated as
of July 18, 1997, between the Registrant and Betty C.
Alewine
10.42 Amended and Restated Employment Agreement, dated as
of July 18, 1997, between the Registrant and Allen E.
Flower
10.43 Amended and Restated Employment Agreement, dated as
of July 18, 1997, between the Registrant and Warren
Y. Zeger
EXHIBIT NO. 21 - SUBSIDIARIES OF THE REGISTRANT AS OF MARCH 31, 1998
EXHIBIT NO. 23 - CONSENTS OF EXPERTS AND COUNSEL
Consent of Independent Auditors dated March 27, 1998.
EXHIBIT NO. 27 - FINANCIAL DATA SCHEDULE
*Compensatory plan or arrangement.
82
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
COMSAT CORPORATION
(Registrant)
Date: March 31, 1998 By /S/ ALAN G. KOROBOV
-----------------------------
(Alan G. Korobov, Controller)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY EACH OF THE FOLLOWING PERSONS ON
BEHALF OF THE REGISTRANT AND IN THE CAPACITY AND AS OF MARCH 31, 1998. EACH
PERSON WHOSE SIGNATURE APPEARS BELOW CONSTITUTES AND APPOINTS THE
REGISTRANT'S VICE PRESIDENT AND CHIEF FINANCIAL OFFICER, VICE PRESIDENT AND
GENERAL COUNSEL OR CONTROLLER HIS OR HER TRUE AND LAWFUL ATTORNEY-IN-FACT,
WITH FULL POWER OF SUBSTITUTION, FOR HIM OR HER AND IN HIS OR HER NAME,
PLACE AND STEAD, IN ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS
TO THIS FORM 10-K, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND
OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE
COMMISSION, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEY-IN-FACT,
OR HIS SUBSTITUTE, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
(1) Principal executive officer
By /s/ Betty C. Alewine
------------------------------------
(Betty C. Alewine, President and
Chief Executive Officer and Director)
(2) Principal financial officer
By /s/ Allen E. Flower
------------------------------------
(Allen E. Flower, Vice President and
Chief Financial Officer)
(3) Principal accounting officer
By /s/ Alan G. Korobov
------------------------------------
(Alan G. Korobov, Controller)
83
<PAGE>
(4) Board of Directors
By /s/ Edwin I. Colodny
------------------------------------
(Edwin I. Colodny, Chairman and
Director)
By /s/ Marcus C. Bennett
------------------------------------
(Marcus C. Bennett, Director)
By /s/ Lucy Wilson Benson
------------------------------------
(Lucy Wilson Benson, Director)
By /s/ Lawrence S. Eagleburger
------------------------------------
(Lawrence S. Eagleburger, Director)
By /s/ Neal B. Freeman
------------------------------------
(Neal B. Freeman, Director)
By /s/ Caleb B. Hurtt
------------------------------------
(Caleb B. Hurtt, Director)
By /s/ Peter S. Knight
------------------------------------
(Peter S. Knight, Director)
By /s/ Peter W. Likins
------------------------------------
(Peter W. Likins, Director)
By /s/ Charles T. Manatt
------------------------------------
(Charles T. Manatt, Director)
84
<PAGE>
By /s/ Larry G. Schafran
------------------------------------
(Larry G. Schafran, Director)
By /s/ Robert G. Schwartz
------------------------------------
(Robert G. Schwartz)
By /s/ Kathryn C. Turner
------------------------------------
(Kathryn C. Turner, Director)
By /s/ Guy P. Wyser-Pratte, Director
------------------------------------
(Guy P. Wyser-Pratte, Director)
85
<PAGE>
EXHIBIT INDEX
Exhibit
NO. DESCRIPTION
- --- -----------
3.1 Articles of Incorporation of Registrant, composite
copy, as amended through June 1, 1993 (Incorporated
by reference from Exhibit No. 4(a) to Registrant's
Registration Statement on Form S-3 (No. 33-51661)
filed on December 22, 1993)
3.2 By-laws of Registrant, as amended through February
16, 1996 (Incorporated by reference from Exhibit No.
3.2 to Registrant's Report on Form 10-K for the
fiscal year ended 1995)
3.3 Regulations adopted by Registrant's Board of
Directors pursuant to Section 5.02(c) of Registrant's
Articles of Incorporation (Incorporated by reference
from Exhibit No. 3(c) to Registrant's Report on Form
10-K for the fiscal year ended 1992)
4.1 Specimen of a certificate representing Series I
shares of COMSAT Common Stock, without par value,
which are held by citizens of the United States
(Incorporated by reference from Exhibit No. 4(a) to
Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1993)
4.2 Specimen of a certificate representing Series I
shares of COMSAT Common Stock, without par value,
which are held by aliens (Incorporated by reference
from Exhibit No. 4(b) to Registrant's Report on Form
10-K for the fiscal year ended December 31, 1982)
4.3 Specimen of a certificate representing Series II
shares of COMSAT Common Stock, without par value
(Incorporated by reference from Exhibit No. 4(c) to
Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1982)
4.4 Standard Multiple-Series Indenture Provisions dated
March 15, 1991 (Incorporated by reference from
Exhibit No. 4(a) to Registrant's Registration
Statement on Form S-3 (No. 33-39472) filed on March
15, 1991)
4.5 Indenture dated as of March 15, 1991 between
Registrant and The Chase Manhattan Bank, N.A.
(Incorporated by reference from Exhibit No. 4(b) to
Registrant's Registration Statement on Form S-3 (No.
33-39472) filed on March 15, 1991)
4.6 Supplemental Indenture, dated as of June 29, 1994,
from the Registrant to The Chase Manhattan Bank, N.
A. (Incorporated by reference from Exhibit No. 4(c)
to Registrant's Registration Statement on Form S-3
(No. 33-54369) filed on June 30, 1994)
86
<PAGE>
4.7 Officers' Certificate pursuant to Section 3.01 of the
Indenture, dated as of March 15, 1991, from the
Registrant to The Chase Manhattan Bank, N.A., as
Trustee, relating to the authorization of $75,000,000
aggregate principal amount of Registrant's 8.95%
Notes Due 2001 (with form of Note attached)
(Incorporated by reference from Exhibit No. 4 to
Registrant's Current Report on Form 8-K filed on May
15, 1991)
4.8 Officers' Certificate pursuant to Section 3.01 of the
Indenture, dated as of March 15, 1991, from the
Registrant to The Chase Manhattan Bank, N.A., as
Trustee, relating to the authorization of
$160,000,000 aggregate principal amount of
Registrant's 8.125% Debentures Due 2004 (with form of
Debenture attached) (Incorporated by reference from
Exhibit No. 4 to Registrant's Current Report on Form
8-K filed on April 9, 1992)
4.9 Officers' Certificate pursuant to Section 3.01 of the
Indenture, dated as of March 15, 1991, as
supplemented by the Supplemental Indenture, dated as
of June 29, 1994, from the Registrant to The Chase
Manhattan Bank, N.A., as Trustee, relating to the
authorization of $100,000,000 aggregate principal
amount of Registrant's Medium Term Notes, Series A
(with forms of Notes attached) (Incorporated by
reference from Exhibit No. 4(i) to Registrant's
Report on Form 10-K for the fiscal year ended
December 31, 1994)
4.10 Limited Partnership Agreement of COMSAT Capital I,
L.P., dated as of July 18, 1995, relating to issuance
of monthly income preferred securities (Incorporated
by reference from Exhibit No. 4(a) to Registrant's
Report on Form 10-Q for the quarter ended June 30,
1995)
4.11 Guarantee Agreement for Preferred Securities of
COMSAT Capital I, L.P., dated as of July 18, 1995
(Incorporated by reference from Exhibit No. 4(b) to
Registrant's Report on Form 10-Q for the quarter
ended June 30, 1995)
4.12 Indenture between Registrant and the First National
Bank of Chicago, as Trustee, dated as of July 18,
1995 (Incorporated by reference from Exhibit No. 4(c)
to Registrant's Report on Form 10-Q for the quarter
ended June 30, 1995)
10.1 Agreement relating to the International
Telecommunications Satellite Organization (INTELSAT)
by Governments, which entered into force on February
12, 1973 (Incorporated by reference from Exhibit No.
10(a) to Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1980)
10.2 Operating Agreement relating to INTELSAT by
Governments which entered into force on February 12,
1973 (Incorporated by reference from Exhibit No.
10(b) to Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1980)
87
<PAGE>
10.3 Agreement dated August 15, 1975, among COMSAT General
Corporation, RCA Global Communications, Inc., Western
Union International, Inc. and ITT World
Communications, Inc. relating to the establishment of
a joint venture for the purpose of participating in
the ownership and operation of a maritime
communications satellite system and Amendment Nos.
1-4 and Amendment No. 5 dated March 24, 1980
(Incorporated by reference from Exhibit No. 10(p) to
Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1980)
10.4 Amendment No. 6 to Exhibit 10.3 dated September 1,
1981 (Incorporated by reference from Exhibit No.
10(p)(ii) to Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1981)
10.5 Convention on the International Maritime Satellite
Organization (INMARSAT) dated September 3, 1976
(Incorporated by reference from Exhibit No. 11 to
Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1978)
10.6 Operating Agreement on INMARSAT dated September 3,
1976 (Incorporated by reference from Exhibit No. 12
to Registrant's Report on Form 10-K for the fiscal
year ended December 31, 1978)
10.7* Registrant's 1982 Stock Option Plan (Incorporated by
reference from Exhibit No. 10(x) to Registrant's
Report on Form 10-K for the fiscal year ended
December 31, 1981)
10.8* Registrant's Insurance and Retirement Plan for
Executives, as amended and restated effective January
1, 1997 (Incorporated by reference from Exhibit No.
10.10 to Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1997)
10.9* Registrant's Non-Employee Directors Stock Plan
(Incorporated by reference from Exhibit No. 10.11 to
Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1996)
10.10 Agreement to Acquire and Lease (and Supplemental
Agreements thereto) dated September 28 and October
10, 1988, respectively, among the International
Maritime Satellite Organization (Inmarsat), the North
Sea Marine Leasing Company, British Aerospace Public
Limited Company, the European Investment Bank,
Kreditanstalt Fuer Wiederaufbau, European Investment
Bank (as Agent and as Trustee), Instituto Mobiliare
Italiano, Credit National, Hellenic Industrial
Development Bank, and Society Nationale de Credit a
L'Industrie relating to the financing of three
Inmarsat spacecraft (Incorporated by Reference from
Exhibit No. 3(a) to Registrant's Report on Form 10-K
for the fiscal year ended December 31, 1988)
10.11* Registrant's 1990 Key Employee Stock Plan
(Incorporated by reference from Exhibit No. 10 (p) to
Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1989)
88
<PAGE>
10.12 Amended and Restated Agreement, dated November 14,
1990, of Limited Partnership of Rock Spring II
Limited Partnership (Incorporated by reference from
Exhibit No. 10(a) to Registrant's Current Report on
Form 8-K filed on February 24, 1992)
10.13 Amended and Restated Lease Agreement, dated November
14, 1990, of Limited Partnership of Rock Spring II
Limited Partnership (Incorporated by reference from
Exhibit No. 10(b) to Registrant's Current Report on
Form 8-K filed on February 24, 1992)
10.14 Amended and Restated Ground Lease Indenture, dated
November 14, 1990, between Anne D. Camalier
(Landlord) and Rock Spring II Limited Partnership
(Tenant) (Incorporated by reference from Exhibit No.
10(c) to Registrant's Current Report on Form 8-K
filed on February 24, 1992)
10.15 Finance Facility Contract (and Supplemental
Agreements thereto), dated December 20, 1991, among
the International Maritime Satellite Organization
(Inmarsat), Abbey National plc, General Electric
Technical Services Company, Inc., European Investment
Bank, Kreditanstalt Fuer Wiederaufbau, Instituto
Mobiliare Italiano S.p.A., Credit National, Societe
Nationale de Credit a L'Industrie,
Finansieringsinstituttet for Industri OG Haandvaerk
A/S, De Nationale Investeringsbank NV, and
Osterreichische Investitionkredit Aktiengesellschaft
relating to the financing of three Inmarsat
spacecraft (Incorporated by reference from Exhibit
No. 10 (dd) to Registrant's Report on Form 10-K for
the fiscal year ended December 31, 1991)
10.16* Registrant's Directors and Executives Deferred
Compensation Plan, as amended by the Board of
Directors on July 15, 1993 (Incorporated by reference
from Exhibit No. 10.24 to the Registrant's Report on
Form 10-K for the fiscal year ended December 31,
1996)
10.17 Fiscal Agency Agreement, dated as of August 6, 1992,
between International Telecommunications Satellite
Organization and Morgan Guaranty Trust Company of New
York (Incorporated by reference from Exhibit No. 10
(dd) to Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1992)
10.18 Fiscal Agency Agreement, dated as of January 19,
1993, between International Telecommunications
Satellite Organization and Morgan Guaranty Trust
Company of New York (Incorporated by reference from
Exhibit No. 10 (ee) to Registrant's Report on Form
10-K for the fiscal year ended December 31, 1992)
10.19 Agreement dated July 1, 1993, between Registrant and
AT&T Easylink Services relating to exchange of telex
traffic (Incorporated by reference from Exhibit No.
10(bb) to Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1993)
89
<PAGE>
10.20 Agreement dated July 27, 1993, between the Registrant
and American Telephone & Telegraph Company relating
to utilization of space segment (Incorporated by
reference from Exhibit No. 10(cc) to Registrant's
Report on Form 10-K for the fiscal year ended
December 31, 1993)
10.21 Amendment to Exhibit 10.20 dated as of December 1,
1995 (Incorporated by reference from Exhibit No.
10.34 to Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1995)
10.22 Amendment to Exhibit 10.20 dated as of January 8,
1997 (Incorporated by reference from Exhibit No.
10.32 to Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1996)
10.23 Agreement dated September 1, 1993, between Registrant
and MCI International, Inc. relating to exchange of
traffic (Incorporated by reference from Exhibit No.
