Item 1. Business
GENERAL INFORMATION
Business Segments
COMSAT Corporation (COMSAT, the corporation or Registrant) reported operating results and financial data for 1995 in four business segments: International Communications, Mobile Communications, Technology Services and Entertainment.
In 1995, the International Communications segment consisted of activities undertaken by the corporation in its COMSAT World Systems (CWS) and COMSAT International Ventures (CIV) 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). CIV develops, acquires and manages telecommunications companies in emerging overseas markets which, in its view, present the potential for high growth. These ventures provide a wide array of private-line and public-switched communications services and equipment installations. The Mobile Communications segment consists of activities undertaken by the corporation in its COMSAT Mobile Communications (CMC) business. 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 Technology Services segment consists of the financial results of COMSAT RSI, Inc. (CRSI) and COMSAT Laboratories, which include the design and manufacture of voice and data communications networks and products, system integration services, and applied research and technology services for worldwide users. The Entertainment segment consists of the financial results of Ascent Entertainment Group, Inc. (Ascent). Ascent, through its subsidiaries, provides on-demand 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 revenues, operating income (loss) and assets of the corporation, by business segment, for each of the last three years are shown in Note 17 to the financial statements.
The corporation had 2,991 employees on December 31, 1995. None of the employees is represented by a labor union, except for approximately 37 employees working for CRSI on a 100- meter radio telescope.
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). Effective June 1, 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 issuances of capital stock and borrowings 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.
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 these matters, see Notes 10 and 11 to the financial statements.
INTERNATIONAL COMMUNICATIONS
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, 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. More than 95.2% 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 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 1995, approximately 44% of CWS IBS traffic was covered by long-term commitments. CWS's customers have established international VSAT networks to 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 launch of the INTELSAT K satellite and the INTELSAT VII and VIIA satellites (see "Item 2.
Item 2. Properties
COMSAT Properties
At year end 1995, the headquarters of the corporation and the headquarters of the International Communications, Mobile Communications and Entertainment segments 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 9 to the financial statements). In 1995, the corporation relocated the headquarters for the Mobile Communications segment from Clarksburg, Maryland to Bethesda, Maryland. In 1995, Ascent's headquarters were located in Bethesda, Maryland in space leased from the corporation. Ascent relocated its headquarters to Denver, Colorado in 1996.
The corporation owns buildings and land at Clarksburg, Maryland that serve as the headquarters of COMSAT Laboratories, as well as offices for certain operations of CRSI and CMC. 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 14 other properties in the United States and leases two properties in England and a sales office in the United Arab Emirates for the operations of CRSI's business units.
COMSAT General owns 86.3% of the MARISAT Joint Venture, which operates three satellites launched in 1976 -- the capacity of which is leased to Inmarsat, the U.S. Navy and the U.K. Navy. COMSAT General also owns the SBS-2 satellite launched in 1981, which is primarily leased to NBC, and the COMSTAR D-4 satellite launched in 1981, which is used by CMC and is scheduled to be decommissioned in 1996.
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. The California and Connecticut earth stations are also used by CRSI to provide communications services and 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's properties are 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.
The INTELSAT V series consists of six satellites constructed by Space Systems/Loral (formerly Ford Aerospace and Communications Company) having an average capacity of at least 15,000 voice-grade bearer circuits or 51 television channels. The INTELSAT V-A series consists of five satellites constructed by Space Systems/Loral having an average capacity of at least 16,000 bearer circuits or 57 television channels.
The INTELSAT VI series consists of five satellites, constructed by Hughes Aircraft Company, a subsidiary of General Motors Corporation, having an average capacity of at least 24,000 bearer circuits or 87 television channels.
The INTELSAT-K satellite, constructed by General Electric Technical Services Company, Inc., a subsidiary of General Electric Company, which was launched in 1992, has an average capacity of 7,000 bearer circuits or 32 television channels.
The INTELSAT VII series consists of six satellites constructed or being constructed by Space Systems/Loral. These satellites have an average capacity of at least 17,050 bearer circuits or 62 television channels. To date, five INTELSAT VII satellites have been launched, in October 1993, June 1994, October 1994, January 1995 and March 1995.
The INTELSAT VII-A series, also being constructed by Space Systems/Loral, consists of three satellites having an average capacity of at least 19,250 bearer circuits or 70 television channels. The first INTELSAT VII-A satellite was successfully launched in May 1995; the launch of the second VII-A, in February 1996, was a failure (see Note 4 to the financial statements); and the third VII-A was successfully launched in March 1996.
The INTELSAT VIII series consists of four satellites that are being constructed by Lockheed Martin Astro Space, a division of the Lockheed Martin Corporation. These satellites will have an average capacity of 21,000 bearer circuits or 76 television channels. The first INTELSAT VIII satellite is expected to be launched in 1996.
COMSAT has applied to the FCC for authorization to participate in the procurement of two INTELSAT VIII-A spacecraft. These satellites, which are being constructed by Lockheed Martin Astro Space, will have an average capacity of at least 11,600 bearer circuits, or 38 television channels, and are expected to be launched in 1997.
The corporation has purchased insurance to cover the launch phase of the INTELSAT VII, VII-A, VIII and VIII-A satellites. Total loss in-orbit insurance for the first five INTELSAT VII satellites has been purchased for 360 days with a one satellite loss deductible. Total loss in-orbit
insurance for the remaining INTELSAT VII, VII-A, VIII and VIII-A satellites has been purchased for 365 days with a one satellite loss deductible.
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 first-generation Inmarsat satellite system, which is now used primarily for backup capacity, leases, and specialized services, consists of satellite capacity leased from INTELSAT, the European Space Agency and the MARISAT Joint Venture through year-end 1996 with various early termination and extension options.
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.
The third-generation Inmarsat satellite system, known as the Inmarsat-3 series, consists of five satellites which are being constructed by Lockheed Martin Astro Space. These satellites will use spot-beam technology, which allows reuse of the scarce frequency resources allocated for mobile satellite communications. The Inmarsat-3s will have more than 20 times the capacity of the largest satellites in the first-generation Inmarsat system and will be about eight times more powerful than the Inmarsat-2 series. Inmarsat has purchased an insurance policy for launch failures with a one-loss deductible and 365 day in-orbit coverage. In the event of a first loss, Inmarsat will use the insurance proceeds to fully fund the insurance of the remaining launches and 365 day coverage. The first Inmarsat-3 satellite is scheduled to be launched in April 1996. A financing arrangement with respect to the Inmarsat-2 and -3 satellites is discussed in Note 8 to the financial statements.
In October 1995, COMSAT filed applications for authority to: (i) participate in the launch of the Inmarsat-3 (F-1) satellite, which is currently scheduled for April 1996; (ii) modify its U.S. Inmarsat earth stations to operate via the Inmarsat-3 satellites; and (iii) provide service using those satellites. The FCC has approved the launch application but has not acted on the other applications (see Note 11 to the financial statements).
Entertainment Properties
Ascent leased its principal offices from COMSAT in 1995 under a short-term lease. Ascent relocated its principal offices to Denver, Colorado in 1996. Ascent leases facilities in Denver, Colorado and Bethesda, Maryland, facilities for OCV in Santa Clara, California, facilities for Beacon in Los Angeles, California, and facilities for ANS in Palm Bay, Florida.
The Nuggets and the Avalanche currently play their home games in Denver's McNichols Arena, an indoor sports arena located in downtown Denver that has a seating capacity of approximately 17,000 for basketball games and approximately 16,000 for hockey games. McNichols Arena is owned by the City and County of Denver (the "City") and is made available to the Nuggets under a lease agreement which extends until the conclusion of the 2007-2008
season. McNichols Arena is made available to the Avalanche under a lease agreement which extends until the conclusion of the 1996-1997 season, subject to renewals for two one-year terms. Pursuant to an amendment to the Nuggets lease agreement, the term of the Nuggets' lease will decrease by one year for each of the first two years that the Avalanche play in McNichols Arena.
The Nuggets' and the Avalanche's leases with the City require the teams to pay rent to the City for use of McNichols Arena equal to a percentage of the teams' net income from ticket sales, subject to certain minimum annual payments. The City is generally responsible for maintaining McNichols Arena and providing administrative personnel such as ushers, electricians, janitors, technicians and engineers. The Nuggets and the Avalanche are responsible for providing ticket takers, police and security personnel, announcers, timers, scorers and statisticians. The Nuggets and the Avalanche also share in revenue from food and beverage concessions and parking rights at McNichols Arena.
Ascent is currently developing and reviewing several options for a privately financed arena for the Nuggets, the Avalanche and other entertainment events, including, among other things, concerts, college sporting events, ice and dance performances, comedy shows and circuses. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Outlook." Under current plans, the proposed arena would seat approximately 19,000 for Nuggets games, approximately 18,000 for Avalanche games and approximately 20,000 for concerts and other events and would have approximately 84 luxury suites and 1,500 luxury seats. Ascent anticipates that financing for the arena may be raised through a partnership with other regional investors and will likely include corporate sponsorship. The Company estimates that the cost of a new arena would be approximately $150 million.
Item 3.
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 10 and 11 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.
COMSAT and certain of its subsidiaries are parties to other pending legal proceedings arising in the ordinary course of business. While the outcome of such proceedings cannot be predicted with certainty, the corporation believes that the resolution of such proceedings will not have a material effect on the financial condition of the corporation.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of The Registrant Age as of Name Officer March 31, 1996 ---- ------- -------------- Bruce L. Crockett....President and Chief Executive Officer 52 Betty C. Alewine.....President, COMSAT International 47 Communications Steven F. Bell.......Vice President, Human Resources and 46 Organization Development James M. Carroll.....Vice President, Government Relations 33 Janet L. Dewar.......Vice President, Corporate Affairs 46 John V. Evans........President, COMSAT Laboratories 62 Allen E. Flower......Vice President, Chief Financial Officer 52 and Acting Treasurer Alan G. Korobov......Controller 47 Charles Lyons........President, Ascent Entertainment Group, Inc. 41 Ronald J. Mario......Senior Vice President, Business Development 52 Richard E. Thomas... President, COMSAT RSI, Inc. 69 Warren Y. Zeger..... Vice President, General Counsel and 49 Secretary
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:
Mr. Crockett has been President and Chief Executive Officer and a director of COMSAT since February 1992. He was President and Chief Operating Officer of the corporation from April 1991 to February 1992. He has been an employee of the corporation since 1980 and has held various operational and financial positions. He also is a director of Ascent, ACE Limited and Augat, Inc. and a director or trustee of funds of AIM Management Group, Inc. He also is a member of the Board of Trustees of the University of Rochester.
Ms. Alewine has been President, COMSAT International Communications since January 1995, and was President, CWS, from May 1991 to May 1994. She was Vice President and General Manager, INTELSAT Satellite Services from January 1989 to May 1991.