10(dd) to Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1993)
10.24 Agreement dated November 30, 1993, between the
Registrant and Sprint Communications Company L.P.
relating to utilization of space segment
(Incorporated by reference from Exhibit No. 10(ee) to
Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1993)
10.25 Amendment to Exhibit 10.24 dated April 7, 1995
(Incorporated by reference from Exhibit No. 10(a)(i)
to Registrant's Report on Form 10-Q/A Amendment No. 2
dated June 29, 1995 for the quarter ended March 31,
1995)
10.26 Agreement dated December 10, 1993, between Registrant
and Sprint International relating to the exchange of
traffic (Incorporated by reference from Exhibit No.
10(ff) to Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1993)
10.27 Credit Agreement dated as of December 17, 1993 among
Registrant, NationsBank of North Carolina, N.A., Bank
of America National Trust and Savings Association,
The First National Bank of Chicago, The Chase
Manhattan Bank, N.A., The Sumitomo Bank, Limited, New
York Branch, Swiss Bank Corporation, New York Branch,
as lenders, and NationsBank of North Carolina, N.A.,
as agent (Incorporated by reference from Exhibit No.
10(gg) to Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1993)
10.28 Amendment No. 1 to Exhibit 10.27 dated as of December
17, 1994 (Incorporated by reference from Exhibit No.
10(cc)(i) to Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1994)
90
<PAGE>
10.29 Agreement dated January 24, 1994, between MCI
International, Inc. and Registrant relating to
utilization of space segment (Incorporated by
reference from Exhibit No. 10(ii) to Registrant's
Report on Form 10-K for the fiscal year ended
December 31, 1993)
10.30 Amendment to Exhibit 10.29 dated as of July 1, 1995
(Incorporated by reference from Exhibit No. 10.42 to
Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1995)
10.31 Amendment to Exhibit 10.29 dated as of September 17,
1996 (Incorporated by reference from Exhibit No.
10.41 to Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1996).
10.32 Agreement dated February 18, 1994, between Registrant
and AT&T relating to exchange of traffic
(Incorporated by reference from Exhibit No. 10(jj) to
Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1993)
10.33 Fiscal Agency Agreement between International
Telecommunications Satellite Organization, Issuer,
and Bankers Trust Company, Fiscal Agent and Principal
Paying Agent, dated as of March 22, 1994
(Incorporated by reference from Exhibit No. 10(kk) to
Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1993)
10.34 Distribution Agreement dated July 11, 1994 between
Registrant and CS First Boston Corporation, Salomon
Brothers Inc and Nationsbanc Capital Markets, Inc.,
as Distributors, of Registrant's Medium-Term Notes,
Series A (Incorporated by reference from Exhibit No.
10(ff) to Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1994)
10.35 Fiscal Agency Agreement between International
Telecommunications Satellite Organization, Issuer,
and Morgan Guaranty Trust Company, Fiscal Agent and
Principal Paying Agent, dated as of October 14, 1994
(Incorporated by reference from Exhibit No. 10(gg) to
Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1994)
10.36* Registrant's Annual Incentive Plan (Incorporated by
reference from Exhibit No. 10(hh) to Registrant's
Report on Form 10-K for the fiscal year ended
December 31, 1994)
10.37 Fiscal Agency Agreement between International
Telecommunications Satellite Organization, Issuer,
and Morgan Guaranty Trust Company, Fiscal Agent and
Principal Paying Agent, dated as of February 28, 1995
(Incorporated by reference from Exhibit No. 10(ii) to
Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1994)
91
<PAGE>
10.38* Registrant's 1995 Key Employee Stock Plan
(Incorporated by reference from Exhibit No. 10.51 to
the Registrant's Report on Form 10-K for the fiscal
year ended December 31, 1996)
10.39 Distribution Agreement, dated as of June 3, 1997
between the Registrant and Ascent (Incorporated by
reference from Exhibit 10.2 to the Registrant's
Report on Form 8-K dated June 18, 1997)
10.40 Tax Disaffiliation Agreement, dated as of June 3,
1997, between the Registrant and Ascent (Incorporated
by reference from Exhibit 10.3 to the Registrant's
Report on Form 8-K dated June 18, 1997)
10.41 Amended and Restated Employment Agreement, dated as
of July 18, 1997, between the Registrant and Betty C.
Alewine
10.42 Amended and Restated Employment Agreement, dated as
of July 18, 1997, between the Registrant and Allen E.
Flower
10.43 Amended and Restated Employment Agreement, dated as
of July 18, 1997, between the Registrant and Warren
Y. Zeger
21 Subsidiaries of the Registrant as of March 31, 1998
23 Consent of Independent Auditors dated March 27, 1998.
27 Financial Data Schedule
*Compensatory plan or arrangement.
92
<PAGE>
COMSAT CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS For the Years Ended December 31,
1997, 1996 and 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Balance at
Beginning of Charged to Balance at
In thousands Year Expenses Deductions(a) End of Year
-------------------------------------------------------------------------------------------------------------------
1995:
Allowance for loss on accounts receivable $ 4,419 $ 3,846 $ 14 $ 8,251
1996:
Allowance for loss on accounts receivable $ 8,251 $ 3,847 $ 939 $11,159
Allowance for loss on investments - $ 1,105 - $ 1,105
1997:
Allowance for loss on accounts receivable $11,159 $ 6,306 $ 2,730 $14,735
Allowance for loss on investments $ 1,105 $ 1,008 - $ 2,113
</TABLE>
(a) As discussed in Note 2 to the financial statements, the
corporation began accounting for Ascent Entertainment Group, Inc.
and substantially all of COMSAT RSI as discontinued operations in
1997. Accordingly, all prior periods have been restated to
present Ascent and CRSI as discontinued operations.
(b) Uncollectible amounts written off, recoveries of amounts
previously reserved, and other adjustments.
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
This AMENDED AND RESTATED AGREEMENT is made as of July 19, 1996, and
amended as of May 16, 1997 and July 18, 1997, by and between COMSAT
Corporation ("COMSAT"), a District of Columbia corporation, and Betty C.
Alewine, a resident of the Commonwealth of Virginia (the "Executive").
WHEREAS, the COMSAT Board of Directors (the "Board") elected the
Executive as President and Chief Executive Officer and a member of the
Board (a "Director") on July 19, 1996;
WHEREAS, the Board believes it to be in the best interests of COMSAT
to enter into this Agreement to ensure the Executive's continuing services
to COMSAT; and
WHEREAS, COMSAT desires to continue to employ the Executive as
President and Chief Executive Officer of COMSAT, and the Executive desires
to continue such employment, on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements made herein, and intending to be legally bound hereby, COMSAT
and the Executive agree as follows:
1. EMPLOYMENT; DUTIES.
------------------
(a) EMPLOYMENT AND EMPLOYMENT PERIOD. COMSAT shall employ the
Executive to serve as President and Chief Executive Officer of COMSAT or
any successor entity for a period (the "Employment Period") commencing on
July 19, 1996 (the "Effective Date") and continuing thereafter for
successive three-year terms from each successive day thereafter until July
19, 2003 unless terminated in accordance with the provisions of this
Agreement. Notwithstanding the foregoing, COMSAT may appoint another person
to serve as President during the Employment Period. In that event, the
Executive's title shall become Chief Executive Officer and the President
shall report to the Executive in her capacity as Chief Executive Officer.
The appointment of a President shall not be deemed to constitute "Good
Reason" for purposes of Section 5 of this Agreement. Each 12-month period
ending on the anniversary date of the Effective Date is sometimes referred
to herein as a "year of the Employment Period."
(b) OFFICES, DUTIES AND RESPONSIBILITIES. The Executive shall
report directly and solely to the Board. Throughout the Employment Period,
COMSAT shall cause Executive to
<PAGE>
be nominated and recommended for election as a Director at each meeting of
COMSAT shareholders at which directors are to be elected and to be included
as a recommended nominee for election in any proxy provided to shareholders
in connection with such meeting. The Executive's offices initially shall be
located at COMSAT's present headquarters in Bethesda, Maryland. The
Executive shall have all duties and authority customarily accorded a chief
executive officer, including, without limitation, the lead responsibility
with full autonomy, subject to the customary authority and direction of the
Board, to manage the overall business and operations of COMSAT. All
employees of COMSAT shall report, directly or indirectly, to the Executive,
and the Executive shall have the authority to hire and fire all such
employees within established budget parameters, PROVIDED that the Board
shall approve (i) any salary actions (including hiring decisions) for
employees of COMSAT which result in an annual salary in excess of the
amount established by the Board from time to time, bu in no event less than
$100,000, and (ii) any bonuses to be awarded to employees of COMSAT under
the COMSAT Annual Incentive Plan (the "AIP") or any other bonuses to be
awarded in excess of the amount established by the Board from time to time.
The Executive's management of COMSAT shall be (x) in accordance with the
policies of the Board and COMSAT's Policies and Procedures, both as in
effect from time to time, and (y) within the limits of an annual budget for
COMSAT which shall be approved by the Board a least 30 days before the
beginning of the fiscal year to which such budget relates. If the Executive
proposes the expenditure of any amounts which exceed the applicable annual
budgets for COMSAT, such excess amounts shall not be committed to
Executive's authority unless and until specifically authorized and approved
by the Board.
(c) DEVOTION TO INTERESTS OF COMSAT. During the Employment
Period, the Executive shall devote her best efforts and full business time
and attention to the performance of her duties hereunder. Notwithstanding
the foregoing, the Executive shall be entitled to serve on the boards of
directors of non-profit organizations and, commencing on the second
anniversary of the Effective Date, the boards of directors of for-profit
organizations that do not compete with COMSAT. Prior to joinin any boards
of directors in addition to those on which she is serving as of the
Effective Date, the Executive shall consult with the Board to confirm that
such memberships shall not unreasonably or materially interfere with the
performance of her duties hereunder. In addition, the Executive may speak
and write independently, if such activity does not conflict with the best
interests of COMSAT. The Executive may keep all fees and other monies paid
for such outside board memberships and activities in accordance with COMSAT
corporate policy.
2. COMPENSATION AND FRINGE BENEFITS.
--------------------------------
(a) BASE COMPENSATION. COMSAT shall pay the Executive a base
salary ("Base Salary") during the Employment Period with payments made in
installments in accordance with COMSAT's regular practice for compensating
executive personnel, PROVIDED that in no event shall such payments be made
less frequently than twice per month. The Base Salary for the first year of
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<PAGE>
the Employment Period shall be $450,000. Effective on July 19, 1997, the
Base Salary shall be increased to $500,000. Thereafter, the Base Salary for
the Executive shall be reviewed for increases each subsequent year during
the Employment Period commencing the third year of the Employment Period.
Any further Base Salary increases shall be approved by the Board in its
sole discretion.
(b) BONUS COMPENSATION. The Executive will be eligible to receive
bonuses ("Annual Bonus") during the Employment Period under the AIP in
accordance with the following parameters: (i) the target bonus for each
year during the Employment Period shall be 70% of Base Salary for achieving
100% of the target level for the performance measures; and (ii) the
performance measures, the relative weight to be accorded each performance
measure and the amount of bonus payable in relation to the target bonus for
achieving more or less than 100% of the target level for the performance
measures shall be determined for each year during the Employment Period by
the Committee on Compensation and Management Development of the Board (the
"Compensation Committee") after consultation with the Executive. As part of
the consultation process set forth in the preceding sentence, the Executive
shall prepare before the end of each fiscal year ending during the
Employment Period a business plan for COMSAT with respect to at least the
following three-year period. The Board shall consider and approve such
plans on an annual basis, subject to such modifications as are otherwise
consistent with this Agreement, and each fiscal year the current plan shall
be considered by the Compensation Committee as the basis for establishing
the bonus standards for such year with such reasonable modifications as the
Compensation Committee may reasonably determine and which are consistent
with this Agreement.
(c) FRINGE BENEFITS. The Executive shall continue to be entitled
to the fringe benefits for COMSAT senior executives which she enjoyed
immediately prior to the Effective Date, including (i) participation in the
COMSAT Directors and Executives Deferred Compensation Plan, the COMSAT
Split Dollar Insurance Plan, the COMSAT Educational Grant Program, the
COMSAT Retirement Plan, the COMSAT Savings and Profit-Sharing Plan, the
COMSAT 1995 Key Employee Stock Plan (the "Stock Plan"), the COMSAT Employee
Stock Purchase Plan, the COMSAT health and disability insurance programs
and the COMSAT financial planning program, (ii) an annual physical
examination by a physician of her choice in the Washington, D.C.
metropolitan area at COMSAT's expense, and (iii) reimbursement of
reasonable expenses incurred in connection with travel and entertainment
related to COMSAT's business and affairs. The Executive also shall be
entitled to such additional fringe benefits as are made available to COMSAT
senior executives during the Employment Period on a most favored nations
basis. The Executive further shall be entitled to reimbursement of the
Executive's reasonable legal fees and costs incurred in connection with the
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<PAGE>
negotiation and execution of this Agreement, subject to a cap of $12,000.
COMSAT reserves the right to modify or terminate from time to time the
fringe benefits provided to the senior management group.
(d) STOCK OPTIONS. On October 17, 1996 (the "Grant Date"), COMSAT
shall grant to the Executive non-statutory stock options (the "Options")
under the Stock Plan to purchase 150,000 shares of COMSAT's common stock,
without par value ("Common Stock"), at a purchase price equal to the
average of the high and low selling price of the Common Stock as reported
under New York Stock Exchange-Composite Transactions on the Grant Date. The
Options shall carry a term of ten years and shall be exercisable by the
Executive in accordance with the following schedule: (i) 25% of the Options
on and after the first anniversary of the Grant Date; (ii) an additional
25% of the Options on and after the second anniversary of the Grant Date;
and (iii) the remaining 50% of the Options on and after the third
anniversary of the Grant Date. The Options shall be represented by a stock
option agreement in the form customarily used by COMSAT for such agreements
which shall contain appropriate terms consistent with the provisions of
this Agreement. During the Employment Period, the Executive may be granted
additional non-statutory stock options as determined by the Compensation
Committee in its sole discretion.
(e) RSAS. On February 20, 1997, COMSAT shall grant to the
Executive 20,000 Restricted Stock Awards ("RSAs") under the Stock Plan.
Such RSAs shall vest in accordance with (i) the performance standards for
the two-year performance period following the date of grant which are
adopted by the Compensation Committee for RSAs granted generally on such
date, and (ii) the following schedule thereafter for the portion of such
RSAs which are earned during the performance period: (x) 20% of such
portion on and after February 20, 2000; (y) an additional 40% of such
portion on and after February 20, 2001; and (z) the remaining 40% of such
portion on and after February 20, 2002.
(f) RSUS. On the Grant Date, COMSAT shall grant to the Executive
5,000 Restricted Stock Units ("RSUs") under the Stock Plan. Such RSUs shall
entitle the Executive to receive "dividend equivalents" (when and in the
same amounts as dividends are paid on the Common Stock) as provided under
the Stock Plan, and shall vest three (3) years from the Grant Date if the
Executive is still employed by COMSAT at such time.
(g) SERP. The Executive shall continue to participate in the
COMSAT Insurance and Retirement Plan for Executives (the "SERP"). Any
future amendments or changes to the SERP which provide for a reduction,
deferral or elimination of benefits payable to participants in the SERP
shall expressly not apply to the Executive unless the Executive consents
otherwise.
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<PAGE>
3. TRADE SECRETS; RETURN OF DOCUMENTS AND PROPERTY.
-----------------------------------------------
(a) Executive acknowledges that during the course of her
employment she will receive secret, confidential and proprietary
information ("Trade Secrets") of COMSAT and of other companies with which
COMSAT does business on a confidential basis and that Executive will create
and develop Trade Secrets for the benefit of COMSAT. Trade Secrets shall
include, without limitation, matters of a technical nature, such as
scientific and engineering secrets, "know-how," formulae, secret processe
or machines, inventions and computer programs (including documentation of
such programs), and matters of a business nature, such as customer data and
proprietary information about costs, profits, markets, sales and customer
databases, and other information of a similar nature to the extent not
available to the public, and plans for future development. All Trade
Secrets disclosed to or created by Executive shall be deemed to be the
exclusive property of COMSAT (as the context may require). Executive
acknowledges that Trade Secrets have economic value to COMSAT due to the
fact that Trade Secrets are not generally known to the public or the trade
and that the unauthorized use or disclosure of Trade Secrets is likely to
be detrimental to the interests of COMSAT and its subsidiaries. Executive
therefore agrees to hold in strict confidence and not to disclose to any
third party any Trade Secret acquired or created or developed by Executive
during the term of this Agreement except (i) when Executive uses or
discloses any Trade Secret in the proper course of the Executive's
rendition of services to COMSAT hereunder, (ii) when such Trade Secret
becomes public knowledge other than through a breach of this Agreement, or
(iii) when Executive is required to disclose any Trade Secret pursuant to
any valid legal process. The Executive shall notify COMSAT immediately of
any such legal process in order to enable COMSAT to contest such legal
process's validity. After termination of this Agreement, the Executive
shall not use or otherwise disclose Trade Secrets unless such information
(x) becomes public knowledge other than through a breach of this Agreement,
(y) is disclosed to the Executive by a third party who is entitled to
receive and disclose such Trade Secret, or (z) is required to be disclosed
pursuant to any valid legal process, in which case the Executive shall
notify COMSAT immediately of any such legal process in order to enable
COMSAT to contest such legal process's validity.
(b) Upon the effective date of notice of the Executive's or
COMSAT's election to terminate this Agreement, or at any time upon the
request of COMSAT, the Executive (or her heirs or personal representatives)
shall deliver to COMSAT (i) all documents and materials containing or
otherwise relating to Trade Secrets or other information relating to
COMSAT's business and affairs, and (ii) all documents, materials and other
property belonging to COMSAT, which in either case are in the possession or
under the control of the Executive (or her heirs or personal
representatives). The Executive shall be entitled to keep her personal
records (including Rolodex) relating to COMSAT's business and affairs
-6-
<PAGE>
except to the extent those contain documents or materials described in
clause (i) of the preceding sentence.
4. DISCOVERIES AND WORKS. All discoveries and works made or
conceived by the Executive during her employment by COMSAT pursuant to this
Agreement, jointly or with others, that relate to COMSAT's activities
("Discoveries and Works") shall be owned by COMSAT. Discoveries and Works
shall include, without limitation, inventions, computer programs (including
documentation of such programs), technical improvements, processes,
drawings and works of authorship. The Executive shall (a) promptly notify,
make full disclosure to, and execute and deliver any documents requested
by, COMSAT to evidence or better assure title to such Discoveries and Works
in COMSAT, (b) assist COMSAT in obtaining or maintaining for itself at its
own expense United States and foreign patents, copyrights, trade secret
protection or other protection of any and all such Discoveries and Works,
and (c) promptly execute, whether during her employment by COMSAT or
thereafter, all applications or other endorsements necessary or appropriate
to maintain patents and other rights for COMSAT and to protect their title
thereto. Any Discoveries and Works which, within six months after the
termination of the Executive's employment by COMSAT, are made, disclosed,
reduced to a tangible or written form or description, or are reduced to
practice by the Executive and which pertain to work performed by the
Executive while with COMSAT shall, as between the Executive and COMSAT, be
presumed to have been made during the Executive's employment b COMSAT.
5. TERMINATION. This Agreement shall remain in effect during the
Employment Period, and this Agreement and Executive's employment with
COMSAT may be terminated only as follows:
(a) By the Executive at any time upon forty-five (45) days
advance written notice to COMSAT for "Good Reason" (as defined below). In
such event or if the Executive's employment is terminated by COMSAT without
"cause" (as defined below), the Executive shall be entitled to receive the
following benefits until the earlier of (i) three (3) years from the
effective date of such termination, or (ii) the later of (A) July 19, 2003
or (B) one year from such effective date: (i) her then current Base Salary;
(ii) an Annual Bonus equal to seventy percent (70%) of her then current
Base Salary; and (iii) all other benefits provided pursuant to Sections
2(c), (d), (e), (f) and (g) of this Agreement, which shall be deemed to
vest fully and immediately if subject to vesting. The Executive shall have
no obligation to seek other employment in the event of her termination
pursuant to this paragraph (a), and any such employment shall not mitigate
COMSAT's obligations hereunder.
"Good Reason" shall mean any of the following: (I) any
substantial reduction (except in connection with the termination of her
employment voluntarily by the Executive or by COMSAT for "cause" as defined
below) by COMSAT, without the Executive's express written consent, of her
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<PAGE>
responsibilities as President and Chief Executive Officer of COMSAT; (II)
any change in the reporting structure set forth in Section 1(b) above;
(III) any reduction in Executive's title; (IV) any relocation of the
Executive's offices outside the Washington, D.C. metropolitan area by
COMSAT without the Executive's express written consent prior to the third
anniversary of the Effective Date; (V) any material default of the
provisions of Section 2 of this Agreement which continues for twenty (20)
business days following COMSAT's receipt of written notice from the
Executive specifying the manner in which COMSAT is in default of such
provisions; (VI) the Executive is not reelected to or is removed from the
Board; or (VII) any officer superior to the Executive is appointed by
COMSAT.
(b) By COMSAT at any time upon ten (10) days written notice to
the Executive, and after an opportunity to discuss such decision with the
Board, for "cause." For purposes of this Agreement, COMSAT shall have
"cause" to terminate the Executive's employment hereunder upon (i) the
continued and deliberate failure of the Executive to perform her material
duties, in a manner substantially consistent with the manner reasonably
prescribed by the Board and in accordance with the terms of this Agreement
(other than any such failure resulting from her incapacity due to physical
or mental illness), which failure continues for twenty (20) business days
following the Executive's receipt of written notice from the Board
specifying the manner in which the Executive is in default of her duties,
(ii) the engaging by the Executive in intentional serious misconduct that
is materially and demonstrably injurious to COMSAT or its reputation, which
misconduct, if it is reasonably capable of being cured, is not cured by the
Executive within twenty (20) business days following the Executive's
receipt of written notice from the Board specifying the serious misconduct
engaged in by the Executive, (iii) the conviction of the Executive of
commission of a felony involving a crime of moral turpitude, whether or not
such felony was committed in connection with COMSAT's business, or (iv) any
material breach by the Executive of Section 8 hereof, which breach, if it
is reasonably capable of being cured, is not cured by the Executive within
twenty (20) business days following the Executive's receipt of written
notice from the Board specifying the breach of Section 8 by the Executive.
If COMSAT shall terminate the Executive's employment for "cause," COMSAT,
in full satisfaction of all of COMSAT's obligations under this Agreement
and in respect of the termination of the Executive's employment with
COMSAT, shall pay the Executive her Base Salary and all other compensation,
benefits and reimbursement through the date of termination of her
employment.
-7-
<PAGE>
(c) If, prior to the expiration or termination of the Employment
Period, the Executive shall have been unable to perform substantially her
duties by reason of disability or impairment of health for at least six
consecutive calendar months, COMSAT shall have the right to terminate this
Agreement by giving sixty (60) days written notice to the Executive to that
effect, but only if at the time such notice is given such disability or
impairment is still continuing. Following the expiration of the notice
period, the Employment Period shall terminate with the payment of the
Executive's Base Salary for the month in which notice is given and a
prorated Annual Bonus through such month. In the event of a dispute as to
whether the Executive is disabled within the meaning of this paragraph (a),
or the duration of any disability, either party may request a medical
examination of the Executive by a doctor appointed by the Chief of Staff of
a hospital selected by mutual agreement of the parties, or as the parties
may otherwise agree, and the written medical opinion of such doctor shall
be conclusive and binding upon the parties as to whether the Executive has
become disabled and the date when such disability arose. The cost of any
such medical examinations shall be borne by COMSAT. In no event shall this
Agreement terminate before COMSAT's long-term disability benefits under
applicable plans become payable to the Executive.
(d) If, prior to the expiration or termination of the Employment
Period, the Executive shall die, COMSAT shall pay to the Executive's estate
her Base Salary and a prorated Annual Bonus through the end of the month in
which the Executive's death occurred, at which time the Employment Period
shall terminate without further notice.
(e) If either the Executive or COMSAT elects not to renew the
Executive's employment with COMSAT at the end of the Employment Period, the
Executive shall be entitled to receive payments under the SERP beginning on
August 1, 2003, the first day of the month after the end of such period,
calculated in accordance with the provisions of the plan based on the
Executive's retirement on that date, PROVIDED that the Board reserves the
discretion to waive the applicable early retirement reduction under the
plan in such event. If the Executive's employment with COMSAT under this
Agreement is terminated either by the Executive for Good Reason or by
COMSAT without "cause," the Executive shall be entitled to receive payments
under the SERP beginning on June 1, 2003, the first day of the month after
the Executive's 55th birthday, calculated in accordance with the provisions
of the plan as if the Executive retired on that date, PROVIDED that the
Board reserves the discretion to waive the applicable early retirement
reduction under the plan in such event.
6. CHANGE OF CONTROL.
(a) In the event that the Board in its sole discretion determines
that repeal of the ownership restrictions on COMSAT capital stock in the
-8-
Communications Satellite Act of 1962 is reasonably imminent, the parties
shall negotiate in good faith to adopt a "change of control" provision
applicable to this Agreement which shall set forth (i) the events that
shall constitute a "change of control" for this purpose, (ii) the
consequences under this Agreement if such a "change of control" occurs and
(iii) such other terms and conditions as the parties shall mutually agree
to.
(b) Any "change of control" provisions adopted by COMSAT
applicable to any COMSAT benefits plans which provide for the accelerated
vesting and/or payment of any benefits for its senior executives shall
apply to the Executive to the same extent as other COMSAT senior executives
on a most favored nations basis with respect to the benefits affected by
such COMSAT provisions.
(c) If a change of control (as defined for purposes of COMSAT's
benefit plans) occurs during the Employment Period, the change of control
shall not adversely affect any of the Executive's rights under this
Agreement, and this Agreement shall continue in effect according to its
terms. In the event of a change of control, the Executive shall be entitled
to vesting and payment of benefits according to the terms of this Agreement
or COMSAT's applicable plans, whichever is more favorable.
7. CERTAIN ADDITIONAL PAYMENTS.
---------------------------
(a) Notwithstanding anything in this Agreement to the contrary,
in the event that it shall be determined that any payment or benefit to the
Executive, whether pursuant to the terms of this Agreement or otherwise (a
"Payment"), would constitute an "excess parachute payment" within the
meaning of Section 280G of the Internal Revenue Code of 1986, as amended
(the "Code"), the Executive shall be paid an additional amount (a "Gross-Up
Payment") such that the net amount retained by the Executive after
deduction of any excise tax imposed under Section 4999 of the Code, and any
federal, state and local income and employment taxes and excise tax,
including any interest and penalties with respect thereto, imposed upon the
Gross-Up Payment shall be equal to the Payment. For purposes of determining
the amount of the Gross-Up Payment, the Executive shall be deemed to pay
federal income tax and employment taxes at the highest marginal rate of
federal income and employment taxation in the calendar year in which the
Gross-Up Payment is to be made and state and local income taxes at the
highest marginal rate of taxation in the state and locality of the
Executive's residence on the date the Payment is made, net of the reduction
in federal income taxes that the Executive may obtain from the deduction of
such state and local income taxes.
(b) All determinations to be made under this Section 7 shall be
made by COMSAT's independent public accountant immediately prior to the
date the Payment is made (the "Accounting Firm"), which firm shall provide
its determinations and any supporting calculations and workpapers both to
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<PAGE>
COMSAT and the Executive within 10 days of such date. Any such
determination by the Accounting Firm shall be binding upon COMSAT and the
Executive. Within five days after receipt of the Accounting Fir s
determination, COMSAT shall pay to the Executive the Gross-Up Payment
determined by the Accounting Firm.