Mr. Bell has been Vice President, Human Resources and Organization Development since October 1993. Prior to joining the corporation, he was with American Express Worldwide Technologies, serving as Vice President of Human Resources from September 1992 to September
1993; and with US Sprint, serving as Regional Director of Human Resources from October 1987 to August 1992.
Mr. Carroll has been Vice President, Government Relations since November 1995. He served as Director of Government Relations from 1993 to 1995. He joined COMSAT in 1990 as manager of government relations after serving as legislative assistant to U.S. Senator Warren B. Rudman.
Ms. Dewar has been Vice President, Corporate Affairs since November 1995. She joined the corporation in 1991 in marketing communications at CWS and became Director, Marketing Communications in 1992. She previously worked at Mobil Oil Corporation in international public affairs and strategic planning.
Dr. Evans has been President, COMSAT Laboratories since September 1991. He was Vice President and Director, COMSAT Laboratories from October 1983 to September 1991.
Mr. Flower has been Vice President, Chief Financial Officer and Acting Treasurer since November 1995. He was Controller and Acting Chief Financial Officer from April 1995 through November 1995, Controller from June 1992 to May 1995 and Vice President, Finance and Administration, CVE from May 1990 to June 1992.
Mr. Korobov has been Controller since November 1995. He was Vice President, Finance for CMC from January 1993 to September 1995; Vice President, Finance for CVE from June 1992 to January 1993; and the Controller for CVE from March 1992 to June 1992. He was the Financial Controller for Inmarsat, based in London, from April 1990 to March 1992.
Mr. Lyons has been President, Chief Executive Officer and a director of Ascent since October 1995, and prior to that was President and a director of Ascent's predecessors since February 1992. He was Vice President and General Manager of COMSAT Video Enterprises, Inc. (CVE) from October 1990 to February 1992.
Mr. Mario has been Senior Vice President, Business Development since July 1995. He was President, CMC from May 1991 to July 1995 and Vice President and General Manager, CMC from April 1988 to May 1991.
Mr. Thomas has been President, COMSAT RSI, Inc. since June 1994. Prior to the merger of Radiation Systems, Inc. (RSi), a communications and radar systems manufacturing company, with COMSAT, he was with RSi since 1965, serving as President, Chairman of the Board, and Chief Executive Officer from June 1978 to June 1994.
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. He was Acting General Counsel from September 1991 to March 1992 and Associate General Counsel of the corporation and Vice President, Law, World Systems Division from February 1988 to September 1991.
PART II
Item 5.
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters.
As of December 31, 1995, there were 47,754,557 shares of common stock, without par value, of the corporation (COMSAT Common Stock) outstanding: 47,733,733 were Series I shares, held by approximately 37,000 holders of record other than communications common carriers; and 20,824 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 Basel, Geneva and Zurich Stock Exchanges in Switzerland.
The corporation's Transfer Agent, Registrar and Dividend Disbursing Agent is The Bank of New York, 101 Barclay Street, New York, New York.
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:
COMSAT Common Stock ------------------------------------------ Calendar Year 1995 High Low Dividend - ------------------ ---- --- -------- First Quarter 21 5/8 17 5/8 .195 Second Quarter 21 18 1/4 .195 Third Quarter 24 5/8 19 1/2 .195 Fourth Quarter 22 5/8 18 1/4 .195
Calendar Year 1994 First Quarter 30 24 7/8 .185 Second Quarter 26 1/2 20 1/2 .185 Third Quarter 26 1/2 23 .195 Fourth Quarter 25 5/8 17 1/2 .195
Item 6:
Item 6: Selected Financial Data for the Registrant for Each of the Last Five Fiscal Years.
Notes - ----- As discussed in Note 6 to the financial statements, the corporation consummated its merger with Radiation Systems, Inc. (RSi) in June 1994. The merger has been treated as a pooling of interests for accounting purposes. Accordingly, information for all periods prior to the merger has been restated to include RSi.
Item 7:
Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations.
ANALYSIS OF OPERATIONS
Consolidated Operations
Consolidated revenues for 1995 were a record $852 million, an increase of $25 million over the previous year. Revenues increased in the International Communications and Entertainment segments, while declining in the Mobile Communications and Technology Services segments. The largest improvement was in the Entertainment segment, where On Command Video continued to have substantial growth in its hotel room base. Within International Communications, International Ventures revenues almost doubled, in large part because of significant growth in its Latin American ventures.
Consolidated revenues in 1994 increased $73 million over 1993 with revenue increases in all business segments. The largest improvements were in the Entertainment and International Communications segments. Substantial growth in system installations at On Command Video and improvements from the Denver Nuggets were responsible for the favorable increase in Entertainment segment revenues. Revenues increased more than threefold in International Ventures over 1993.
Operating income in 1995 was $96 million, a decline of $55 million from 1994. During 1995 the corporation took actions to restructure elements of all of its business segments, and recorded a $20 million restructuring provision (see Note 16 to the financial statements). Exclusive of the 1995 restructuring charge and the Radiation Systems, Inc. (RSi) merger and integration costs recorded in 1994, operating income was $116 million, or $42 million below 1994. All business segments reported lower operating income in 1995, as compared to 1994, except Mobile Communications, where operating income was unchanged from the prior year.
Operating income for 1994 was $1 million lower than in 1993. Improved performances from the Entertainment and Technology Services segments were offset by non-recurring merger and integration costs of $7 million associated with the acquisition of RSi in June 1994. The merger was accounted for as a pooling of interests. Accordingly, the 1993 financial statements were restated to include RSi (see Note 6 to the financial statements).
Other income (expense) decreased in 1995 by $5 million from 1994 levels. The corporation, through a subsidiary, issued $200 million of Monthly Income Preferred Securities (MIPS) in July 1995 (see Note 9 to the financial statements). Dividends on these securities of $7 million were the primary cause of the increased expense in 1995. Other income (expense) declined by $7 million in 1994 from 1993 because of proceeds of corporate-owned life insurance policies received in 1993 which did not recur in 1994 and because of lower equity profits associated with unconsolidated businesses.
Interest costs increased by $11 million in 1995 as compared to 1994 and by $3 million for 1994 over 1993 as a result of increases in both interest rates and borrowings. Interest capitalized, primarily on satellite construction projects, declined in 1995 by $3 million compared to 1994 due to the completion of several INTELSAT satellites, and increased slightly from 1993 to 1994 as levels of property under construction grew during that period.
The corporation adopted Statement of Financial Accounting Standards (SFAS) No. 109 in 1993. This standard requires that deferred tax assets and liabilities be adjusted to reflect current tax rates. The cumulative effect of adopting this standard was to increase income by $2
million in 1993. In addition, the corporation recorded a charge to income tax expense of $3 million in 1993 under the new standard to reflect the impact on the prior year's deferred tax accounts of the change in the Federal income tax rate to 35% from 34%.
The initial public offering of common stock of Ascent Entertainment Group, Inc. (Ascent) was completed in December 1995. As a result of the offering, the corporation now owns 80.67% of Ascent's common stock. The corporation recognized a $19 million pre-tax gain as a result of the public offering (see Note 5 to the financial statements).
Net income was $38 million in 1995, a reduction of $40 million from the prior year. Earnings per share for 1995 were $0.79, down $0.85 from 1994.
Income for 1995 was $50 million, or $1.04 per share excluding the gain on the initial public offering of Ascent, the provision for restructuring and certain non-recurring items. These non-recurring items include one-time charges primarily related to the restructuring.
For 1994, net income was $78 million or $7 million lower than in 1993. Earnings per share were $1.64, or $0.15 lower than in the previous year. Merger and integration costs reduced income in 1994 by $6 million, net of taxes, or $0.13 per share. Excluding these costs, income was $84 million or $1.77 per share in 1994, versus $82 million or $1.75 per share in 1993 before the cumulative effect of the accounting change.
Segment Operating Results
International Communications
International Communications includes COMSAT International Ventures (CIV) and the FCC-regulated and non-regulated businesses of COMSAT World Systems (CWS). CWS provides international voice, data, video and audio communications as the statutory-designated U.S. participant in the global INTELSAT satellite system. CIV invests in and operates telecommunications businesses internationally.
CWS's 1995 revenues increased 1% from 1994. Revenues from expanded service offerings such as VSAT leases, digital audio and wide-band mobile increased by 55%. These increases were partially offset by reduced revenues from voice circuits, which declined 6% due to rate reductions and the anticipated conversion of analog circuits to more efficient digital
service. The rate reductions relate to agreements with AT&T, MCI and Sprint, CWS's three largest international carrier customers. CWS's share of revenues from the INTELSAT system also declined with the 1% reduction in the corporation's ownership share in 1995.
CWS's revenues in 1994 increased 3% over 1993, driven by a 29% increase in video services and a doubling of expanded service offerings such as VSAT leases, digital audio and wide-band mobile. These increases were partly offset by reduced revenues from voice circuits which declined 7% for the reasons indicated above.
CWS's 1995 operating income increased 8% from 1994. The increase was due to decreased operating expenses within the division and CWS's lower share of INTELSAT's costs. These savings were partially offset by increased depreciation expense from the launch of three INTELSAT VII satellites in 1995.
CWS's 1994 operating income declined 3% from 1993. The decrease was the result of increased operating expenses, primarily depreciation, which increased as a result of the launch of three new satellites that went into service in late 1993 and 1994.
CIV has 13 business ventures providing telecommunication services in Latin America, Asia and Europe. CIV owns a controlling interest in 10 of these ventures. In 1995, revenues grew to $38 million due to growth in Latin American ventures and the consolidation of the results of Belcom, CIV's Russian venture, for a full year. In 1994, CIV revenues grew more than threefold over 1993 to $19 million.
In 1995, CIV experienced an operating loss of $21 million, primarily due to operating problems in Belcom. Despite these operational problems, CIV's total backlog of revenue under contract grew from roughly $50 million at the end of 1994 to over $100 million by the end of 1995. In 1994, CIV incurred an operating loss of $5 million, which was $1 million better than 1993.
Mobile Communications
This segment consists of COMSAT Mobile Communications (CMC), which provides maritime, aeronautical and land mobile communications services as the statutory-designated U.S. participant in the Inmarsat satellite system.
Revenues in 1995 declined 7% from the prior year due to rate reductions and the migration of traffic to less expensive, more efficient digital services such as Standard-M. However, CMC's telephone traffic minutes increased 2% in 1995 as the lower-cost digital Standard-M service dominated new terminal commissionings during the year. The number of Standard-M digital terminals in the marketplace doubled, totaling 7,900 by the end of the year.
Telephone revenues declined 11% from 1994 due to lower average rates. Telex revenues also declined 11% from 1994. However, this decline was partially offset by revenue growth of almost 40% in Standard-C services, which operate in smaller and less expensive digital terminals.
Revenues from service contracts with IDB Mobile Communications, Inc. (IDB) and American Mobile Satellite Corporation (AMSC) increased 3% over 1994 due principally to additional capacity requirements. A contract under which CMC provided Inmarsat with satellite control services terminated at the end of 1994.