(c) In the event that upon any audit by the Internal Revenue
Service, or by a state or local taxing authority, of a Payment or Gross-Up
Payment, a change is finally determined to be required in the amount of
taxes paid by the Executive, appropriate adjustments shall be made under
this Section such that the net amount which is payable to the Executive
after taking into account the provisions of Section 4999 of the Code and
any interest and penalties shall reflect the intent of the parties as
expressed in paragraph (a) above, in the manner determined by the
Accounting Firm. The Executive shall notify COMSAT in writing of any claim
by the Internal Revenue Service that, if successful, would require the
payment by COMSAT of a Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise COMSAT of
the nature of such claim and the date on which such claim is requested to
be paid. The Executive shall not pay such claim prior to the expiration of
the 30-day period following the date on which it gives such notice to
COMSAT (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If COMSAT notifies the Executive in
writing prior to the expiration of such period that it desires to contest
such claim, the Executive shall: (i) give COMSAT any information reasonably
requested by COMSAT relating to such claim; (ii) take such action in
connection with contesting such claim as COMSAT shall reasonably request in
writing from time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney reasonably
selected by COMSAT; (iii) cooperate with COMSAT in good faith in order
effectively to contest such claim; and (iv) permit COMSAT to participate in
any proceedings relating to such claim; PROVIDED, HOWEVER, that COMSAT
shall bear and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such contest and shall
indemnify and hold the Executive harmless, on an after-tax basis, for any
excise tax or income tax (including interest and penalties with respect
thereto) imposed as a result of such representation and payment of costs
and expenses. Without limitation on the foregoing provisions of this
Section 7, COMSAT shall control all proceedings taken in connection with
such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as COMSAT shall
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<PAGE>
determine. COMSAT's control of the contest shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) All of the fees and expenses of the Accounting Firm in
performing the determinations referred to in paragraphs (b) and (c) above
shall be borne solely by COMSAT. COMSAT agrees to indemnify and hold
harmless the Accounting Firm from any and all claims, damages and expenses
resulting from or relating to its determinations pursuant to paragraphs (b)
and (c) above, except for claims, damages or expenses resulting from the
gross negligence or willful misconduct of the Accounting Firm.
8. NON-COMPETITION.
(a) As an inducement for COMSAT to enter into this Agreement, the
Executive agrees that for a period commencing as of the Effective Date and
running through the earlier of (i) the end of the Employment Period if the
Executive remains employed by COMSAT for the entire Employment Period or
(ii) one year following termination of the Executive's employment by COMSAT
for "cause" as defined in Section 5(b) hereof, or by the Executive for any
reason (other than Good Reason, in which case the provisions of this
paragraph (a) shall not apply) (the "Non-Competition Period"), the
Executive shall not, without the prior written consent of the Board, engage
or participate, directly or indirectly, as principal, agent, employee,
employer, consultant, stockholder, partner or in any other individual
capacity whatsoever, in the conduct or management of, or own any stock or
any other equity investment in or debt of, any business which is
competitive with any business conducted by COMSAT.
For the purpose of this Agreement, a business shall be considered
to be competitive with any business of COMSAT only if such business is
engaged in providing services or products (i) comparable to or competitive
with (A) any service or product currently provided by COMSAT during the
Employment Period; (B) any service or product which evolves from or results
from enhancements in the ordinary course during the Non-Competition Period
to the services or products provided by COMSAT as of the date hereof or
during the Employment Period; or (C) any future service or product of
COMSAT as to which the Executive materially and substantially participated
in the development or enhancement, and (ii) to customers, distributors or
clients of the type served by COMSAT during the Non-Competition Period.
(b) NON-SOLICITATION OF EMPLOYEES. During the Non-Competition
Period, the Executive will not (for her own benefit or for the benefit of
any person or entity other than COMSAT) solicit, or assist any person or
entity other than COMSAT to solicit, any officer, director, executive or
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employee (other than an administrative or clerical employee) of COMSAT to
leave his or her employment.
(c) REASONABLENESS; INTERPRETATION. The Executive acknowledges
and agrees, solely for purposes of determining the enforceability of this
Section 8 (and not for purposes of determining the amount of money damages
or for any other reason), that (i) the markets served by COMSAT are
national and international and are not dependent on the geographic location
of executive personnel or the businesses by which they are employed; (ii)
the length of the Non-Competition Period is linked to th term of the
Employment Period and the severance benefit provided for in Section 5(a);
and (iii) the above covenants are manifestly reasonable on their face, and
the parties expressly agree that such restrictions have been designed to be
reasonable and no greater than is required for the protection of COMSAT. In
the event that the covenants in this Section 8 shall be determined by any
court of competent jurisdiction in any action to be unenforceable by reason
of their extending for too great a period of time or over too great a
geographical area or by reason of their being too extensive in any other
respect, they shall be interpreted to extend only over the maximum period
of time for which they may be enforceable, and/or over the maximum
geographical area as to which they may be enforceable and/or to the maximum
extent in all other respects as to which they may be enforceable, all as
determined by such court in such action.
(d) INVESTMENT. Nothing in this Agreement shall be deemed to
prohibit the Executive from owning equity or debt investments in any
corporation, partnership or other entity which is competitive with COMSAT,
PROVIDED that such investments (i) are passive investments and constitute
five percent (5%) or less of the outstanding equity securities of such an
entity the equity securities of which are traded on a national securities
exchange or other public market, or (ii) are approved by the Board.
9. INDEMNIFICATION; LIABILITY INSURANCE. The Executive shall be
entitled to indemnification and coverage under COMSAT's liability insurance
policy for directors and officers to the same extent as other directors and
officers of COMSAT. In addition, the Executive shall be indemnified to the
maximum extent permitted by law of the jurisdiction in which COMSAT is
incorporated, as it may be amended from time to time.
10. ENFORCEMENT.
-----------
(a) The Executive acknowledges that a breach of the covenants or
provisions contained in Sections 3, 4 and 8 of this Agreement will cause
irreparable damage to COMSAT, the exact amount of which will be difficult
to ascertain, and that the remedies at law for any such breach will be
inadequate. Accordingly, the Executive agrees that if the Executive
breaches or threatens to breach any of the covenants or provisions
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<PAGE>
contained in Sections 3, 4 and 8 of this Agreement, in addition to any
other remedy which may be available at law or in equity, COMSAT shall be
entitled to seek specific performance and injunctive relief in a court of
competent jurisdiction after notice and a hearing.
(b) The parties expressly agree that any litigation directly or
indirectly arising out of or relating to this Agreement, including an
action brought by COMSAT pursuant to paragraph (a) of this Section 10,
shall be brought in a court of competent jurisdiction in the State of
Maryland.
11. SEVERABILITY. Should any provision of this Agreement be
determined to be unenforceable or prohibited by any applicable law, such
provision shall be ineffective to the extent, and only to the extent, of
such unenforceability or prohibition without invalidating the balance of
such provision or any other provision of this Agreement, and any such
unenforceability or prohibition in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
12. ASSIGNMENT. The Executive's rights and obligations under this
Agreement shall not be assignable by the Executive. COMSAT's rights and
obligations under this Agreement shall not be assignable by COMSAT except
as incident to the transfer, by merger or otherwise, of all or
substantially all of the business of COMSAT. In the event of any such
assignment by COMSAT, all rights of COMSAT hereunder shall inure to the
benefit of the assignee, PROVIDED that all references herein to COMSAT
shall be deemed to refer with equal force and effect to any corporate or
other successor of COMSAT.
13. NOTICES. All notices and other communications which are required
or may be given under this Agreement shall be in writing and shall be
deemed to have been duly given when received if personally delivered; when
transmitted if transmitted by telecopy, electronic or digital transmission
method, provided that in such case it shall also be sent by certified or
registered mail, return receipt requested; the day after it is sent, if
sent for next day delivery to a domestic address by recognize overnight
delivery service (E.G., Federal Express); and upon receipt, if sent by
certified or registered mail, return receipt requested. Unless otherwise
changed by notice, in each case notice shall be sent to:
If to Executive, addressed to:
Betty C. Alewine
1742 Creek Crossing Road
Vienna, Virginia 22182
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<PAGE>
With a copy (not constituting notice) to:
Williams & Connolly
725 Twelfth Street, N.W.
Washington, DC 20005
Attention: Robert B. Barnett, Esq.
Telecopier No.: (202) 434-5029
If to COMSAT, addressed to:
COMSAT Corporation
6560 Rock Spring Drive
Bethesda, MD 20817
Attention: Vice President, Human Resources
and Organization Development
Telecopier No.: (301) 214-7134
With a copy (not constituting notice) to:
COMSAT Corporation
6560 Rock Spring Drive
Bethesda, MD 20817
Attention: Robert N. Davis, Jr.
Telecopier No.: (301) 214-7128
14. MISCELLANEOUS. This Agreement constitutes the entire agreement,
and supersedes all prior agreements, of the parties hereto relating to the
subject matter hereof, and there are no written or oral terms or
representations made by either party other than those contained herein. No
amendment, supplement, modification or waiver of this Agreement shall be
binding unless executed in writing by the party to be bound thereby. The
validity, interpretation, performance and enforcement of the Agreement
shall be governed by the laws of the State of Maryland without giving
effect to conflicts of laws principles thereof. The headings contained
herein are for reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement. The waiver by any party of a
breach of any term or condition of this Agreement by the other party shall
not operate as nor be construed as a waiver of any subsequent breach
thereof or a waiver of a breach of any other term or condition o this
Agreement. This Agreement may be signed in two (2) or more counterparts,
each of which shall constitute an original but all of which together shall
form only a single instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of July 18, 1997.
/s/ Betty C. Alewine
-------------------------------
Betty C. Alewine, Executive
COMSAT Corporation
By: /s/ Edwin I. Colodny
--------------------------
Edwin I. Colodny, Chairman
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AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
This AMENDED AND RESTATED AGREEMENT is made as of April 18, 1997, and
amended as of July 18, 1997, by and between COMSAT Corporation ("COMSAT"),
a District of Columbia corporation, and Allen Flower, a resident of the
Commonwealth of Virginia (the "Executive").
WHEREAS, the Executive serves as Vice President and Chief Financial
Officer of COMSAT;
WHEREAS, the Board of Directors of COMSAT (the "Board") believes it to
be in the best interests of COMSAT to enter into this Agreement to ensure
the Executive's continuing services to COMSAT; and
WHEREAS, COMSAT desires to continue to employ the Executive as Vice
President and Chief Financial Officer of COMSAT, and the Executive desires
to continue such employment, on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements made herein, and intending to be legally bound hereby, COMSAT
and the Executive agree as follows:
1. EMPLOYMENT; DUTIES.
------------------
(a) EMPLOYMENT AND EMPLOYMENT PERIOD. COMSAT shall employ the
Executive to serve as Vice President and Chief Financial Officer of COMSAT
or any successor entity for a period (the "Employment Period") commencing
on April 18, 1997 (the "Effective Date") and continuing thereafter until
April 17, 2000 unless terminated in accordance with the provisions of this
Agreement. Each 12-month period ending on the anniversary date of the
Effective Date is referred to herein as a "year of the Employment Period."
(b) OFFICES, DUTIES AND RESPONSIBILITIES. The Executive shall
report to the Chief Executive Officer of COMSAT. The Executive's offices
initially shall be located at COMSAT's present headquarters in Bethesda,
Maryland. The Executive shall have all duties and authority customarily
accorded a Vice President and Chief Financial Officer.
(c) DEVOTION TO INTERESTS OF COMSAT. During the Employment
Period, the Executive shall devote his best efforts and full business time
and attention to the performance of his duties hereunder. Notwithstanding
the foregoing, the Executive shall be entitled to undertake outside
activities (E.G. charitable, educational, personal interests, and board of
directors memberships) that do not compete with COMSAT and do not
unreasonably or materially interfere with the performance of his duties
hereunder as reasonably determined by the Chief Executive Officer in
consultation with the Executive.
<PAGE>
2. COMPENSATION AND FRINGE BENEFITS.
(a) BASE COMPENSATION. COMSAT shall pay the Executive a base
salary ("Base Salary") during the Employment Period, with payments made in
installments in accordance with COMSAT's regular practice for compensating
executive personnel, provided that in no event shall such payments be made
less frequently than twice per month. The initial annual Base Salary shall
be $210,000. Thereafter, the Base Salary for the Executive shall be
reviewed for increases annually during the Employment period, consistent
with COMSAT's normal review process. Any Base Salary increases shall be
approved by the Board in its sole discretion.
(b) BONUS COMPENSATION. The Executive will be eligible to receive
bonuses ("Annual Bonus") during the Employment Period under the Annual
Incentive Plan (the "AIP") in accordance with the following parameters: (i)
the target bonus for each year during the Employment Period shall be 50% of
Base Salary for achieving 100% of the target level for the performance
measures and (ii) the performance measures, the relative weight to be
accorded each performance measure and the amount of bonus payable in
relation to the target bonus for achieving more or less than 100% of the
target level for the performance measures shall be determined for each year
during the Employment Period by the Committee on Compensation and
Management Development of the Board (the "Compensation Committee").
(c) FRINGE BENEFITS. The Executive shall be entitled to the
fringe benefits in effect for COMSAT senior executives from time to time,
including (i) participation in the COMSAT Directors and Executives Deferred
Compensation Plan, the COMSAT Split Dollar Insurance Plan, the COMSAT
Educational Grant Program, the COMSAT Retirement Plan, the COMSAT Savings
and Profit-Sharing Plan, the COMSAT 1995 Key Employee Stock Plan, the
COMSAT Employee Stock Purchase Plan, the COMSAT health and disability
insurance programs and the COMSAT financial planning program and (ii)
reimbursement of reasonable expenses incurred in connection with travel and
entertainment related to COMSAT's business and affairs. The Executive also
shall be entitled to such other or additional fringe benefits as are made
available to COMSAT senior executives during the Employment Period. COMSAT
reserves the right to modify or terminate at any time the fringe benefits
provided to the senior management group.
(d) SERP. The Executive shall continue to participate in the
COMSAT Insurance and Retirement Plan for Executives (the "SERP"). Any
future amendments or changes to the SERP which provide for a reduction,
deferral or elimination of benefits payable to participants in the SERP
shall expressly not apply to the Executive unless the Executive consents
otherwise.