CMC's operating income for 1995 was unchanged from 1994. Lower revenues were offset by a reduction in operating expenses and an increase in CMC's share of Inmarsat's operating results. The decline in operating expenses was due in part to lower CMC operating costs and the reversal of Inmarsat-related costs which were over-accrued in 1994.
Revenue increases of 2% in 1994 over 1993 occurred across a broad range of services. Operating expenses increased by 1%, largely attributable to higher depreciation on earth station upgrades. Operating income was flat in 1994 compared to 1993.
Technology Services
The Technology Services segment includes COMSAT Laboratories and COMSAT RSI (CRSI), which designs, manufactures and integrates a range of turnkey systems, subsystems and components for advanced microwave, cellular, personal communication services and networks (PCS/PCN), wireless local loop communication networks, satellite communication, radar and other services. In addition, this segment provides operations and maintenance, satellite construction monitoring and applied research services.
Revenues for this segment declined in 1995 by $13 million from the prior year. The decrease was caused by the completion in 1994 of several large international and U.S. Government contracts which were not replaced in 1995. Offsetting the decline, in part, were increases in revenues from satellite services for classified government customers, earth station component sales and the acquisitions of three companies - Intelesys, Plexsys and Jefa - that are involved in the manufacture, integration and installation of various wireless components and systems. In addition, the revenue decline was in part the result of a $5 million insurance settlement recorded in 1994 at CRSI, as well as downsizing of one of the Laboratories' divisions.
Revenues in 1994 increased by $17 million over 1993. Improvements came primarily from continued work on the VSAT rural telephony program in Guatemala and the television and radio distribution network in Cote d'Ivoire (Ivory Coast), as well as from new projects to install cellular antennas in Argentina and to provide digital upgrades to telephony equipment at a number of earth stations internationally. Revenues were lower at COMSAT Laboratories primarily due to the sale of a microwave electronics group in 1993.
Operating income in 1995 declined $7 million from 1994. The decline was primarily due to the lower revenues as well as new product development costs associated with VSAT and cellular products. Operating profit in 1994 improved slightly as compared to the prior year, as a result of higher revenues and insurance income, offset in part by the costs associated with the cancellation of a large infrastructure project in Kuwait.
Entertainment
The Entertainment segment is comprised of Ascent Entertainment Group, Inc. (Ascent). As discussed in Note 5 to the financial statements, the initial public offering of Ascent was completed in December 1995 and COMSAT Corporation now owns 80.67% of Ascent.
Ascent, through On Command Video Corporation (OCV) and Ascent Network Services, Inc. (ANS), formerly COMSAT Video Enterprises, Inc., provides video distribution and on- demand video entertainment services to the hospitality industry and video distribution services for the National Broadcasting Company (NBC). This segment also includes the Denver Nuggets National Basketball Association (NBA) franchise, the Colorado Avalanche National Hockey League (NHL) franchise and Beacon Communications Corp. (Beacon), a producer of theatrical films and television programming.
In the third quarter of 1995, ANS contributed substantially all of its pay-per-view video systems in hotels and related assets to OCV for OCV common stock. This transaction raised Ascent's ownership of OCV to approximately 85%. OCV now owns and manages all of Ascent's hotel video systems. Certain Satellite Cinema hotel properties are being converted to services provided by OCV and Ascent has terminated or sold Satellite Cinema operations at the remaining hotel properties.
In July 1995, Ascent acquired the Quebec Nordiques NHL franchise and related player contracts. After the acquisition, Ascent relocated the team to Denver, Colorado for the 1995- 1996 season, and the franchise is now known as the Colorado Avalanche (see Note 7 to the financial statements). In December 1994, ANS purchased substantially all of the assets of Beacon (see Note 7 to the financial statements).
Ascent's revenues increased in 1995 by $35 million over the previous year. This increase in revenues was the result of a significant growth in the OCV installed room base, the inclusion of the Colorado Avalanche revenues for the last half of 1995 and Beacon revenues for the full year, and NBA expansion revenues. Offsetting these increases were lower revenues from the NBC contract, which entered an option phase in 1995.
Revenues increased in 1994 from 1993 by $35 million. The increase was caused by OCV room growth in newly contracted hotels, the conversion of existing ANS rooms to the OCV system, and improved results by the Denver Nuggets following their playoff participation and higher paid attendance and sponsor revenues.
Ascent incurred a $15 million operating loss in 1995 as compared to operating income of $14 million in 1994. The decline was a result of lower revenues from the NBC contract, losses from the Colorado Avalanche for the last half of 1995 and full-year costs for Beacon. Additionally, the 1995 results include one-time charges recorded in connection with the Ascent public offering. These losses were partially offset by receipt of NBA expansion fees and improvement in OCV operations.
Operating income in 1994 grew 42% over 1993. Gains in operating results from the Denver Nuggets led to the improved performance. Results from video programming and distribution were unchanged from 1993.
Outlook
Many of the statements that follow are forward-looking and relate to anticipated future operating results. Statements which look forward in time are based on management's current expectations and assumptions, which may be affected by subsequent developments and business conditions, and necessarily involve risks and uncertainties. Therefore, there can be no assurance that actual future results will not differ materially from anticipated results. Although the corporation has attempted to identify some of the important factors that may cause actual results to differ materially from those anticipated, those factors should not be viewed as the only factors which may affect future operating results.
The corporation continues to promote efforts to restructure INTELSAT and Inmarsat as privatized commercial enterprises to enhance prospects that services offered on the INTELSAT and Inmarsat systems remain competitive in tomorrow's marketplace. In the corporation's view, the rapid evolution of telecommunications technology and increased competition have made privatization necessary so that these treaty-based organizations can become more cost-effective and responsive to customer needs. The corporation, as a minority shareholder and the U.S. signatory to both organizations, lacks the ability to independently effect a restructuring of either
organization. The success of the corporation's privatization efforts will depend on the corporation's ability to achieve a consensus among other signatories and participating member governments.
The corporation announced in February 1996 that it had reached agreement with the U.S. Government concerning a joint proposal that would transfer approximately 50% of INTELSAT's assets, including satellites, to a new commercial affiliate. The existing intergovernmental organization would continue to provide basic public network services. The proposal also contemplates that a majority of the affiliate's stock would be sold to external investors. The corporation's objective is to build a consensus on the proposal that can be considered for adoption at the next INTELSAT Assembly of Parties to be held in 1997. A vote of two-thirds of the 137 governments that are members of the INTELSAT consortium is necessary for approval.
In early 1996, the corporation retained an investment banker to assess strategic alternatives for enhancing shareholder value and to analyze the capital needs of its businesses for continued expansion. As part of that effort, the corporation is examining a number of options with a view toward enhancing the ability of its various businesses to continue to accelerate their strategic investment programs, while permitting COMSAT as a parent organization to reduce debt, strengthen its balance sheet and improve liquidity.
Interest costs are expected to significantly increase in 1996 due to increased borrowings primarily for capital expenditures, including investments in ICO (see Note 10 to the financial statements). The corporation anticipates that the amount of interest capitalized will decrease significantly as several INTELSAT and Inmarsat satellites are expected to be placed in service during 1996.
COMSAT World Systems and INTELSAT are faced with increased competition for the provision of satellite services from new and existing satellites launched by separate systems such as Pan American Satellite (PanAmSat) and Orion Network Systems, Inc. In late 1993, the Federal Communications Commission (FCC) substantially eliminated prior restrictions on access of separate system satellite operators to the public switched telephone network. This action, along with the FCC's stated goal of eliminating all restrictions on separate satellite systems by 1997, will increase competition.
Over the next few years, continuing increases in satellite competition and the expected doubling of fiber optic cable capacity available in the marketplace will put increased pressure on service revenues and operating margins and could result in loss of market share. In addition, under CWS's long-term service contracts, carrier customers may cancel certain circuits upon paying a termination charge.
In 1995, the corporation signed 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.
The corporation believes that CWS continues to be well-positioned with long-term agreements with major international carriers to provide cost-competitive services for bulk usage beyond the year 2000. In addition, CWS expects continued growth in several emerging markets, particularly in international television distribution, where new opportunities are being created in the marketplace. Opportunities are also expanding for international VSAT services.
In addition to the 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 1997. INTELSAT launched three satellites in 1995 and plans five launches for 1996. In February 1996, there was a launch failure of the INTELSAT 708 satellite aboard a China Long March vehicle. The corporation's investment in the satellite, including capitalized interest, was fully insured against the loss. Receipt of the insurance proceeds will reduce the corporation's rate base for jurisdictional rate-making purposes, resulting in a potential reduction of earnings capacity. The new INTELSAT VII and INTELSAT VIII series satellites will offer higher-power capabilities.
COMSAT International Ventures plans to continue to make further investments in its current international businesses and may form new ventures in selected markets. CIV plans to target those markets where the telecommunications environment is liberalizing and where CIV's core strengths can be used to capture an early position in rapidly growing markets.
In 1995, CIV experienced difficulties in the operations of two ventures, Belcom (Russia) and Philcom (Philippines). CIV expects improved performance in both of these ventures during 1996. It is expected that profits from existing ventures in 1996 will likely be offset by CIV's expansion in newer ventures, which typically yield losses in their formative stages. Those losses, coupled with CIV's overhead and management costs, are expected to result in continued losses for CIV as a whole.
COMSAT Mobile Communications 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 such as AT&T, which recently obtained FCC approval to resell ship-to-shore service. As a result, expected increases in revenues due to traffic growth would be partially offset by a reduction in service charges caused by competitive pressures and lower-priced digital versus analog telephone service charges.
The service contract with AMSC expired at the end of 1995 as AMSC began using its own satellite. The IDB contract was extended during 1995 to provide service through September 1999.
CMC plans to build on its established position of leadership in mobile satellite communications as it evolves toward handheld satellite service. The first generation of personal satellite communications will be a six-pound, laptop computer-sized satellite terminal named Planet 1TM. CMC announced this product in January 1996 with expected service commencement in 1996 utilizing the Inmarsat-3 satellites which are scheduled to begin launching in April 1996. This product is expected to address the demand for global personal communications ahead of the availability of handheld satellite systems.
A major part of the corporation's international telecommunications strategy is the investment of approximately $150 million in ICO (see Note 10 to the financial statements). This newly created company was formed outside the Inmarsat organization to allow a more commercial and market-driven focus on the development of handheld satellite service. ICO's intermediate circular orbit satellite system will have 12 satellites and is scheduled to become operational by the year 2000. ICO users are expected to communicate worldwide using handheld units similar to cellular phones. The units are expected to cost less than $1,000 and will operate through both satellite and cellular links.