(e) LEGAL EXPENSES. The Executive shall be entitled to
reimbursement of the Executive's reasonable legal fees and costs incurred
in connection with the negotiation and execution of this Agreement, subject
to a maximum reimbursement of $5,000.
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<PAGE>
3. TRADE SECRETS; RETURN OF DOCUMENTS AND PROPERTY.
-----------------------------------------------
(a) The Executive acknowledges that during the course of his
employment he will receive secret, confidential and proprietary information
("Trade Secrets") of COMSAT and of other companies with which COMSAT does
business on a confidential basis and that the Executive will create and
develop Trade Secrets for the benefit of COMSAT. Trade Secrets shall
include, without limitation, matters of a technical nature, such as
scientific and engineering secrets, "know-how," formulae, secret processes
or machines, inventions and computer programs (including documentation of
such programs), and matters of a business nature, such as customer data and
proprietary information about costs, profits, markets, sales and customer
databases, and other information of a similar nature to the extent not
available to the public, and plans for future development. All Trade
Secrets disclosed to or created by the Executive shall be deemed to be the
exclusive property of COMSAT. The Executive acknowledges that Trade Secrets
have economic value to COMSAT due to the fact that Trade Secrets are not
generally known to the public or the trade and that the unauthorized use or
disclosure of Trade Secrets is likely to be detrimental to the interests of
COMSAT and its subsidiaries. The Executive therefore agrees to hold in
strict confidence and not to disclose to any third party any Trade Secret
acquired or created or developed by the Executive during the term of this
Agreement except (i) when the Executive uses o discloses any Trade Secret
in the proper course of the Executive's rendition of services to COMSAT
hereunder, (ii) when such Trade Secret becomes public knowledge other than
through a breach of this Agreement, or (iii) when the Executive is required
to disclose any Trade Secret pursuant to any valid legal process. The
Executive shall notify COMSAT immediately of any such legal process in
order to enable COMSAT to contest such legal process's validity. After
termination of this Agreement, the Executive shall not use or otherwise
disclose Trade Secrets unless such information (x) becomes public knowledge
other than through a breach of this Agreement, (y) is disclosed to the
Executive by a third party who is entitled to receive and disclose such
Trade Secret, or (z) is required to be disclosed pursuant to any valid
legal process, in which case the Executive shall notify COMSAT immediately
of any such legal process in order to enable COMSAT to contest such legal
process's validity.
(b) Upon the effective date of notice of the Executive's or
COMSAT's election to terminate this Agreement, or at any time upon the
request of COMSAT, the Executive (or his heirs or personal representatives)
shall deliver to COMSAT (i) all documents and materials containing or
otherwise relating to Trade Secrets or other information relating to
COMSAT's business and affairs, and (ii) all documents, materials and other
property belonging to COMSAT, which in either case are in the possession or
under the control of the Executive (or his heirs or personal
representatives). The Executive shall be entitled to keep his personal
records (including Rolodex) relating to COMSAT's business and affairs
except to the extent those contain documents or materials described in
clause (i) of the preceding sentence.
4. DISCOVERIES AND WORKS. All discoveries and works made or conceived
by the Executive during his employment by COMSAT pursuant to this
Agreement, jointly or with others, that relate to COMSAT's activities
("Discoveries and Works") shall be owned by COMSAT. Discoveries and Works
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<PAGE>
shall include, without limitation, inventions, computer programs (including
documentation of such programs), technical improvements, processes,
drawings and works of authorship. The Executive shall (a) promptly notify,
make full disclosure to, and execute and deliver any documents requested
by, COMSAT to evidence or better assure title to such Discoveries and Works
in COMSAT, (b) assist COMSAT in obtaining or maintain for itself at its own
expense United States and foreign patents, copyrights, trade secret
protection or other protection of any and all such Discoveries and Works,
and promptly execute, whether during his employment by COMSAT or
thereafter, all applications or other endorsements necessary or appropriate
to maintain patents and other rights for COMSAT and to protect its title
thereto. Any Discoveries and Works which, within six months after the
termination of the Executive's employment by COMSAT, are made disclosed,
reduced to a tangible or written form or description, or are reduced to
practice by the Executive and which pertain to work performed by the
Executive while with COMSAT shall, as between the Executive and COMSAT, be
presumed to have been made during the Executive's employment by COMSAT.
5. TERMINATION. This Agreement shall remain in effect during the
Employment Period, and this Agreement and Executive's employment with
COMSAT may be terminated only as follows:
(a) The Executive's employment may be terminated by the Executive
at any time upon 45 days advance written notice to COMSAT for "Good Reason"
(as defined below). In such event, or if the Executive's employment is
terminated by COMSAT without "Cause" (as defined below), the Executive
shall be entitled to receive the following benefits until the later of (x)
one year after the date of the Executive's termination of employment or (y)
April 17, 2000:
(i) The Executive's Base Salary in effect at the date of
termination;
(ii) An Annual Bonus equal to 50% of his then current Base
Salary; and
(iii) All benefits provided pursuant to Sections 2(c) and (d) of
this Agreement, which shall be deemed to vest fully and immediately if
subject to vesting; provided, however, that in the event COMSAT is
precluded from providing coverage under any such benefit plan by applicable
law or regulation, COMSAT may provide the Executive with a payment equal to
the cost of such coverage without regard to tax effect. The foregoing
benefits shall be calculated in accordance with the provisions of the
applicable plans as if the Executive had retired on his date of
termination, provided that the Board reserves the discretion to waive the
applicable early retirement reduction under the SERP in such event.
(b) "Good Reason" shall mean the occurrence of any of the
following (other than for "Cause"), without the Executive's express written
consent: (i) the assignment to the Executive of duties inconsistent with
the Executive's status as an executive officer of COMSAT or a substantial
reduction by COMSAT of the Executive's responsibilities as an executive
officer of COMSAT; (ii) any relocation of the Executive's offices outside
the Washington, D.C. metropolitan area by COMSAT prior to the third
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<PAGE>
anniversary of the Effective Date; or (iii) any material default of the
provisions of Section 2 of this Agreement which continues for 20 business
days following COMSAT's receipt of written notice from the Executive
specifying the manner in which COMSAT is in default of such provisions. In
order for the Executive to terminate employment for "Good Reason," the
Executive must give COMSAT written notice of his termination of employment
for "Good Reason," stating the basis for the termination, within 90 days
after the Executive learns of the occurrence of the event constituting
"Good Reason."
(c) The Executive's employment may be terminated by COMSAT for
Cause at any time upon ten days written notice to the Executive, and after
giving the Executive an opportunity to discuss such decision with the
Board. For purposes of this Agreement, COMSAT shall have "Cause" to
terminate the Executive's employment hereunder upon (i) the continued and
deliberate failure of the Executive to perform his material duties, in a
manner substantially consistent with the manner reasonably prescribed by
the Board and in accordance with the terms of this Agreement (other than
any such failure resulting from his incapacity due to physical or mental
illness), which failure continues for 20 business days following the
Executive's receipt of written notice from the Board specifying the manner
in which the Executive is in default of his duties, (ii) the engaging by
the Executive in intentional serious misconduct that is materially and
demonstrably injurious to COMSAT or its reputation, which misconduct, if it
is reasonably capable of being cured, is not cured by the Executive within
20 business days following the Executive's receipt of written notice from
the Board specifying the serious misconduct engaged in by the Executive,
(iii) the conviction of the Executive of commission of a felony, whether or
not such felony was committed in connection with COMSAT's business, or (iv)
any material breach by the Executive of Section 10 hereof, which breach, if
it is reasonably capable of being cured, i not cured by the Executive
within 20 business days following the Executive's receipt of written notice
from the Board specifying the breach of Section 10 by the Executive. If
COMSAT shall terminate the Executive's employment for "Cause," COMSAT, in
full satisfaction of all of COMSAT's obligations under this Agreement and
in respect of the termination of the Executive's employment with COMSAT,
shall pay the Executive his Base Salary and any other compensation,
benefits and reimbursements due him under COMSAT plans through the date of
termination of his employment.
(d) If, prior to the expiration or termination of the Employment
Period, the Executive shall have been unable to perform substantially his
duties by reason of disability or impairment of health for at least six
consecutive calendar months, COMSAT shall have the right to terminate this
Agreement by giving 60 days written notice to the Executive to that effect,
but only if at the time such notice is given such disability or impairment
is still continuing. Following the expiration of the notice period, the
Employment Period shall terminate with the payment of the Executive's Base
Salary for the month in which notice is given and a prorated Annual Bonus
through such month. In the event of a dispute as to whether the Executive
is disabled within the meaning of this Section 5(d), or the duration of any
disability, either party may request a medical examination of the Executive
by a doctor appointed by the Chief of Staff of a hospital selected by
mutual agreement of the parties, or as the parties may otherwise agree, and
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<PAGE>
the written medical opinion of such doctor shall be conclusive and binding
upon the parties as to whether the Executive has become disabled and the
date when such disability arose. The cost of any such medical examinations
shall be borne by COMSAT. In no event shall this Agreement terminate before
COMSAT's long-term disability benefits under applicable plans become
payable to the Executive.
(e) If, prior to the expiration or termination of the Employment
Period, the Executive shall die, COMSAT shall pay to the Executive's estate
his Base Salary and a prorated Annual Bonus through the end of the month in
which the Executive's death occurred, at which time the Employment Period
shall terminate without further notice.
(f) If COMSAT elects not to renew the Executive's employment with
COMSAT at the end of the Employment Period and the Executive terminates
employment at the end of the Employment Period, the Executive shall be
entitled to receive the payments described in Section 5(a)(i), (ii) and
(iii) for the period beginning on the date of the Executive's termination
of employment and ending one year after the Executive's termination of
employment.
(g) If either the Executive or COMSAT elects not to renew the
Executive's employment with COMSAT at the end of the Employment Period, the
Executive shall be entitled to receive payments under the SERP beginning on
May 1, 2000 (the first day of the month after the end of such period),
calculated in accordance with the provisions of the SERP based on the
Executive's retirement on that date, provided that the Board reserves the
discretion to waive the applicable early retirement reduction under the
SERP in such event. If the Executive's employment with COMSAT under this
Agreement is terminated either by the Executive for Good Reason or by
COMSAT without Cause before the Executive attains age 55, the Executive
shall be entitled to receive payments under the SERP beginning on December
1, 1998 (the first day of the month after the Executive's 55th birthday),
calculated in accordance with the provisions of the SERP as if the
Executive retired on that date, provided that the Board reserves the
discretion to waive the applicable early retirement reduction under the
SERP in such event. If the Executive dies before payments begin under the
SERP, the Executive's surviving spouse, if any, shall receive under the
SERP a $200,000 lump sum death benefit, plus annual benefit payments for a
ten year period equal to 50% of the Executive's accrued benefit under the
SERP, according to the terms of the SERP. The provisions of this Section
5(g) shall be administered consistent with the terms of the SERP.
(h) If the Executive voluntarily terminates employment with
COMSAT, such termination shall not be considered a breach of this Agreement
by the Executive and shall not adversely affect the Executive's right to
receive such benefits as may be payable to the Executive on account of his
termination of employment under applicable COMSAT plans. The Executive
shall remain obligated to comply with the provisions of Sections 3, 4, 10
and 12 of this Agreement.
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<PAGE>
6. CHANGE OF CONTROL. If a change of control (as defined for purposes
purposes of COMSAT's benefit plans) occurs during the Employment Term, the
change of control shall not adversely affect any of the Executive's rights
under this Agreement, and this Agreement shall continue in effect according
to its terms. In the event of a change of control, the Executive shall be
entitled to vesting and payment of benefits according to the terms of this
Agreement or COMSAT's applicable plans, whichever is more favorable.
7. CERTAIN ADDITIONAL PAYMENTS.
(a) Notwithstanding anything in this Agreement to the contrary,
in the event that it shall be determined that any payment or benefit to the
Executive, whether pursuant to the terms of this Agreement or otherwise (a
"Payment"), would constitute an "excess parachute payment" within the
meaning of Section 280G of the Internal Revenue Code of 1986, as amended
(the "Code"), the Executive shall be paid an additional amount (a "Gross-Up
Payment") such that the net amount retained by the Executive after
deduction of any excise tax imposed under Section 4999 of the Code, and any
federal, state and local income and employment taxes and excise tax,
including any interest and penalties with respect thereto, imposed upon the
Gross-Up Payment shall be equal to the Payment. For purposes of determining
the amount of the Gross-Up Payment, the Executive shall be deemed to pay
federal income tax and employment taxes at the highest marginal rate of
federal income and employment taxation in the calendar year in which the
Gross-Up Payment is to be made and state and local income taxes at the
highest marginal rate of taxation in the state and locality of the
Executive's residence on the date the Payment is made, net of the reduction
in federal income taxes that the Executive may obtain from the deduction of
such state and local income taxes.
(b) All determinations to be made under this Section 7 shall be
made by COMSAT's independent public accountant immediately prior to the
date the Payment is made (the "Accounting Firm"), which firm shall provide
its determinations and any supporting calculations and workpapers both to
COMSAT and the Executive within 10 days of such date. Any such
determination by the Accounting Firm shall be binding upon COMSAT and the
Executive. Within five days after receipt of the Accounting Firm's
determination, COMSAT shall pay to the Executive the Gross-Up Payment
determined by the Accounting Firm.