As with any new product, there are a number of factors that may affect the corporation's ability to offer Planet 1SM and ICO services on a profitable basis. Such factors include the ability to meet commercial deployment schedules, 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 1SM and ICO services, the corporation must obtain certain regulatory approvals (see Notes 10 and 11 to the financial statements). In addition, ICO must receive the funding required to complete its satellite system.
COMSAT RSI has been successful in winning new contracts in 1995 totaling $254 million, including two programs of strategic significance. The first is the Commercial Satellite Communications Initiative (CSCI) contract from the U. S. Department of Defense to provide domestic and international satellite capacity and associated equipment and network management services over a 10-year period. The second is the Asia Cellular Satellite System (ACeS) contract from Lockheed Martin to provide equipment and services for this regional mobile satellite system.
CRSI's backlog rose to $212 million at the end of 1995 as compared to $152 million at the end of 1994. Of the December 31, 1995 backlog, approximately $140 million is expected to be recognized as sales in 1996 and approximately $57 million is unfunded. Included in this order backlog is approximately $114 million of U.S. Government contracts. As is customary, these contracts include provisions for cancellation at the convenience of the U.S. Government or the prime contractor. If such a provision were exercised, CRSI would have a claim for reimbursement of costs incurred and a reasonable allowance for profit thereon.
The corporation believes that CRSI's acquisition of three companies in 1995 has positioned CRSI for future growth in the VSAT, cellular and PCS markets. Earnings growth at CRSI, however, will continue to depend upon CRSI's ability to contain costs and complete projects with favorable margins.
Ascent is expected to continue to derive a majority of its revenues from the hospitality industry video distribution business. Revenue and income growth are expected from the continued installation of OCV systems for new customers.
Contracted revenues for video distribution services provided to NBC entered an option phase in 1995 which resulted in lower revenues and operating income. It is expected that revenues and operating income will remain at such levels until the end of the contract in 1999.
The financial performance of the Denver Nuggets and the Colorado Avalanche are, to a large extent, dependent on their performance in their respective leagues. In addition, due to the limitations of the facilities available at McNichols Arena where both teams currently play, Ascent believes that projected increases from facilities-based revenues will not keep pace with increases in players' salaries, which could result in operating losses for as long as they play in McNichols Arena. Ascent plans to construct a new arena and entertainment complex which is expe ted to result in improved operating results for both teams. It is estimated that the arena will cost approximately $150 million.
In March 1996, Ascent entered into an agreement with The Anschutz Corporation (TAC), with which Ascent had been jointly developing the proposed arena project, to purchase TAC's interests and assets related to the project for $11.6 million. As part of the agreement, TAC agreed to use reasonable efforts to facilitate the development of the proposed arena. In connection with this agreement, Ascent also purchased TAC's limited partnership interest in New Elitch Gardens, Ltd. (Elitch Gardens), which owns an amusement park in downtown Denver, for $4.1 million. The purchase of TAC's interest in Elitch Gardens increased Ascent's interest from 13% to 26%. Additionally, in March 1996, Ascent entered into an agreement with Southern Pacific Transportation Company to purchase land in downtown Denver for $20 million for the proposed arena site. The land purchase agreement is subject to several conditions including obtaining reasonable financing and the release of the teams from their current lease at McNichols Arena.
Beacon is to begin production on two to three feature films during 1996, one of which may be released in the second half of 1996. There is a significant degree of unpredictability and risk associated with theatrical films.
ANALYSIS OF BALANCE SHEETS
Consolidated Balance Sheets
Assets. The corporation ended 1995 with $2,314 million of assets, a 17% increase over 1994.
International Communications assets excluding unconsolidated investments increased $65 million during 1995 to end the year at $950 million. Of the total increase, International Ventures invested $41 million in new communications property and equipment. These additions are needed to meet specific customer requirements for technically advanced applications in developing countries. The corporation expects to expend up to an additional $50 million in 1996 to meet anticipated customer demand in existing ventures and may invest additional amounts if warranted by new opportunities.
CWS's assets increased slightly during 1995. Additions to property and equipment of $138 million, which were principally related to CWS's share of INTELSAT's satellite programs for the VII, VII-A and VIII series of satellites, were offset by a 1% decrease in ownership of INTELSAT, plus higher accumulated depreciation.
Assets in Mobile Communications decreased slightly during 1995, ending the year at $419 million. Property and equipment additions of $40 million primarily relate to Inmarsat's third-generation satellites currently under construction and CMC's increased ownership of Inmarsat. Offsetting this increase was a decline in accounts receivable because of lower sales and an increase in accumulated depreciation. The Inmarsat-3 satellite launch program is scheduled to begin in early 1996. These satellites will provide increased global capacity to meet anticipated growing demand for services, which includes the commencement of Planet 1SM service.
Total assets for Technology Services increased in 1995 by $30 million. This change was the result of an increase in accounts receivable, because of stronger sales in the fourth quarter, and an increase in assets because of CRSI's acquisitions of Intelesys, Plexsys and Jefa.
Entertainment assets at year end were $484 million, an increase of $115 million over 1994. Property and equipment additions of $85 million were primarily related to installations of OCV's on-demand video entertainment systems for new hotel customers. At December 31, 1995, OCV had a backlog of 113,000 rooms and expects to continue to make additional investments in these systems during 1996. Additionally, the increase in assets reflects the acquisition of the Colorado Avalanche (see Note 7 to the financial statements).
Corporate and other assets include cash and cash equivalents, investments in unconsolidated businesses, corporate-owned life insurance policies and certain land, property and equipment. During 1995, such assets increased by $131 million. The primary reason for this change was an increase in cash and cash equivalents of $105 million. Additionally, the corporation invested $26 million in ICO (see Note 7 to the financial statements).
Liabilities. The corporation's total liabilities increased in 1995 by $326 million. This increase was primarily the result of the issuance of $200 million of preferred securities by a subsidiary (see Note 9 to the financial statements), the corporation's share of long-term debt issued by INTELSAT of $38 million, four notes totaling $42 million issued under the corporation's medium-term note program and Ascent's long-term borrowings of $70 million.
ANALYSIS OF CASH FLOWS, LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Cash from operating activities for 1995 was $251 million, a 3% increase over 1994. The International Communications, Mobile Communications and Entertainment segments generated the majority of the corporation's cash from operations. The corporation made interest payments, net of amounts capitalized, of $37 million and tax payments of $21 million.
During 1995, the corporation used $411 million in investing activities, a 16% increase over last year. Included under purchases of subsidiaries in 1995 was Ascent's $76 million purchase of the National Hockey League franchise now known as the Colorado Avalanche. The increase in 1995 in property and equipment came primarily from the International Communications businesses, as CWS continued to make capital investments equal to its share of INTELSAT's satellite program, and CIV purchased communications plant and equipment, predominantly for Latin America ventures. Cash invested in unconsolidated businesses in 1995 was primarily the result of the corporation's investment in ICO.
The corporation expects to make additional investments in property and equipment in 1996. Increases are expected in both CIV and CMC while lower expenditures are planned for CWS. Investments in unconsolidated businesses are expected to increase because of anticipated payments related to the corporation's commitment to invest in ICO. The corporation expects to receive insurance proceeds of approximately $54 million in the second quarter of 1996 related to the February 1996 launch failure of an INTELSAT satellite.
Cash proceeds from financing activities in 1995 were $266 million, a $152 million increase from the previous year. This increase came from the proceeds from the issuance of $200 million of preferred securities by a subsidiary, increase in long-term debt of $154 million and the proceeds of the public offering of Ascent stock. This was offset by the repayment of short-term borrowings of $121 million. Dividends of $37 million were paid during the year as compared to $34 million in 1994. The quarterly dividend was increased in the second half of 1994 from $0.185 per share to $0.195 per share.
Liquidity and Capital Resources
The corporation's working capital improved from a deficit of $19 million at year-end 1994 to a positive $221 million at year-end 1995. This improvement was caused by the increase in cash and cash equivalents of $105 million and the reduction in commercial paper borrowings of $121 million. The change came primarily from the proceeds from the issuance of preferred securities by a subsidiary and the proceeds from the initial public offering of Ascent.
The corporation has access to short- and long-term financing at favorable rates. The corporation's current long-term debt ratings were downgraded one level in early 1996 to A- by Standard and Poor's and to A3 by Moody's. The corporation's $200 million commercial paper program had no borrowings outstanding as of December 31, 1995. A $200 million credit agreement, expiring in 1999, backs up this commercial paper program. The corporation's current commercial paper ratings were also downgraded one level in early 1996 to A2 by Standard and Poor's and to P2 by Moody's.
The corporation had $26 million remaining at year-end 1995 under a $100 million medium-term note program. The medium-term note program is part of a $200 million debt securities shelf registration program initiated in 1994.
The corporation's debt-financing activities are regulated by the FCC. The corporation submits its financing plans to the FCC for review annually. Under existing FCC guidelines, the corporation is subject to a maximum long-term debt to total capital ratio of 45%, a limit of $200 million in short-term debt and an interest coverage ratio of 2.3 to 1. At December 31, 1995, the corporation had long-term debt to total capital of 44%, no short-term debt outstanding, and was in compliance with the interest coverage ratio. The corporation expects that cash flows from operations and its short-term borrowing capacity will be sufficient to fund its cash requirements in 1996.
Item 8:
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, 1995 and 1994, and the related consolidated statements of income, stockholders' equity and cash flow for each of the three years in the period ended December 31, 1995. Our audit also included the financial statement schedules listed in the Index at Item 14(a)2. These financial statements and the financial statement schedules 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, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects, the information set forth therein.
As discussed in Note 15 to the consolidated financial statements, in 1993 the corporation changed its method of accounting for income taxes to conform with Statement of Financial Accounting Standards No. 109.
Deloitte & Touche LLP Washington, D.C. February 15, 1996
COMSAT CORPORATION AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS For the Years Ended December 31, 1995, 1994 and 1993
The accompanying notes are an integral part of these financial statements.
COMSAT CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1995 and 1994
The accompanying notes are an integral part of these financial statements.
COMSAT CORPORATION AND SUBSIDIARIES CONSOLIDATED CASH FLOW STATEMENTS For the Years Ended December 31, 1995, 1994 and 1993
The accompanying notes are an integral part of these financial statements.
COMSAT CORPORATION AND SUBSIDIARIES STATEMENTS OF CHANGES IN CONSOLIDATED STOCKHOLDERS' EQUITY For the Years Ended December 31, 1995, 1994 and 1993
The accompanying notes are an integral part of these financial statements.
COMSAT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For Each of the Three Years in the Period Ended December 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in conformity with generally accepted accounting principles (GAAP). Certain amounts reported in the financial statements and related notes have required the use of management's estimates. Actual results could differ from those estimates. The significant accounting policies that have guided the preparation of these financial statements are:
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. Minority interest on the balance sheet is primarily comprised of the interest of other shareholders in Ascent Entertainment Group, Inc. (Ascent) (see Note 5). As of December 31, 1995, the corporation owned 80.67% of Ascent. The minority interest share of the net income of consolidated businesses is included in "Other income (expense), net."
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, 1995, the corporation owned 19.1% of INTELSAT and 24.0% of Inmarsat.
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 corporation adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," effective January 1, 1993. This accounting standard requires the use of the asset and liability approach for financial accounting and reporting for income taxes.
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.
Earnings Per Share. Earnings per share are computed using the average number of shares outstanding during each period, adjusted for outstanding stock options, restricted stock units and unissued restricted stock awards. The weighted average number of shares used in the computation of earnings per share for each year was 47,998,000 for 1995, 47,356,000 for 1994 and 47,095,000 for 1993.
Goodwill. The balance sheet includes goodwill related to the acquisitions of On Command Video Corporation, the Denver Nuggets Limited Partnership (the Nuggets), Beacon (see Note 7) and other ventures. Goodwill is amortized over 10 to 25 years. Accumulated goodwill amortization was $12,671,000 and $7,302,000 at December 31, 1995 and 1994, respectively. The corporation reviews annually the balance of goodwill for potential impairment and, if necessary, adjusts the balance to its estimated net realizable value based on discounted cash flows.
Franchise Rights and Other Assets. Franchise rights were recorded in connection with the acquisition of the Nuggets beginning in 1989 and the Avalanche in 1995 (see Note 7). These rights are being amortized over 25 years. The amounts shown on the balance sheets are net of accumulated amortization of $8,317,000 and $4,920,000 at December 31, 1995 and 1994, respectively.
The cash surrender values of life insurance policies (net of loans) totaling $12,879,000 and $12,784,000 at December 31, 1995 and 1994, respectively, are included in "Other assets." In January 1996, the corporation repaid loans totaling $51,175,000. Other income on the income statement includes the increases in the cash surrender values of these policies. Additionally, other income for 1993 included income of $4,131,000 ($3,137,000 net of tax) from the death benefit proceeds of corporate-owned policies.
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.
New Accounting Pronouncements. SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and SFAS No. 123, "Accounting for Stock-Based Compensation," were issued in 1995 and will be adopted by the corporation in 1996. The corporation has elected not to adopt the recognition and measurement provisions of SFAS No. 123. The effect of adopting these statements in 1996 is not expected to be material to the corporation.
Statement Presentation. Certain prior period amounts have been reclassified to conform with the current year's presentation.
2. RECEIVABLES
Receivables at each year end are composed of:
Unbilled amounts represent accumulated costs and accrued profits that will be billed at future dates in accordance with contract terms and delivery schedules. All but approximately $5,933,000 of these amounts are expected to be collected within one year. Unbilled amounts are net of progress payments of $74,677,000 in 1995 and $55,563,000 in 1994. U.S. Government receivables include $11,500,000 at December 31, 1995, for estimated recoveries on claims in excess of committed contract amounts. Revenues related to claims for constructive change orders on long-term contracts are recorded at the estimated amount of recoverable costs incurred. These estimates could change in the near term as the claims are settled with the U.S. Government.
3. INVENTORIES
Inventories, stated at the lower of cost (first-in, first-out) or market, consist of the following at each year end:
4. PROPERTY AND EQUIPMENT
Property and equipment include the corporation's shares of INTELSAT and Inmarsat property and equipment.
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.
Costs of 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.
On February 14, 1996, the launch of the INTELSAT 708 satellite failed. The corporation's share of the construction and capitalized interest costs was fully insured. Insurance proceeds totaling approximately $54 million are expected to be received in the second quarter of 1996.
5. ASCENT ENTERTAINMENT GROUP, INC.
Ascent Entertainment Group, Inc. (Ascent) consists of Ascent Network Services, Inc. (ANS), formerly COMSAT Video Enterprises, Inc., and ANS's ownership of On Command Video Corporation (OCV), the Denver Nuggets Limited Partnership, Beacon Communications Corp. and the Colorado Avalanche (see Note 7). In December 1995, Ascent completed a public offering of 5,750,000 shares of its common stock at an offering price of $15.00 per share. COMSAT retains 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. COMSAT recognized a $19,286,000 pre-tax gain as a result of the public offering.
In the third quarter of 1995, ANS contributed substantially all of its pay-per-view video systems in hotels and related assets to OCV for OCV common stock. This transaction raised Ascent's ownership of OCV to 85%, an increase of 5%.
6. MERGER WITH RADIATION SYSTEMS, INC.
On June 3, 1994, the corporation consummated its merger with Radiation Systems, Inc. (RSi), based in Sterling, Virginia. RSi designs, manufactures and integrates satellite earth stations, advanced antennas and other turnkey systems for telecommunications, radar, air traffic control and military uses.
Each share of RSi's common stock was converted into 0.78 of a share of the corporation's common stock. A total of 6,147,000 shares of the corporation's common stock were issued for RSi's common stock.
The merger was accounted for as a pooling of interests. Accordingly, financial statements for periods prior to the merger were restated to include RSi. The corporation recorded nonrecurring charges to operations in 1994 totaling $7,367,000 ($6,269,000 net of taxes or $0.13 per share) for merger and integration costs. These charges consisted of $4,446,000 for investment banking, legal and other professional fees, $2,226,000 for the costs associated with closing a former RSi division, and $695,000 for severance and related costs.
7. ACQUISITIONS AND INVESTMENTS
Colorado Avalanche. In July 1995, Ascent acquired a National Hockey League franchise and related player contracts, management contracts and certain other assets from Le Club de Hockey Les Nordiques in Quebec, Canada for $75,840,000. The cost of this acquisition was allocated primarily to "franchise rights" (see Note 1). As part of the purchase, the corporation assumed contractual commitments to players aggregating $24,625,000 over the next three years. The franchise, which was known as the Quebec Nordiques, has been relocated to Denver, Colorado and is known as the Colorado Avalanche (the Avalanche).
Beacon Communications Corp. In December 1994, Ascent acquired the assets of Beacon Communications Corp. (Beacon), a film and television production company based in Los Angeles. The cost of this acquisition was $29,133,000 which consisted of $16,180,000 in cash and liabilities assumed of $12,953,000. The purchase agreement calls for future cash consideration of up to $16,900,000 which is contingent on the production and performance of motion pictures over the next five years. If Beacon had been acquired as of January 1, 1993, the corporation's consolidated revenues would have
been $853,394,000 and $772,425,000 for 1994 and 1993, respectively, and the consolidated net income would have been $61,969,000 and $80,377,000 for 1994 and 1993, respectively (unaudited).
Investments. In June 1994, the corporation acquired an interest of approximately 17% in Philippine Global Communications, Inc. (PhilCom), a provider of international communications services in the Philippines, for $42,141,000. The corporation's share of PhilCom's income or losses is recorded using the "equity method" of accounting and is included in "Other income (expense), net" on the income statement.
In 1995, the corporation made direct cash investments totaling $11,350,000 in a new company, I-CO Global Communications (Holdings) Limited (ICO), that will own and operate a satellite system. The accompanying balance sheet also includes the corporation's $14,226,000 share of Inmarsat's investment in ICO as of December 31, 1995 (see Note 10).
The corporation has investments in other businesses that are accounted for using the equity and cost methods of accounting. These investments (including PhilCom and ICO) totaled $88,378,000 and $69,541,000 at December 31, 1995 and 1994, respectively.
8. DEBT
The corporation, as regulated by the Federal Communications Commission (FCC), is allowed to undertake long-term borrowings of up to 45% of its total capital (long-term debt plus equity) and $200,000,000 in short-term borrowings. The corporation also has a requirement to maintain an interest expense coverage ratio, as defined, of 2.3 to 1.
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 no outstanding borrowings at December 31, 1995, and $121,356,000 in borrowings outstanding at December 31, 1994. The weighted average interest rate on these borrowings was 6.1% at December 31, 1994.
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.
Ascent has a $175,000,000 bank credit agreement which consists of a $70,000,000 five-year facility and a $105,000,000 one-year facility. The agreement requires compliance with financial covenants including the maintenance of certain financial ratios and precludes the payment of cash dividends by Ascent. The corporation's share of Ascent's net assets as of December 31, 1995, was approximately $244,000,000. At December 31, 1995, $70,000,000 was outstanding under the five-year facility and is classified as long-term debt. The weighted average interest rate on these borrowings was 6.2% at December 31, 1995.
Long-Term Debt. Long-term debt including the corporation's share of INTELSAT and Inmarsat debt at each year end consists of:
In July 1994, the corporation filed a shelf registration statement with the Securities and Exchange Commission (SEC) to issue up to $200,000,000 of debt securities. The corporation also filed a prospectus supplement with the SEC to issue up to $100,000,000 of such securities under a "medium-term note program." The corporation issued four notes totaling $42,000,000, which are due in 2007, with rates of 7.7% to 8.5% during 1995 under this program. The corporation also issued two medium-term notes totaling $32,000,000 in 1994, which are due in 2006, with rates of 8.05% to 8.66%. The $26,000,000 remaining under the medium-term note program may be issued from time to time, at fixed or floating interest rates, as determined at the time of issuance.
The principal amount of debt (excluding the Inmarsat lease financing obligation) maturing over the next five years is $1,313,000 in 1996, $773,000 in 1997, $1,910,000 in 1998, $305,000 in 1999 and $98,964,000 in 2000.
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, 1995, (pound)102,900,000 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 18).
The corporation's share of the payments under these lease obligations for each of the next five years is $17,047,000 in 1996, $19,080,000 in 1997, $19,868,000 in 1998, $21,288,000 in 1999, $22,553,000 in 2000 and $71,171,000 thereafter. These payments include interest totaling $58,804,000 and a current maturity of $10,376,000.
9. 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. The proceeds were used to repay commercial paper borrowings and a $75,000,000 bank loan incurred in the acquisition of the NHL franchise and related assets discussed in Note 7. 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 $7,358,000 in 1995 and are included in "Other income (expense), net" in the consolidated financial statements.
10. COMMITMENTS AND CONTINGENCIES
Property and Equipment. As of December 31, 1995, the corporation had commitments to acquire property and equipment totaling $300,714,000. Of this total, $278,200,000 is payable over the next three years. These commitments are related principally to the corporation's share of INTELSAT and Inmarsat satellite acquisition programs.
Employment and Consulting Agreements. The corporation has employment and consulting agreements with certain officers, coaches and players. Virtually all of these agreements provide for guaranteed payments. Other contracts provide for payments contingent upon the fulfillment of certain terms and conditions, which generally relate only to normal performance of employment duties. Amounts required to be paid under such agreements (including approximately $92,115,000 relating to player agreements) total approximately $50,624,000 in 1996, $39,151,000 in 1997, $23,535,000 in 1998, $10,464,000 in 1999, $4,468,000 in 2000 and $3,154,000 thereafter.