(c) In the event that upon any audit by the Internal Revenue
Service, or by a state or local taxing authority, of a Payment or Gross-Up
Payment, a change is finally determined to be required in the amount of
taxes paid by the Executive, appropriate adjustments shall be made under
this Section such that the net amount which is payable to the Executive
after taking into account the provisions of Section 4999 of the Code and
any interest and penalties shall reflect the intent of the partie as
expressed in paragraph (a) above, in the manner determined by the
Accounting Firm. The Executive shall notify COMSAT in writing of any claim
by the Internal Revenue Service that, if successful, would require the
payment by COMSAT of a Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise COMSAT of
-7-
the nature of such claim and the date on which such claim is requested to b
paid. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which it gives such notice to COMSAT
(or such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If COMSAT notifies the Executive in writing
prior to the expiration of such period that it desires to contest such
claim, the Executive shall: (i) give COMSAT any information reasonably
requested by COMSAT relating to such claim; (ii) take such action i
connection with contesting such claim as COMSAT shall reasonably request in
writing from time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney reasonably
selected by COMSAT; (iii) cooperate with COMSAT in good faith in order
effectively to contest such claim; and (iv) permit COMSAT to participate in
any proceedings relating to such claim; PROVIDED, HOWEVER, that COMSAT
shall bear and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such contest and shall
indemnify and hold the Executive harmless, on an after-tax basis, for any
excise tax or income tax (including interest and penalties with respect
thereto) imposed as a result of such representation and payment of costs
and expenses. Without limitation on the foregoing provisions of this
Section 7, COMSAT shall control all proceedings taken in connection with
such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as COMSAT shall
determine. COMSAT's control of the contest shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) All of the fees and expenses of the Accounting Firm in
performing the determinations referred to in paragraphs (b) and (c) above
shall be borne solely by COMSAT. COMSAT agrees to indemnify and hold
harmless the Accounting Firm from any and all claims, damages and expenses
resulting from or relating to its determinations pursuant to paragraphs (b)
and (c) above, except for claims, damages or expenses resulting from the
gross negligence or willful misconduct of the Accounting Firm.
8. SURVIVORSHIP. The respective rights and obligations of the parties
hereunder shall survive any termination of the Executive's employment and
the Employment Term to the extent necessary to the intended preservation of
such rights and obligations.
9. MITIGATION AND NO OFFSETS. The Executive shall not be required to
mitigate the amount of any payment or benefit provided for in this
Agreement by seeking other employment or otherwise and there shall be no
offset against amounts due the Executive under this Agreement on account of
any remuneration attributable to any subsequent employment that he may
obtain. COMSAT's obligations to make payments under this Agreement and
otherwise to perform its obligations hereunder shall not be affected by any
circumstances, including, without limitation, any set-off, counterclaim,
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<PAGE>
recoupment, defense or other right which COMSAT may have against the
Executive or others.
10. NON-COMPETITION.
(a) NON-COMPETITION AGREEMENT. As an inducement for COMSAT to
enter into this Agreement, the Executive agrees that, during the
Non-Competition Period (as defined below), the Executive shall not, without
the prior written consent of the Board, engage or participate, directly or
indirectly, as principal, agent, employee, employer, consultant,
stockholder, partner or in any other individual capacity whatsoever, in the
conduct or management of, or own any stock or any other equity investment
in or debt of, any business which is competitive with any business
conducted by COMSAT. The Non-Competition Period is the period commencing as
of the Effective Date and running through the date that is one year
following the date on which the Executive's employment with COMSAT
terminates for any reason.
(b) COMPETITIVE BUSINESS. For the purpose of this Agreement, a
business shall be considered to be competitive with any business of COMSAT
only if such business is engaged in providing services or products (i)
comparable to or competitive with (A) any service or product currently
provided by COMSAT during the Employment Period; (B) any service or product
which evolves from or results from enhancements in the ordinary course
during the Non-Competition Period to the services or products provided by
COMSAT as of the date hereof or during the Employment Period; or (C) any
future service or product of COMSAT as to which the Executive materially
and substantially participated in the development or enhancement, and (ii)
to customers, distributors or clients of the type served by COMSAT during
the Non-Competition Period.
(c) NON-SOLICITATION OF EMPLOYEES. During the Non-Competition
Period, the Executive will not (for his own benefit or for the benefit of
any person or entity other than COMSAT) solicit, or assist any person or
entity other than COMSAT to solicit, any officer, director, executive or
employee (other than an administrative or clerical employee) of COMSAT to
leave his or her employment.
(d) REASONABLENESS; INTERPRETATION. The Executive acknowledges
and agrees, solely for purposes of determining the enforceability of this
Section 10 (and not for purposes of determining the amount of money damages
or for any other reason), that (i) the markets served by COMSAT are
national and international and are not dependent on the geographic location
of executive personnel or the businesses by which they are employed; (ii)
the length of the Non-Competition Period is linked to the term of the
Employment Period; and (iii) the above covenants are manifestly reasonable
on their face, and the parties expressly agree that such restrictions have
been designed to be reasonable and no greater than is required for the
protection of COMSAT. In the event that the covenants in this Section 10
shall be determined by any court of competent jurisdiction in any action to
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be unenforceable by reason of their extending for too great a period of
time or over too great a geographical area or by reason of their being too
extensive in any other respect, they shall be interpreted to extend only
over the maximum period of time for which they may be enforceable, and/or
over the maximum geographical area as to which they may be enforceable
and/or to the maximum extent in all other respects as to which they may be
enforceable, all as determined by such court in such action.
(e) INVESTMENT. Nothing in this Agreement shall be deemed to
prohibit the Executive from owning equity or debt investments in any
corporation, partnership or other entity which is competitive with COMSAT,
provided that such investments (i) are passive investments and constitute
five percent or less of the outstanding equity securities of such an entity
the equity securities of which are traded on a national securities exchange
or other public market, or (ii) are approved by the Board.
11. INDEMNIFICATION; LIABILITY INSURANCE. The Executive shall be
entitled to indemnification and coverage under COMSAT's liability insurance
policy for officers to the same extent as other officers of COMSAT. In
addition, the Executive shall be indemnified to the maximum extent
permitted by law of the jurisdiction in which COMSAT is incorporated, as it
may be amended from time to time.
12. ENFORCEMENT.
-----------
(a) The Executive acknowledges that a breach of the covenants or
provisions contained in Sections 3, 4 and 10 of this Agreement will cause
irreparable damage to COMSAT, the exact amount of which will be difficult
to ascertain, and that the remedies at law for any such breach will be
inadequate. Accordingly, the Executive agrees that if the Executive
breaches or threatens to breach any of the covenants or provisions
contained in Sections 3, 4 and 10 of this Agreement, in addition to any
other remedy which may be available at law or in equity, COMSAT shall be
entitled to seek specific performance and injunctive relief in a court of
competent jurisdiction after notice and a hearing.
(b) The parties expressly agree that any litigation directly or
indirectly arising out of or relating to this Agreement, including an
action brought by COMSAT pursuant to this Section 12, shall be brought in a
court of competent jurisdiction in the State of Maryland.
13. EXPENSES OF ENFORCING THE AGREEMENT. If the Executive brings an
action to enforce any of the obligations of COMSAT under this Agreement and
prevails on any material issue, COMSAT shall pay the Executive on demand
the amount necessary to reimburse the Executive in full for all reasonable
expenses (including reasonable attorneys' fees and legal expenses) incurred
by the Executive in enforcing the obligations of COMSAT under this
Agreement.
14. SEVERABILITY. Should any provision of this Agreement be
determined to be unenforceable or prohibited by any applicable law, such
provision shall be ineffective to the extent, and only to the extent, of
such unenforceability or prohibition without invalidating the balance of
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<PAGE>
such provision or any other provision of this Agreement, and any such
unenforceability or prohibition in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
15. ASSIGNMENT. The Executive's rights and obligations under this
Agreement shall not be assignable by the Executive. COMSAT's rights and
obligations under this Agreement shall not be assignable by COMSAT except
as incident to the transfer, by merger or otherwise, of all or
substantially all of the business of COMSAT. In the event of any such
assignment by COMSAT, all rights of COMSAT hereunder shall inure to the
benefit of the assignee, provided that all references herein to COMSAT
shall be deemed to refer with equal force and effect to any corporate or
other successor of COMSAT.
16. NOTICES. All notices and other communications which are required
or may be given under this Agreement shall be in writing and shall be
deemed to have been duly given when received if personally delivered; when
transmitted if transmitted by telecopy, electronic or digital transmission
method, provided that in such case it shall also be sent by certified or
registered mail, return receipt requested; the day after it is sent, if
sent for next day delivery to a domestic address by recognized overnight
delivery service (E.G., Federal Express); and upon receipt, if sent by
certified or registered mail, return receipt requested. Unless otherwise
changed by notice, in each case notice shall be sent to:
If to the Executive, addressed to:
Allen E. Flower
3601 N. Lincoln Street
Arlington, Virginia 22207
With a copy (not constituting notice) to:
Joseph E. Bachelder, Esquire
780 Third Avenue
New York, N.Y. 10017
If to COMSAT, addressed to:
COMSAT Corporation
6560 Rock Spring Drive
Bethesda, MD 20817
Attention: Betty C. Alewine
Telecopier No.: (301) 214-7134
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<PAGE>
With a copy (not constituting notice) to:
COMSAT Corporation
6560 Rock Spring Drive
Bethesda, MD 20817
Attention: Robert N. Davis, Jr.
Telecopier No.: (301) 214-7128
17. MISCELLANEOUS. This Agreement constitutes the entire agreement,
and supersedes all prior agreements, of the parties hereto relating to the
subject matter hereof, and there are no written or oral terms or
representations made by either party other than those contained herein. No
amendment, supplement, modification or waiver of this Agreement shall be
binding unless executed in writing by the party to be bound thereby. The
validity, interpretation, performance and enforcement of the Agreement
shall be governed by the laws of the State of Maryland without giving
effect to conflicts of laws principles thereof. The headings contained
herein are for reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement. The waiver by any party of a
breach of any term or condition of this Agreement by the other party shall
not operate as nor be construed as a waiver of any subsequent breach
thereof or a waiver of a breach of any other term or condition o this
Agreement. This Agreement may be signed in two or more counterparts, each
of which shall constitute an original but all of which together shall form
only a single instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of July 18, 1997.
/s/ A. E. Flower
-----------------------------------------
Allen Flower, Executive
COMSAT Corporation
By: /s/ Betty C. Alewine
-------------------------------------
Betty C. Alewine
President and Chief Executive Officer
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AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This AMENDED AND RESTATED AGREEMENT is made as of April 18, 1997, and
amended as of July 18, 1997, by and between COMSAT Corporation ("COMSAT"),
a District of Columbia corporation, and Warren Y. Zeger, a resident of the
State of Maryland (the "Executive").
WHEREAS, the Executive serves as Vice President, General Counsel and
Secretary of COMSAT;
WHEREAS, the Board of Directors of COMSAT (the "Board") believes it to
be in the best interests of COMSAT to enter into this Agreement to ensure
the Executive's continuing services to COMSAT; and
WHEREAS, COMSAT desires to continue to employ the Executive as Vice
President, General Counsel and Secretary of COMSAT, and the Executive
desires to continue such employment, on the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements made herein, and intending to be legally bound hereby, COMSAT
and the Executive agree as follows:
1. EMPLOYMENT; DUTIES.
(a) EMPLOYMENT AND EMPLOYMENT PERIOD. COMSAT shall employ the
Executive to serve as Vice President, General Counsel and Secretary of
COMSAT or any successor entity for a period (the "Employment Period")
commencing on April 18, 1997 (the "Effective Date") and continuing
thereafter until April 17, 2002 unless terminated in accordance with the
provisions of this Agreement. Each 12-month period ending on the
anniversary date of the Effective Date is referred to herein as a "year of
the Employment Period."
(b) OFFICES, DUTIES AND RESPONSIBILITIES. The Executive shall
report to the Chief Executive Officer of COMSAT. The Executive's offices
initially shall be located at COMSAT's present headquarters in Bethesda,
Maryland. The Executive shall have all duties and authority customarily
accorded a Vice President, General Counsel and Secretary.
(c) DEVOTION TO INTERESTS OF COMSAT. During the Employment
Period, the Executive shall devote his best efforts and full business time
and attention to the performance of his duties hereunder. Notwithstanding
the foregoing, the Executive shall be entitled to undertake outside
activities (E.G. charitable, educational, personal interests, and board of
directors memberships) that do not compete with COMSAT and do not
<PAGE>
unreasonably or materially interfere with the performance of his duties
hereunder as reasonably determined by the Chief Executive Officer in
consultation with the Executive.
2. COMPENSATION AND FRINGE BENEFITS.
--------------------------------
(a) BASE COMPENSATION. COMSAT shall pay the Executive a base
salary ("Base Salary") during the Employment Period, with payments made in
installments in accordance with COMSAT's regular practice for compensating
executive personnel, provided that in no event shall such payments be made
less frequently than twice per month. The initial annual Base Salary shall
be $230,000. Thereafter, the Base Salary for the Executive shall be
reviewed for increases annually during the Employment Period, consistent
with COMSAT's normal review process. Any Base Salary increases shall be
approved by the Board in its sole discretion.
(b) BONUS COMPENSATION. The Executive will be eligible to receive
bonuses ("Annual Bonus") during the Employment Period under the Annual
Incentive Plan (the "AIP") in accordance with the following parameters: (i)
the target bonus for each year during the Employment Period shall be 50% of
Base Salary for achieving 100% of the target level for the performance
measures and (ii) the performance measures, the relative weight to be
accorded each performance measure and the amount of bonus payable in
relation to the target bonus for achieving more or less than 100% of the
target level for the performance measures shall be determined for each year
during the Employment Period by the Committee on Compensation and
Management Development of the Board (the "Compensation Committee").
(c) FRINGE BENEFITS. The Executive shall be entitled to the
fringe benefits in effect for COMSAT senior executives from time to time,
including (i) participation in the COMSAT Directors and Executives Deferred
Compensation Plan, the COMSAT Split Dollar Insurance Plan, the COMSAT
Educational Grant Program, the COMSAT Retirement Plan, the COMSAT Savings
and Profit-Sharing Plan, the COMSAT 1995 Key Employee Stock Plan, the
COMSAT Employee Stock Purchase Plan, the COMSAT health and disability
insurance programs and the COMSAT financial planning program and (ii)
reimbursement of reasonable expenses incurred in connection with travel and
entertainment related to COMSAT's business and affairs. The Executive also
shall be entitled to such other or additional fringe benefits as are made
available to COMSAT senior executives during the Employment Period. COMSAT
reserves the right to modify or terminate at any time the fringe benefits
provided to the senior management group.
(d) SERP. The Executive shall continue to participate in the
COMSAT Insurance and Retirement Plan for Executives (the "SERP"). Any
future amendments or changes to the SERP which provide for a reduction,
deferral or elimination of benefits payable to participants in the SERP
shall expressly not apply to the Executive unless the Executive consents
otherwise.