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. The annual rent expense under this lease is $4,119,000. 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 $10,182,000 in 1995, $8,381,000 in 1994 and $7,993,000 in 1993. The future rental payments under operating leases are $8,452,000 in 1996, $8,380,000 in 1997, $7,855,000 in 1998, $6,880,000 in 1999 and $5,706,000 in 2000.
Government Contracts. The corporation is subject to audit and investigation 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. Management believes that potential claims from such audits and investigations will not have a material adverse effect on the corporation's financial statements.
Environmental Issue. The corporation is engaged in a program to monitor a toxic solvent spill of limited scope at the site of its former manufacturing subsidiary in California. The corporation believes that it has complied with the directions of state authorities to date, including removing approximately 458 cubic yards of soil from the site soon after the leak was discovered in 1986 and conducting ongoing groundwater monitoring at the site. The corporation has accruals to cover monitoring costs over the near term, but it is unclear at this time whether or to what extent groundwater remediation may be required.
Investment in ICO. In 1994, the corporation and Inmarsat committed to invest in ICO (see Note 7). 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, 1995, the corporation's cash contributions totaled $11,350,000, and the corporation's share of Inmarsat's contributions totaled $14,226,000. In January 1996, the corporation invested an additional $29,200,000 and has committed to invest $73,250,000 in two installments due in December 1996, and December 1997. The corporation's share of Inmarsat's future commitments to ICO totaled approximately $23,400,000 as of December 31, 1995.
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.
11. REGULATORY ENVIRONMENT AND LITIGATION
Regulatory Environment. Under the Communications Act of 1934 and the Satellite Act, 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.
Until 1985, the corporation was, with minor exceptions, the sole U.S. provider of international satellite communications services using the INTELSAT system. 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 U.S. Government has established a goal of eliminating all restrictions on competitive systems by 1997.
The corporation has received FCC authorization to participate in the construction of four third-generation Inmarsat satellites, with an application relating to a fifth satellite pending (see Note 4). The first Inmarsat-3 satellite is scheduled to be launched in the first half of 1996. The corporation has applied for authority to provide services via those satellites. Those applications, which have been opposed by certain of the corporation's competitors, are pending before the FCC. The corporation believes that all requisite operating authorizations with respect to these satellites will be obtained.
Litigation. The corporation is defending an antitrust suit brought by PanAmSat against the corporation, alleging interference with PanAmSat's efforts to compete in the international satellite communications market, and seeking trebled damages of approximately $1.5 billion. In 1991, a U.S. Court of Appeals ruled that the corporation is immune from antitrust suits in its role as a signatory to INTELSAT. An amended complaint was filed alleging that the corporation violated antitrust laws in its business activities purportedly outside of its role as a signatory to INTELSAT. In February 1994, PanAmSat submitted a report estimating its alleged damages (before trebling) at a 1994 present value of $227,436,000. Discovery in the suit ended in November 1994; however, PanAmSat has motions pending which, if granted, would result in additional discovery. In December 1994, the corporation filed a motion which is pending before the court for summary judgment directed to dismissal of all claims in the complaint. In the opinion of management, the complaint against the corporation is without merit, and the ultimate disposition of this matter will not have a material adverse effect on the corporation's financial statements.
12. STOCKHOLDERS' EQUITY
Treasury Stock. The corporation acquired 404,500 shares of RSi common stock in 1993 for $5,098,000. Additionally, RSi acquired 80,000 shares of its own common stock for $870,000. These shares, which were equivalent to 378,000 shares of COMSAT common stock, were accounted for as treasury stock transactions as of December 31, 1993. These shares, in addition to RSi's other treasury shares, were retired upon consummation of the merger discussed in Note 6. Accordingly, 683,000 shares of the corporation's common stock, with a total cost of $8,163,000, were retired in 1994.
Investors' Plus Plan. The corporation has a plan that allows investors to purchase shares of common stock directly from the corporation. In 1995, 145,000 shares were issued with total proceeds of $3,027,000 and in 1994, 76,000 shares were issued with total proceeds of $977,000.
13. 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 8,099,000 shares of common stock may be granted under the current plans. As of December 31, 1995, 849,000 shares of the corporation's treasury stock and 750,000 unissued common shares were reserved for these plans. As of December 31, 1995, no stock appreciation rights were outstanding.
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. Stock option activity was as follows:
The exercise price of certain options granted prior to 1993 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 and is shown as a separate component of stockholders' equity. This unearned compensation has been amortized to expense over the three-year vesting period. The exercise price for options awarded after 1992 is equal to the fair market value on the grant date. Accordingly, no expense is recorded for these options.
Restricted Stock Awards. Restricted stock awards are shares of stock that are subject to restrictions on their sale or transfer. During 1993, 348,000 restricted stock awards were granted, net of awards forfeited. The market value of the shares awarded was recorded as unearned compensation and is being amortized to expense over the six-year vesting period.
In 1995, 91,000 "performance-based" restricted stock awards were granted and in 1994, 265,000 awards were granted. With respect to the 1995 awards, 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. With respect to the 1994 awards, grantees did not have record ownership of the underlying shares of stock until the end of a two-year performance period. The actual shares awarded are based upon the achievement of the applicable financial performance targets during the relevant performance period. As of December 31, 1995, the end of the performance period with respect to the 1994 awards, 116,000 shares of stock, net of amounts forfeited, were eligible to be issued in connection with these awards. The shares to be issued are subject to restrictions on their sale or transfer for three additional years. The expected cost of these grants is being amortized over five years. The amortization was recorded as compensation expense of $1,009,000 in 1995 and $1,420,000 in 1994, and a corresponding increase to stockholders' equity.
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 1995, 1994 and 1993, respectively, 71,000, 115,000 and 49,000 restricted stock units were granted. Partially vested restricted stock units outstanding totaled 202,000 at December 31, 1995 and 189,000 at December 31, 1994. The cost of these awards, which is the market value of the units when vested, is amortized to expense over the three-year vesting period. The amounts amortized to expense in 1995, 1994 and 1993 were $1,286,000, $335,000 and $1,538,000, 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 offering date for 1996 purchases was November 17, 1995, when 85% of the fair market value was $16.04.
As of December 31, 1995, a total of 2,012,000 shares of the corporation's unissued common stock has been reserved for this plan.
Employee Stock Ownership Plan. A subsidiary of the corporation has an Employee Stock Ownership Plan (ESOP) which was established for the benefit of eligible employees. The ESOP acquired 714,000 shares of common stock in 1988 with bank loan proceeds. The corporation makes periodic contributions to the ESOP at least sufficient to make principal and interest payments when they are due. Contributions to the ESOP charged to expense totaled $800,000 in 1995, $864,000 in 1994 and $1,049,000 in 1993. The corporation has guaranteed the ESOP's bank notes payable and has reported the unpaid balance of these loans as long-term debt of the corporation. An unearned ESOP compensation amount, which is equal to the unpaid bank loans, has been recorded as a reduction to stockholders' equity.
14. 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 for each year are:
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. Additionally, the provision for restructuring recorded in 1995 (see Note 16) is net of a $925,000 curtailment gain resulting from workforce reductions.
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.
The plan's assets consist primarily of common stock, 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 $102,000 cash contribution to the plan in 1994. No contribution was required for 1995.
Supplemental Executive Retirement Plan. The corporation has an unfunded supplemental pension plan for executives. The expense for this plan was $2,505,000, $2,976,000 and $2,058,000 for 1995, 1994 and 1993, respectively.
In accordance with the provisions of Financial Accounting Standard No. 87, 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 $3,563,000 as of December 31, 1995 and $1,557,000 as of December 31, 1994. These amounts are net of deferred income taxes and net of an intangible asset recorded for the unrecognized transition obligation.
The following table shows the plan's obligations as well as the liability recorded in the corporation's balance sheet at each year end.
401(k) Plan. The corporation has a 401(k) plan for qualifying employees. A portion of employee contributions is matched by the corporation. The corporation's matching contribution for the year ended December 31, 1993 was $3,237,000. Since 1994, the matching contributions have been made in shares of the corporation's common stock. In 1995, 177,000 shares of common stock with a total market value of $3,391,000 were
contributed to the plan. In 1994, 79,000 shares with a total market value of $1,941,000 were contributed to the plan.
Postretirement 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 postretirement benefit expense for each year were:
The corporation recognized a $1,300,000 curtailment gain in the second quarter of 1995 which arose from the elimination of postretirement health care benefits for a group of employees. Additionally, the provision for restructuring recorded in 1995 (see Note 16) is net of a $993,000 curtailment gain resulting from workforce reductions.
The following table shows the plan's obligations as well as the liability recorded in the corporation's balance sheet at each year end.
A 10.0% increase in health care costs was assumed for 1995 with the rate decreasing 0.5% each year to an ultimate rate of 5.5%. Increasing the assumed trend rate by 1.0% each year would have increased the accumulated postretirement benefit obligation as of December 31, 1995 by $3,858,000 and the benefit expense for 1995 by $507,000.
15. INCOME TAXES
The corporation adopted SFAS No. 109, "Accounting for Income Taxes," effective January 1, 1993. This accounting statement changed the method for the recognition and measurement of deferred tax assets and liabilities. The cumulative effect of adopting SFAS No. 109 on the corporation's financial statements was to increase income by $1,925,000 ($0.04 per share) and was recorded in the first quarter of 1993. Prior year financial statements were not restated.
The components of income tax expense for each year are:
The difference between tax expense computed at the statutory Federal tax rate and the corporation's effective tax rate is:
The current and net non-current components of deferred tax accounts as shown on the balance sheet at December 31, 1995 and 1994 are:
The deferred tax assets and liabilities at December 31, 1995 and 1994 are:
The Internal Revenue Service (IRS) has completed examinations of the Federal income tax returns of the corporation through 1989 and is currently examining Federal income tax returns for 1990 through 1994. The corporation has also amended its returns and filed claims for refunds for 1979 through 1987. The IRS has denied these claims. The corporation is contesting this denial by the IRS. In the opinion of the corporation, adequate provision has been made for income taxes for all periods through 1995.
16. PROVISION FOR RESTRUCTURING
In the third quarter of 1995, the corporation took actions to strategically restructure elements of all its business units to lower costs and improve competitiveness for the long term. The corporation recorded a $20,044,000 provision for these restructuring actions. This provision includes $1,858,000 for employee severance costs in COMSAT World Systems (CWS) and COMSAT Mobile Communications (CMC), $10,866,000 to restructure COMSAT's entertainment businesses, and $7,320,000 to restructure several businesses within COMSAT RSI (CRSI) and for actions taken in 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.
In the third quarter of 1995, management decided to discontinue the Satellite Cinema scheduled movie operations. The corporation is converting certain Satellite Cinema hotel properties to services provided by On Command Video Corporation and has discontinued or sold Satellite Cinema operations at the remaining hotel properties. The restructuring charge included a provision of $5,140,000 to write down property and inventory to estimated realizable value, an accrual of $1,010,000 for employee severance costs and a charge of $4,716,000 for costs related principally to settling contractual commitments incurred to support the Satellite Cinema business that will not be fulfilled. Additional charges related to the discontinued Satellite Cinema operations may be recorded based upon actual salvage values or severance costs for additional personnel. Revenues for the Satellite Cinema operations were $25,036,000, $34,753,000 and $41,325,000 for the years ended December 31, 1995, 1994 and 1993, respectively. Operating income (loss) before allocation of general and administrative expenses was $(16,591,000), $3,897,000 and $2,017,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
Within CRSI, the corporation combined the management and administration of four of its business units into two businesses and decided to discontinue certain product lines in another business unit. The corporation also downsized one of the divisions of its Laboratories business. These actions were substantially completed by the end of 1995. The restructuring provision included $1,920,000 for employee severance costs associated with these actions and $5,400,000 primarily to write down inventory to its estimated realizable value.
17. BUSINESS SEGMENT INFORMATION
The corporation reports operating results and financial data in four business segments: International Communications, Mobile Communications, Technology Services and Entertainment. The International Communications segment consists of activities undertaken by the corporation in its COMSAT World Systems (CWS) and COMSAT International Ventures (CIV) businesses. CWS provides voice, data, video and audio communications services between the U.S. and other countries using the INTELSAT satellite network. CIV develops, acquires and manages telecommunications companies in high-growth emerging markets overseas. These ventures provide a wide array of private line and public switched communications services and equipment installations. The Mobile Communications segment consists of activities undertaken by the corporation in its COMSAT Mobile Communications (CMC) business. 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 Technology Services segment consists of the financial results of COMSAT RSI and COMSAT Laboratories, which include the design and manufacture of voice and data communications networks and products,
systems integration services, and applied research and technology services for worldwide users. The Entertainment segment consists of the financial results of Ascent (see Note 5). Ascent provides on-demand entertainment programming and information services primarily to the domestic hospitality industry, owns a professional basketball team and a professional hockey team, and owns a film and television production company.
Segment Information
(1) Technology Services segment revenues include intersegment sales totaling $9,960,000 in 1995, $8,625,000 in 1994 and $10,132,000 in 1993. Intersegment sales for other segments are not significant. Revenues and operating income reported for the Technology Services segment include business interruption insurance proceeds of $4,835,000 in 1994 and $3,021,000 in 1993. (2) The method of allocating indirect corporate costs was changed in 1995. Segment operating results for 1994 and 1993 have been restated for this change. (3) If the 1995 provision for restructuring (see Note 16) had been charged to segment operating income, the amounts allocated to each segment would have been: International Communications, $515,000; Mobile Communications, $1,343,000; Entertainment, $10,866,000; and Technology Services, $7,320,000. (4) The corporation's investments in unconsolidated businesses are included in Corporate and other assets.
Related Party Transactions. The corporation provides support services to INTELSAT and support services and satellite capacity to Inmarsat. The revenues from these services were $25,190,000 in 1995, $26,162,000 in 1994 and $23,190,000 in 1993. These revenues were recorded primarily in the International Communications and Technology Services segments.
Significant Customers. Revenues in 1995,1994 and 1993, respectively, included sales to the U.S. Government of $121,152,000, $121,715,000 and $115,446,000, and to AT&T of $81,866,000, $100,096,000 and $117,582,000. Substantially all of the U.S. Government sales are reported in the Mobile Communications and Technology Services segments. Substantially all of the sales to AT&T are reported in the International Communications and Mobile Communications segments.
18. 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 10). The corporation has guaranteed repayment of a portion of the partnership's construction loan. The balance of the guarantee was $2,396,000 as of December 31, 1995. The guarantee will be reduced as the loan's principal balance is repaid. The corporation was also contingently liable to banks for $13,731,000 as of December 31, 1995, 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, 1995, Inmarsat had several contracts maturing in 1996 to purchase foreign currency for a total of $87,200,000. The corporation's share of the estimated fair value of these contracts, as determined by a bank, is an unrealized loss of approximately $400,000 at December 31, 1995.
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, 1995, Inmarsat had $406,900,000 of swaps to be exchanged for (pound)249,500,000 sterling at various dates through 2006. Inmarsat is exposed to loss if one or more of the counterparties defaults. However, Inmarsat does not anticipate non-performance by the counterparties as all are major financial institutions. The corporation's share of the estimated fair value of these swaps is an unrealized loss of $10,000,000 at December 31, 1995. 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) was estimated by obtaining a yield-adjusted price as of December 31, 1995 for each obligation from an investment banker. Book In thousands Amount Fair Value ---------------------------------------------------------------------- 8.125% notes due 2004 $ 160,000 $ 178,112 8.95% notes due 2001 75,000 85,470 INTELSAT bonds 181,507 199,108 Medium-term notes 74,000 83,227
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.
19. QUARTERLY FINANCIAL INFORMATION (Unaudited)
(1) Revenues include the corporation's share of NBA expansion fees totaling $8,802,000 in the second quarter of 1995 and $367,000 in the fourth quarter of 1995. (2) The third quarter of 1995 includes a $20,044,000 provision for restructuring (see Note 16 to the financial statements). (3) The fourth quarter of 1995 includes a $19,286,000 pre-tax gain as a result of the public offering of the common stock of Ascent (see Note 5 to the financial statements). Additionally, the corporation recorded accounting charges to operating income totaling $2,265,000 net of tax, to conform the corporation's consolidation of Ascent to Ascent's externally reported financial results. (4) Revenues include business interruption insurance income of $4,835,000 in the second quarter of 1994. (5) Operating income is net of nonrecurring charges for merger and integration costs totaling $4,264,000, $477,000 and $2,626,000 in the second, third and fourth quarters of 1994, respectively. (6) The fourth quarter of 1994 includes nonrecurring charges of $1,049,000 for employee severance costs related to a reduction in force and $7,206,000 for the corporation's share of costs related to an early retirement program offered by INTELSAT.
Item 9.
Item 9. Disagreements on Accounting and Financial Disclosure. None.
PART III
Except for the portion of Item 10
Item 10. Directors and Officers of the Registrant. Item 11.
Item 11. Executive Compensation. Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management. Item 13.
Item 13. Certain Relationships and Related Transactions.
PART IV
Item 14.
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, 1995, 1994 and 1993
(ii) Consolidated Balance Sheets as of December 31, 1995 and 1994
(iii) Consolidated Cash Flow Statements for the Years Ended December 31, 1995, 1994 and 1993
(iv) Statements of Changes in Consolidated Stockholders' Equity for the Years Ended December 31, 1995, 1994 and 1993
(v) Notes to Consolidated Financial Statements for Each of the Three Years in the Period Ended December 31,
2. Financial Statement Schedules Relating to the Consolidated Financial Statements of COMSAT Corporation for Each of the Three Years in the Period Ended December 31, 1995.
a. Schedule I -- Condensed Financial Information of Registrant b. Schedule II -- Valuation and Qualifying Accounts
All Schedules except those 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.
None.
(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.
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, registered under Section 12 of the Securities Exchange Act of 1934, 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, registered under Section 12 of the Securities Exchange Act of 1934, 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, registered under Section 12 of the Securities Exchange Act of 1934. (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 (National Association), 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 (National Association), 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 (National Association), 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.)
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 Agreement dated October 6, 1983, between COMSAT General Corporation and National Broadcasting Company for the provision of satellite distribution network programming. (Incorporated by reference from Exhibit No. 10(r) to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1983.)
10.9 Amendment to Exhibit 10.8 dated September 1, 1992. (Incorporated by reference from Exhibit No. 10(j)(i) to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1992.)
10.10* Registrant's Insurance and Retirement Plan for Executives, as amended and restated by the Board of Directors on June 21, 1985, as amended by the Board of Directors
on July 15, 1993. (Incorporated by reference from Exhibit No. 10(h) to the Registrant's Form 10-K for the fiscal year ended December 31, 1993.)
10.11* Registrant's 1986 Key Employee Stock Plan. (Incorporated by reference from Exhibit No. 10(g) to Registrant's Registration Statement on Form S-4 (File No. 33-9966) filed on November 4, 1986.)
10.12* Registrant's Non-Employee Directors Stock Option Plan. (Incorporated by reference from Exhibit No. 10(h) to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1987.)
10.13 Amendment No. 1 to Exhibit 10.12 dated March 16, 1990. (Incorporated by reference from Exhibit No. 10(g)(i) to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1989.)
10.14 Amendment No. 2 to Exhibit 10.12 dated January 15, 1993. (Incorporated by reference from Exhibit No. 10(k)(ii) to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1993.)
10.15 Memorandum of Understanding between Registrant and National Aeronautics and Space Administration (NASA), dated July 21, 1988 and amended through February 22, 1990. (Incorporated by reference from Exhibit No. 10(aa) to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1989.)
10.16 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.)
10.17 Service Agreement, dated September 14, 1989, between Registrant and Aeronautical Radio, Inc. relating to satellite-based communications services. (Incorporated by reference from Exhibit No. 10(y) to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1989.)
10.18 Agreement, dated January 22, 1990, between Registrant and Kokusai Denshin Denwa Co., Ltd. for provision of aeronautical services. (Incorporated by reference from Exhibit No. 10(z) to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1990.)
10.19 Amendment No. 1 to Exhibit 10.18 dated May 20, 1993. (Incorporated by reference from Exhibit No. 10(q)(i) to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1993.)
10.20* 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.)
10.21* Amendment No. 1 to Exhibit 10.20 dated January 15, 1993. (Incorporated by reference from Exhibit No. 10(r)(i) to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1993.)
10.22* Amendment No. 2 to Exhibit 10.20 dated January 16, 1994. (Incorporated by reference from Exhibit No. 10(o)(ii) to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1994.)
10.23 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.)
10.24 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.)
10.25 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.)
10.26 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.)
10.27* 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(v) to the Registrant's Report on Form 10-K for the fiscal year ended December 31, 1993.)
10.28 Service Agreement, dated September 12, 1990, between Registrant and GTE Airfone, Incorporated, for the provision of aeronautical satellite services. (Incorporated by reference from Exhibit No. 10(r) to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1990.)
10.29 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.)
10.30 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.)
10.31 Lease Agreement, dated June 8, 1993, between GTE Airfone, Incorporated, United Airlines, Inc. and Registrant for the provision and financing of aeronautical satellite equipment. (Incorporated by reference from Exhibit No. 10(aa) to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1993.)
10.32 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.)
10.33 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.)
10.34 Amendment to Exhibit 10.33 dated as of December 1, 1995.
10.35 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.)
10.36 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.)
10.37 Amendment to Exhibit 10.36 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.)
10.38 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.)
10.39 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.)
10.40 Amendment No. 1 to Exhibit 10.39 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.)
10.41 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.)
10.42 Amendment to Exhibit 10.41 dated as of July 1, 1995.
10.43 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.)