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<PAGE>
(e) LEGAL EXPENSES. The Executive shall be entitled to
reimbursement of the Executive's reasonable legal fees and costs incurred
in connection with the negotiation and execution of this Agreement, subject
to a maximum reimbursement of $5,000.
3. TRADE SECRETS; RETURN OF DOCUMENTS AND PROPERTY.
-----------------------------------------------
(a) The Executive acknowledges that during the course of his
employment he will receive secret, confidential and proprietary information
("Trade Secrets") of COMSAT and of other companies with which COMSAT does
business on a confidential basis and that the Executive will create and
develop Trade Secrets for the benefit of COMSAT. Trade Secrets shall
include, without limitation, matters of a technical nature, such as
scientific and engineering secrets, "know-how," formulae, secret processes
or machines, inventions and computer programs (including documentation of
such programs), and matters of a business nature, such as customer data and
proprietary information about costs, profits, markets, sales and customer
databases, and other information of a similar nature to the extent not
available to the public, and plans for future development. All Trade
Secrets disclosed to or created by the Executive shall be deemed to be the
exclusive property of COMSAT. The Executive acknowledges that Trade Secrets
have economic value to COMSAT due to the fact that Trade Secrets are not
generally known to the public or the trade and that the unauthorized use or
disclosure of Trade Secrets is likely to be detrimental to the interests of
COMSAT and its subsidiaries. The Executive therefore agrees to hold in
strict confidence and not to disclose to any third party any Trade Secret
acquired or created or developed by the Executive during the term of this
Agreement except (i) when the Executive uses o discloses any Trade Secret
in the proper course of the Executive's rendition of services to COMSAT
hereunder, (ii) when such Trade Secret becomes public knowledge other than
through a breach of this Agreement, or (iii) when the Executive is required
to disclose any Trade Secret pursuant to any valid legal process. The
Executive shall notify COMSAT immediately of any such legal process in
order to enable COMSAT to contest such legal process's validity. After
termination of this Agreement, the Executive shall not use or otherwise
disclose Trade Secrets unless such information (x) becomes public knowledge
other than through a breach of this Agreement, (y) is disclosed to the
Executive by a third party who is entitled to receive and disclose such
Trade Secret, or (z) is required to be disclosed pursuant to any valid
legal process, in which case the Executive shall notify COMSAT immediately
of any such legal process in order to enable COMSAT to contest such legal
process's validity.
(b) Upon the effective date of notice of the Executive's or
COMSAT's election to terminate this Agreement, or at any time upon the
request of COMSAT, the Executive (or his heirs or personal representatives)
shall deliver to COMSAT (i) all documents and materials containing or
otherwise relating to Trade Secrets or other information relating to
COMSAT's business and affairs, and (ii) all documents, materials and other
property belonging to COMSAT, which in either case are in the possession or
under the control of the Executive (or his heirs or personal
representatives). The Executive shall be entitled to keep his personal
records (including Rolodex) relating to COMSAT's business and affairs
-3-
except to the extent those contain documents or materials described in
clause (i) of the preceding sentence.
4. DISCOVERIES AND WORKS. All discoveries and works made or
conceived by the Executive during his employment by COMSAT pursuant to this
Agreement, jointly or with others, that relate to COMSAT's activities
("Discoveries and Works") shall be owned by COMSAT. Discoveries and Works
shall include, without limitation, inventions, computer programs (including
documentation of such programs), technical improvements, processes,
drawings and works of authorship. The Executive shall (a) promptly notify,
make full disclosure to, and execute and deliver any documents requested
by, COMSAT to evidence or better assure title to such Discoveries and Works
in COMSAT, (b) assist COMSAT in obtaining or maintain for itself at its own
expense United States and foreign patents, copyrights, trade secret
protection or other protection of any and all such Discoveries and Works,
and promptly execute, whether during his employment by COMSAT or
thereafter, all applications or other endorsements necessary or appropriate
to maintain patents and other rights for COMSAT and to protect its title
thereto. Any Discoveries and Works which, within six months after the
termination of the Executive's employment by COMSAT, are made, disclosed,
reduced to a tangible or written form or description, or are reduced to
practice by the Executive and which pertain to work performed by the
Executive while with COMSAT shall, as between the Executive and COMSAT, be
presumed to have been made during the Executive's employment by COMSAT.
5. TERMINATION. This Agreement shall remain in effect during the
Employment Period, and this Agreement and Executive's employment with
COMSAT may be terminated only as follows:
(a) The Executive's employment may be terminated by the Executive
at any time upon 45 days advance written notice to COMSAT for "Good Reason"
(as defined below). In such event, or if the Executive's employment is
terminated by COMSAT without "Cause" (as defined below), the Executive
shall be entitled to receive the following benefits until April 17, 2002:
(i) The Executive's Base Salary in effect at the date of
termination;
(ii) An Annual Bonus equal to 50% of his then current Base
Salary; and
(iii) All benefits provided pursuant to Sections 2(c) and (d) of
this Agreement, which shall be deemed to vest fully and immediately if
subject to vesting; provided, however, that in the event COMSAT is
precluded from providing coverage under any such benefit plan by applicable
law or regulation, COMSAT may provide the Executive with a payment equal to
the cost of such coverage without regard to tax effect. The foregoing
benefits shall be calculated in accordance with the provisions of the
applicable plans as if the Executive had retired on his date of
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<PAGE>
termination, provided that the Board reserves the discretion to waive the
applicable early retirement reduction under the SERP in such event.
(b) "Good Reason" shall mean the occurrence of any of the
following (other than for "Cause"), without the Executive's express written
consent: (i) the assignment to the Executive of duties inconsistent with
the Executive's status as an executive officer of COMSAT or a substantial
reduction by COMSAT of the Executive's responsibilities as an executive
officer of COMSAT; (ii) any relocation of the Executive's offices outside
the Washington, D.C. metropolitan area by COMSAT prior to the third
anniversary of the Effective Date; or (iii) any material default of the
provisions of Section 2 of this Agreement which continues for 20 business
days following COMSAT's receipt of written notice from the Executive
specifying the manner in which COMSAT is in default of such provisions. In
order for the Executive to terminate employment for "Good Reason," the
Executive must give COMSAT written notice of his termination of employment
for "Good Reason," stating the basis for the termination, within 90 days
after the Executive learns of the occurrence of the event constituting
"Good Reason."
(c) The Executive's employment may be terminated by COMSAT for
Cause at any time upon 10 days written notice to the Executive, and after
giving the Executive an opportunity to discuss such decision with the
Board. For purposes of this Agreement, COMSAT shall have "Cause" to
terminate the Executive's employment hereunder upon (i) the continued and
deliberate failure of the Executive to perform his material duties, in a
manner substantially consistent with the manner reasonably prescribe by the
Board and in accordance with the terms of this Agreement (other than any
such failure resulting from his incapacity due to physical or mental
illness), which failure continues for 20 business days following the
Executive's receipt of written notice from the Board specifying the manner
in which the Executive is in default of his duties, (ii) the engaging by
the Executive in intentional serious misconduct that is materially and
demonstrably injurious to COMSAT or its reputation, which misconduct, if it
is reasonably capable of being cured, is not cured by the Executive within
20 business days following the Executive's receipt of written notice from
the Board specifying the serious misconduct engaged in by the Executive,
(iii) the conviction of the Executive of commission of a felony, whether or
not such felony was committed in connection with COMSAT's business, or (iv)
any material breach by the Executive of Section 10 hereof, which breach, if
it is reasonably capable of being cured, is not cured by the Executive
within 20 business days following the Executive's receipt of written notice
from the Board specifying the breach of Section 10 by the Executive. If
COMSAT shall terminate the Executive's employment for "Cause," COMSAT, in
full satisfaction of all of COMSAT's obligations under this Agreement and
in respect of the termination of the Executive's employment with COMSAT,
shall pay the Executive his Base Salary and any other compensation,
benefits and reimbursements due him under COMSAT plans through the date of
termination of his employment.
(d) If, prior to the expiration or termination of the Employment
Period, the Executive shall have been unable to perform substantially his
duties by reason of disability or impairment of health for at least six
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consecutive calendar months, COMSAT shall have the right to terminate this
Agreement by giving 60 days written notice to the Executive to that effect,
but only if at the time such notice is given such disability or impairment
is still continuing. Following the expiration of the notice period, the
Employment Period shall terminate with the payment of the Executive's Base
Salary for the month in which notice is given and a prorated Annual Bonus
through such month. In the event of a dispute as to whether the Executive
is disabled within the meaning of this Section 5(d), or the duration of any
disability, either party may request a medical examination of the Executive
by a doctor appointed by the Chief of Staff of a hospital selected by
mutual agreement of the parties, or as the parties may otherwise agree, and
the written medical opinion of such doctor shall be conclusive and binding
upon the parties as to whether the Executive has become disabled and the
date when such disability arose. The cost of any such medical examinations
shall be borne by COMSAT. In no event shall this Agreement terminate before
COMSAT's long-term disability benefits under applicable plans become
payable to the Executive.
(e) If, prior to the expiration or termination of the Employment
Period, the Executive shall die, COMSAT shall pay to the Executive's estate
his Base Salary and a prorated Annual Bonus through the end of the month in
which the Executive's death occurred, at which time the Employment Period
shall terminate without further notice.
(f) If either the Executive or COMSAT elects not to renew the
Executive's employment with COMSAT at the end of the Employment Period, the
Executive shall be entitled to receive payments under the SERP beginning on
May 1, 2002 (the first day of the month after the end of such period),
calculated in accordance with the provisions of the SERP based on the
Executive's retirement on that date, provided that the Board reserves the
discretion to waive the applicable early retirement reduction under the
SERP in such event. If the Executive's employment with COMSAT under this
Agreement is terminated either by the Executive for Good Reason or by
COMSAT without Cause before the Executive attains age 55, the Executive
shall be entitled to receive payments under the SERP beginning on April 1,
2002 (the first day of the month after the Executive's 55th birthday),
calculated in accordance with the provisions of the SERP as if the
Executive retired on that date, provided that the Board reserves the
discretion to waive the applicable early retirement reduction under the
SERP in such event. If the Executive dies before payments begin under the
SERP, the Executive's surviving spouse, if any, shall receive under the
SERP a $200,000 lump sum death benefit, plus annual benefit payments for a
ten year period equal to 50% of the Executive's accrued benefit under the
SERP, according to the terms of the SERP. The provisions of this Section
5(f) shall be administered consistent with the terms of the SERP.
(g) If the Executive voluntarily terminates employment with
COMSAT, such termination shall not be considered a breach of this Agreement
by the Executive and shall not adversely affect the Executive's right to
receive such benefits as may be payable to the Executive on account of his
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<PAGE>
termination of employment under applicable COMSAT plans. The Executive
shall remain obligated to comply with the provisions of Sections 3, 4, 10
and 12 of this Agreement.
6. CHANGE OF CONTROL. If a change of control (as defined for
purposes of COMSAT's benefit plans) occurs during the Employment Term, the
change of control shall not adversely affect any of the Executive's rights
under this Agreement, and this Agreement shall continue in effect according
to its terms. In the event of a change of control, the Executive shall be
entitled to vesting and payment of benefits according to the terms of this
Agreement or COMSAT's applicable plans, whichever is more favorable.
7. CERTAIN ADDITIONAL PAYMENTS.
---------------------------
(a) Notwithstanding anything in this Agreement to the contrary,
in the event that it shall be determined that any payment or benefit to the
Executive, whether pursuant to the terms of this Agreement or otherwise (a
"Payment"), would constitute an "excess parachute payment" within the
meaning of Section 280G of the Internal Revenue Code of 1986, as amended
(the "Code"), the Executive shall be paid an additional amount (a "Gross-Up
Payment") such that the net amount retained by the Executive after
deduction of any excise tax imposed under Section 4999 of the Code, and any
federal, state and local income and employment taxes and excise tax,
including any interest and penalties with respect thereto, imposed upon the
Gross-Up Payment shall be equal to the Payment. For purposes of determining
the amount of the Gross-Up Payment, the Executive shall be deemed to pay
federal income tax and employment taxes at the highest marginal rate of
federal income and employment taxation in the calendar year in which the
Gross-Up Payment is to be made and state and local income taxes at the
highest marginal rate of taxation in the state and locality of the
Executive's residence on the date the Payment is made, net of the reduction
in federal income taxes that the Executive may obtain from the deduction of
such state and local income taxes.
(b) All determinations to be made under this Section 7 shall be
made by COMSAT's independent public accountant immediately prior to the
date the Payment is made (the "Accounting Firm"), which firm shall provide
its determinations and any supporting calculations and workpapers both to
COMSAT and the Executive within 10 days of such date. Any such
determination by the Accounting Firm shall be binding upon COMSAT and the
Executive. Within five days after receipt of the Accounting Firm's
determination, COMSAT shall pay to the Executive the Gross-Up Payment
determined by the Accounting Firm.
(c) In the event that upon any audit by the Internal Revenue
Service, or by a state or local taxing authority, of a Payment or Gross-Up
Payment, a change is finally determined to be required in the amount of
taxes paid by the Executive, appropriate adjustments shall be made under
this Section such that the net amount which is payable to the Executive
after taking into account the provisions of Section 4999 of the Code and
any interest and penalties shall reflect the intent of the partie as
expressed in paragraph (a) above, in the manner determined by the
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<PAGE>
Accounting Firm. The Executive shall notify COMSAT in writing of any claim
by the Internal Revenue Service that, if successful, would require the
payment by COMSAT of a Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise COMSAT of
the nature of such claim and the date on which such claim is requested to b
paid. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which it gives such notice to COMSAT
(or such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If COMSAT notifies the Executive in writing
prior to the expiration of such period that it desires to contest such
claim, the Executive shall: (i) give COMSAT any information reasonably
requested by COMSAT relating to such claim; (ii) take such action i
connection with contesting such claim as COMSAT shall reasonably request in
writing from time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney reasonably
selected by COMSAT; (iii) cooperate with COMSAT in good faith in order
effectively to contest such claim; and (iv) permit COMSAT to participate in
any proceedings relating to such claim; PROVIDED, HOWEVER, that COMSAT
shall bear and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such contest and shall
indemnify and hold the Executive harmless, on an after-tax basis, for any
excise tax or income tax (including interest and penalties with respect
thereto) imposed as a result of such representation and payment of costs
and expenses. Without limitation on the foregoing provisions of this
Section 7, COMSAT shall control all proceedings taken in connection with
such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as COMSAT shall
determine. COMSAT's control of the contest shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) All of the fees and expenses of the Accounting Firm in
performing the determinations referred to in paragraphs (b) and (c) above
shall be borne solely by COMSAT. COMSAT agrees to indemnify and hold
harmless the Accounting Firm from any and all claims, damages and expenses
resulting from or relating to its determinations pursuant to paragraphs (b)
and (c) above, except for claims, damages or expenses resulting from the
gross negligence or willful misconduct of the Accounting Firm.
8. SURVIVORSHIP. The respective rights and obligations of the
parties hereunder shall survive any termination of the Executive's
employment and the Employment Term to the extent necessary to the intended
preservation of such rights and obligations.
9. MITIGATION AND NO OFFSETS. The Executive shall not be required to
mitigate the amount of any payment or benefit provided for in this
Agreement by seeking other employment or otherwise and there shall be no
-8-
<PAGE>
offset against amounts due the Executive under this Agreement on account of
any remuneration attributable to any subsequent employment that he may
obtain. COMSAT's obligations to make payments under this Agreement and
otherwise to perform its obligations hereunder shall not be affected by any
circumstances, including, without limitation, any set-off, counterclaim,
recoupment, defense or other right which COMSAT may have against the
Executive or others.
10. NON-COMPETITION.
---------------
(a) NON-COMPETITION AGREEMENT. As an inducement for COMSAT to
enter into this Agreement, the Executive agrees that, during the
Non-Competition Period (as defined below), the Executive shall not, without
the prior written consent of the Board, engage or participate, directly or
indirectly, as principal, agent, employee, employer, consultant,
stockholder, partner or in any other individual capacity whatsoever, in the
conduct or management of, or own any stock or any other equity investment
in or debt of, any business which is competitive with any business
conducted by COMSAT. The Non-Competition Period is the period commencing as
of the Effective Date and running through the date that is one year
following the date on which the Executive's employment with COMSAT
terminates for any reason.
(b) COMPETITIVE BUSINESS. For the purpose of this Agreement, a
business shall be considered to be competitive with any business of COMSAT
only if such business is engaged in providing services or products (i)
comparable to or competitive with (A) any service or product currently
provided by COMSAT during the Employment Period; (B) any service or product
which evolves from or results from enhancements in the ordinary course
during the Non-Competition Period to the services or products provided by
COMSAT as of the date hereof or during the Employment Period; or (C) any
future service or product of COMSAT as to which the Executive materially
and substantially participated in the development or enhancement, and (ii)
to customers, distributors or clients of the type served by COMSAT during
the Non-Competition Period. Without limiting the foregoing, employment of
the Executive by a law firm as a lawyer will not be considered employment
with a competitor for purposes of this Agreement.
(c) NON-SOLICITATION OF EMPLOYEES. During the Non-Competition
Period, the Executive will not (for his own benefit or for the benefit of
any person or entity other than COMSAT) solicit, or assist any person or
entity other than COMSAT to solicit, any officer, director, executive or
employee (other than an administrative or clerical employee) of COMSAT to
leave his or her employment.
(d) REASONABLENESS; INTERPRETATION. The Executive acknowledges
and agrees, solely for purposes of determining the enforceability of this
Section 10 (and not for purposes of determining the amount of money damages
or for any other reason), that (i) the markets served by COMSAT are
national and international and are not dependent on the geographic location
of executive personnel or the businesses by which they are employed; (ii)
-9-
<PAGE>
the length of the Non-Competition Period is linked to the term of the
Employment Period; and (iii) the above covenants are manifestly reasonable
on their face, and the parties expressly agree that such restrictions have
been designed to be reasonable and no greater than is required for the
protection of COMSAT. In the event that the covenants in this Section 10
shall be determined by any court of competent jurisdiction in any action to
be unenforceable by reason of their extending for too great a period of
time or over too great a geographical area or by reason of their being too
extensive in any other respect, they shall be interpreted to extend only
over the maximum period of time for which they may be enforceable, and/or
over the maximum geographical area as to which they may be enforceable
and/or to the maximum extent in all other respects as to which they may be
enforceable, all as determined by such court in such action.
(e) INVESTMENT. Nothing in this Agreement shall be deemed to
prohibit the Executive from owning equity or debt investments in any
corporation, partnership or other entity which is competitive with COMSAT,
provided that such investments (i) are passive investments and constitute
five percent or less of the outstanding equity securities of such an entity
the equity securities of which are traded on a national securities exchange
or other public market, or (ii) are approved by the Board.
11. INDEMNIFICATION; LIABILITY INSURANCE. The Executive shall be
entitled to indemnification and coverage under COMSAT's liability insurance
policy for officers to the same extent as other officers of COMSAT. In
addition, the Executive shall be indemnified to the maximum extent
permitted by law of the jurisdiction in which COMSAT is incorporated, as it
may be amended from time to time.
12. ENFORCEMENT.
-----------
(a) The Executive acknowledges that a breach of the covenants or
provisions contained in Sections 3, 4 and 10 of this Agreement will cause
irreparable damage to COMSAT, the exact amount of which will be difficult
to ascertain, and that the remedies at law for any such breach will be
inadequate. Accordingly, the Executive agrees that if the Executive
breaches or threatens to breach any of the covenants or provisions
contained in Sections 3, 4 and 10 of this Agreement, in addition to any
other remedy which may be available at law or in equity, COMSAT shall be
entitled to seek specific performance and injunctive relief in a court of
competent jurisdiction after notice and a hearing.
(b) The parties expressly agree that any litigation directly or
indirectly arising out of or relating to this Agreement, including an
action brought by COMSAT pursuant to this Section 12, shall be brought in a
court of competent jurisdiction in the State of Maryland.
13. EXPENSES OF ENFORCING THE AGREEMENT. If the Executive brings an
action to enforce any of the obligations of COMSAT under this Agreement and
-10-
<PAGE>
prevails on any material issue, COMSAT shall pay the Executive on demand
the amount necessary to reimburse the Executive in full for all reasonable
expenses (including reasonable attorneys' fees and legal expenses) incurred
by the Executive in enforcing the obligations of COMSAT under this
Agreement.
14. SEVERABILITY. Should any provision of this Agreement be
determined to be unenforceable or prohibited by any applicable law, such
provision shall be ineffective to the extent, and only to the extent, of
such unenforceability or prohibition without invalidating the balance of
such provision or any other provision of this Agreement, and any such
unenforceability or prohibition in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
15. ASSIGNMENT. The Executive's rights and obligations under this
Agreement shall not be assignable by the Executive. COMSAT's rights and
obligations under this Agreement shall not be assignable by COMSAT except
as incident to the transfer, by merger or otherwise, of all or
substantially all of the business of COMSAT. In the event of any such
assignment by COMSAT, all rights of COMSAT hereunder shall inure to the
benefit of the assignee, provided that all references herein to COMSAT
shall be deemed to refer with equal force and effect to any corporate or
other successor of COMSAT.
16. NOTICES. All notices and other communications which are required
or may be given under this Agreement shall be in writing and shall be
deemed to have been duly given when received if personally delivered; when
transmitted if transmitted by telecopy, electronic or digital transmission
method, provided that in such case it shall also be sent by certified or
registered mail, return receipt requested; the day after it is sent, if
sent for next day delivery to a domestic address by recognized overnight
delivery service (E.G., Federal Express); and upon receipt, if sent by
certified or registered mail, return receipt requested. Unless otherwise
changed by notice, in each case notice shall be sent to:
If to the Executive, addressed to:
Warren Y. Zeger
10705 Stapleford Hall Drive
Potomac, MD 20854
With a copy (not constituting notice) to:
Joseph E. Bachelder, Esquire
780 Third Avenue
New York, N.Y. 10017
-11-
<PAGE>
If to COMSAT, addressed to:
COMSAT Corporation
6560 Rock Spring Drive
Bethesda, MD 20817
Attention: Betty C. Alewine
Telecopier No.: (301) 214-7134
With a copy (not constituting notice) to:
COMSAT Corporation
6560 Rock Spring Drive
Bethesda, MD 20817
Attention: Robert N. Davis, Jr.
Telecopier No.: (301) 214-7128
17. MISCELLANEOUS. This Agreement constitutes the entire agreement,
and supersedes all prior agreements, of the parties hereto relating to the
subject matter hereof, and there are no written or oral terms or
representations made by either party other than those contained herein. No
amendment, supplement, modification or waiver of this Agreement shall be
binding unless executed in writing by the party to be bound thereby. The
validity, interpretation, performance and enforcement of the Agreement
shall be governed by the laws of the State of Maryland without giving
effect to conflicts of laws principles thereof. The headings contained
herein are for reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement. The waiver by any party of a
breach of any term or condition of this Agreement by the other party shall
not operate as nor be construed as a waiver of any subsequent breach
thereof or a waiver of a breach of any other term or condition o this
Agreement. This Agreement may be signed in two or more counterparts, each
of which shall constitute an original but all of which together shall form
only a single instrument.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of July 18, 1997.
/s/ Warren Y. Zeger
----------------------------------------------
Warren Y. Zeger, Executive
COMSAT Corporation
By: /s/ Betty C. Alewine
-------------------------------------
Betty C. Alewine
President and Chief Executive Officer
-13-
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
AS OF MARCH 31, 1998
Jurisdiction of
Subsidiary Incorporation
- ---------- ---------------
Bethesda Real Property, Inc. Delaware
COMSAT Capital I, L.P. Delaware
COMSAT Digital Teleport, Inc. Delaware
COMSAT General Corporation Delaware
COMSAT General Telematics, Inc. Delaware
COMSAT Technology, Inc. Delaware
CTS Transnational, Inc. Delaware
COMSAT Government Systems, Inc. Delaware
COMSAT International, Inc. Delaware
BelCommunications, Ltd. Republic of Cyprus
BelCom, Inc. Delaware
BelCom Cellular, Inc. Delaware
BelComRus Russian Federation
BelCom Central Asia, Ltd. Kazakhstan
COMSAT Argentina, S.A. Argentina
COMSAT Asia (L) Incorporated Malaysia
COMSAT Brasil, Ltda. Brazil
COMSAT de Bolivia, SRL Bolivia
COMSAT do Brasil Equipamentos
Telecommunicacoes Ltda. Brazil
COMSAT de Colombia, S.A. Colombia
COMSAT de Guatemala, S.A. Guatemala
COMSAT de Mexico, S.A. Mexico
COMSAT de Panama, S.A. Panama
COMSAT Dijital Hizmetleri
Ticaret Anonim Sirketi Turkey
COMSAT Iletisim Hizmetleri
Ticaret Anonim Sirketi Turkey
COMSAT Investments Inc., Mauritius Mauritius
COMSAT MAX, Ltd. India
COMSAT Peru, S.A. Peru
COMSAT Venezuela, COMSATVEN, C.A. Venezuela
Comunicaciones Satelitales de Colombia, S.A. Colombia
CIV C.I.S. Holdings, Inc. Delaware
Guangzhou Tian Hang Communication Technology
Services, Ltd. China
International Company of Telecommunications Russian Federation
Stavropol Cellular Communications Russion Federation
Tian Hang Technology Services, Ltd. Hong Kong
ZAO Novocom Russian Federation
COMSAT Laboratories, Inc. Delaware
Indicom Personal Communications Pvt. Limited India
COMSAT Laboratories India, Inc. Delaware
COMSAT Mobile Investments, Inc. Delaware
COMSAT Overseas, Inc. Delaware
COMSAT Personal Communications, Inc. Delaware
COMSAT RSI, Inc. Delaware
Anghel Laboratories, Inc. Delaware
C&S Antennas, Inc. Delaware
C&S Antennas Limited United Kingdom
COMSAT RSI Communications Corp. Delaware
COMSAT RSI Foreign Sales Corporation US Virgin Islands
COMSAT RSI International Limited United Kingdom
COMSAT RSI Maryland, Inc. Delaware
CRSI Acquisition, Inc. Delaware
CSA Limited United Kingdom
Mark Antenna Products, Inc. Nevada
Mexia Fabricators, Inc. Texas
Plexsys International Corporation Illinois
PG Technology Limited United Kingdom
Radiation Systems Electromechanical
Systems, Incorporated Florida
Radiation Systems Precision Controls, Inc. Nevada
Universal Antennas Incorporated Nevada
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in COMSAT Corporation's
Registration Statement No. 2-87942 on Form S-8, Registration Statement No.
33-5259 on Form S-8, Registration Statement No. 33-25124 on Form S-8,
Registration Statement No. 33-35364 on Form S-8, Registration Statement No.
33-53610 on Form S-8, Registration Statement No. 33-51661 on Form S-3,
Registration Statement No. 33-54369 on Form S-8, Registration Statement No.
33-54685 on Form S-8, Registration Statement No. 33-54687 on Form S-8,
Registration Statement No. 33-56331 on Form S-8, Registration Statement No.
33-56333 on Form S-8, Registration Statement No. 33-59531 on Form S-8,
Registration Statement No. 33-59513 on Form S-8, Registration Statement No.
33-59841 on Form S-3, Registration Statement No. 33-33061 on Form S-3 of
our report dated February 12, 1998 (March 16, 1998 as to the tenth
paragraph of Note 2), appearing in this Annual Report on Form 10-K of
COMSAT Corporation for the year ended December 31, 1997.
Deloitte & Touche LLP
Washington, D.C.
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the financial statements for the year ended December 31, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
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<NAME> COMSAT Corporation
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
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<ALLOWANCES> (14,735)
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<CURRENT-ASSETS> 318,249
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0
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<COMMON> 366,901
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