10.44 Fiscal Agency Agreement between International Telecommunications Satellite Organization, Issuer, and Bankers Trust Company, Fiscal Agent and Principal Paying Agent, dated as of 22 March 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.)
10.45 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.)
10.46 Fiscal Agency Agreement between International Telecommunications Satellite Organization, Issuer, and Morgan Guaranty Trust Company, Fiscal Agent and Principal Paying Agent, dated as of 14 October 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.)
10.47* 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.)
10.48 Fiscal Agency Agreement between International Telecommunications Satellite Organization, Issuer, and Morgan Guaranty Trust Company, Fiscal Agent and Principal Paying Agent, dated as of 28 February 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.)
10.49 Asset Purchase Agreement, dated as of May 24, 1995, between COMSAT Video Enterprises, Inc. and Le Club de Hockey Les Nordiques, Societe en Commandite (Limited Partnership). (Incorporated by reference from Exhibit No. 10(a) to Registrant's Report on Form 10-Q for the quarter ended June 30, 1995.)
10.50* Employment Agreement, dated as of December 18, 1995, between Ascent and Charles Lyons. (Incorporated by reference from Exhibit No. 10.16 to the Report on Form 10-K filed by Ascent Entertainment Group, Inc. for the fiscal year ended December 31, 1995.)
10.51* Agreement, dated as of December 5, 1995, between the Registrant and Ronald J. Mario.
10.52* Employment Agreement, dated as of January 30, 1994, by and among the Registrant, CTS America, Inc. and Richard E. Thomas. (Incorporated by reference from Exhibit No. 10(a) to Registrant's Registration Statement on Form S-4 (File No. 33-53437) filed on May 3, 1994.)
10.53* Registrant's 1995 Key Employee Stock Plan. (Incorporated by reference from Exhibit No. 99 to the Registrant's definitive Proxy Statement on Schedule 14A filed on April 7, 1995).
10.54 Corporate Agreement, dated as of December 18, 1995, between the Registrant and Ascent relating to certain matters arising in connection with Ascent's initial public offering.
10.55 Intercompany Services Agreement, dated as of December 18, 1995, between the Registrant and Ascent relating to the provision of certain services subsequent to Ascent's initial public offering.
10.56 Tax Sharing Agreement, dated as of December 18, 1995, between the Registrant and Ascent relating to certain tax matters arising subsequent to Ascent's initial public offering.
Exhibit No. 11 - Statement re computation of per share earnings.
Exhibit No. 21 - Subsidiaries of the Registrant as of March 31, 1996.
Exhibit No. 23 - Consents of experts and counsel. Consent of Independent Auditors dated March 29, 1996.
Exhibit No. 27 - Financial Data Schedule.
*Compensatory plan or arrangement.
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 29, 1996 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 on the date indicated.
(1) Principal executive officer
Date: March 29, 1996 By /s/ Bruce L. Crockett ---------------------- (Bruce L. Crockett, President and Chief Executive Officer)
(2) Principal financial officer
Date: March 29, 1996 By /s/ Allen E. Flower -------------------- (Allen E. Flower, Vice President and Chief Financial Officer)
(3) Principal accounting officer
Date: March 29, 1996 By /s/ Alan G. Korobov -------------------- (Alan G. Korobov, Controller)
(4) Board of Directors
Date: March 29, 1996 By /s/ Melvin R. Laird (Melvin R. Laird, Chairman and Director)
By /s/ Lucy Wilson Benson (Lucy Wilson Benson, Director)
By /s/ Edwin I. Colodny (Edwin I. Colodny, Director)
By /s/ Bruce L. Crockett (Bruce L. Crockett, Director)
By /s/ Lawrence S. Eagleburger (Lawrence S. Eagleburger, Director)
By /s/ Neal B. Freeman (Neal B. Freeman, Director)
By /s/ Barry M. Goldwater (Barry M. Goldwater, Director)
By /s/ Arthur Hauspurg (Arthur Hauspurg, Director)
By /s/ Peter S. Knight (Peter S. Knight, Director)
By /s/ Peter W. Likins (Peter W. Likins, Director)
By /s/ Howard M. Love (Howard M. Love, Director)
By /s/ Charles T. Manatt (Charles T. Manatt, Director)
By /s/ Robert G. Schwartz (Robert G. Schwartz, Director)
By /s/ C. J. Silas (C. J. Silas, Director)
By /s/ Dolores D. Wharton (Dolores D. Wharton, Director)
COMSAT CORPORATION (PARENT COMPANY) SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT For the Years Ended December 31, 1995, 1994 and 1993
1. BASIS OF PRESENTATION
Pursuant to the rules and regulations of the Securities and Exchange Commission, the Condensed Financial Statements of the Registrant do not include all of the information and notes normally included with financial statements prepared in accordance with generally accepted accounting principles. These Condensed Financial Statements should be read in conjunction with the Consolidated Financial Statements, and Notes thereto included in the accompanying Annual Report on Form 10-K, Part II, Item 8.
2. LONG-TERM DEBT
The components of long-term debt are as follows:
The principal amount of debt (excluding the Inmarsat lease financing obligation) maturing over the next five years is none in 1996 through 1999 and $28,659,000 in 2000. See Note 8 to the Consolidated Financial Statements on Form 10-K, Part II, Item 8, for a discussion of the Inmarsat lease financing obligation.
3. NOTE PAYABLE TO SUBSIDIARY
In 1995, COMSAT Corporation borrowed $206,200,000 from a subsidiary, COMSAT Capital I, L.P. (see Note 9 to the Consolidated Financial Statements on Form 10-K, Part II, Item 8). Interest of 8.125% per annum is payable monthly. The entire principal amount is due in July 2025. The maturity may be extended to a date not later than July 2044 at the election of the borrower, provided that certain financial covenants are satisfied.
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.
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, registered under Section 12 of the Securities Exchange Act of 1934, 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, registered under Section 12 of the Securities Exchange Act of 1934, 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, registered under Section 12 of the Securities Exchange Act of 1934. (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 (National Association), 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 (National Association), 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 (National Association), 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.)
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 Agreement dated October 6, 1983, between COMSAT General Corporation and National Broadcasting Company for the provision of satellite distribution network programming. (Incorporated by reference from Exhibit No. 10(r) to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1983.)
10.9 Amendment to Exhibit 10.8 dated September 1, 1992. (Incorporated by reference from Exhibit No. 10(j)(i) to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1992.)
10.10* Registrant's Insurance and Retirement Plan for Executives, as amended and restated by the Board of Directors on June 21, 1985, as amended by the Board of Directors on July 15, 1993. (Incorporated by reference from Exhibit No. 10(h) to the Registrant's Form 10-K for the fiscal year ended December 31, 1993.)
10.11* Registrant's 1986 Key Employee Stock Plan. (Incorporated by reference from Exhibit No. 10(g) to Registrant's Registration Statement on Form S-4 (File No. 33-9966) filed on November 4, 1986.)
10.12* Registrant's Non-Employee Directors Stock Option Plan. (Incorporated by reference from Exhibit No. 10(h) to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1987.)
10.13 Amendment No. 1 to Exhibit 10.12 dated March 16, 1990. (Incorporated by reference from Exhibit No. 10(g)(i) to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1989.)
10.14 Amendment No. 2 to Exhibit 10.12 dated January 15, 1993. (Incorporated by reference from Exhibit No. 10(k)(ii) to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1993.)
10.15 Memorandum of Understanding between Registrant and National Aeronautics and Space Administration (NASA), dated July 21, 1988 and amended through February 22, 1990. (Incorporated by reference from Exhibit No. 10(aa) to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1989.)
10.16 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.)
10.17 Service Agreement, dated September 14, 1989, between Registrant and Aeronautical Radio, Inc. relating to satellite-based communications services. (Incorporated by reference from Exhibit No. 10(y) to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1989.)
10.18 Agreement, dated January 22, 1990, between Registrant and Kokusai Denshin Denwa Co., Ltd. for provision of aeronautical services. (Incorporated by reference from Exhibit No. 10(z) to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1990.)
10.19 Amendment No. 1 to Exhibit 10.18 dated May 20, 1993. (Incorporated by reference from Exhibit No. 10(q)(i) to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1993.)
10.20* 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.)
10.21* Amendment No. 1 to Exhibit 10.20 dated January 15, 1993. (Incorporated by reference from Exhibit No. 10(r)(i) to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1993.)
10.22* Amendment No. 2 to Exhibit 10.20 dated January 16, 1994. (Incorporated by reference from Exhibit No. 10(o)(ii) to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1994.)
10.23 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.)
10.24 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.)
10.25 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.)
10.26 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.)
10.27* 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(v) to the Registrant's Report on Form 10-K for the fiscal year ended December 31, 1993.)
10.28 Service Agreement, dated September 12, 1990, between Registrant and GTE Airfone, Incorporated, for the provision of aeronautical satellite services. (Incorporated by reference from Exhibit No. 10(r) to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1990.)
10.29 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.)
10.30 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.)
10.31 Lease Agreement, dated June 8, 1993, between GTE Airfone, Incorporated, United Airlines, Inc. and Registrant for the provision and financing of aeronautical satellite equipment. (Incorporated by reference from Exhibit No. 10(aa) to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1993.)
10.32 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.)
10.33 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.)
10.34 Amendment to Exhibit 10.33 dated as of December 1, 1995.
10.35 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.)
10.36 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.)
10.37 Amendment to Exhibit 10.36 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.)
10.38 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.)
10.39 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.)
10.40 Amendment No. 1 to Exhibit 10.39 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.)
10.41 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.)
10.42 Amendment to Exhibit 10.41 dated as of July 1, 1995.
10.43 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.)
10.44 Fiscal Agency Agreement between International Telecommunications Satellite Organization, Issuer, and Bankers Trust Company, Fiscal Agent and Principal Paying Agent, dated as of 22 March 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.)
10.45 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.)
10.46 Fiscal Agency Agreement between International Telecommunications Satellite Organization, Issuer, and Morgan Guaranty Trust Company, Fiscal Agent and Principal Paying Agent, dated as of 14 October 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.)
10.47* 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.)
10.48 Fiscal Agency Agreement between International Telecommunications Satellite Organization, Issuer, and Morgan Guaranty Trust Company, Fiscal Agent and Principal Paying Agent, dated as of 28 February 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.)
10.49 Asset Purchase Agreement, dated as of May 24, 1995, between COMSAT Video Enterprises, Inc. and Le Club de Hockey Les Nordiques, Societe en Commandite (Limited Partnership). (Incorporated by reference from Exhibit No. 10(a) to Registrant's Report on Form 10-Q for the quarter ended June 30, 1995.)
10.50* Employment Agreement, dated as of December 18, 1995, between Ascent and Charles Lyons. (Incorporated by reference from Exhibit No. 10.16 to the Report on Form 10-K filed by Ascent Entertainment Group, Inc. for the fiscal year ended December 31, 1995.)
10.51* Agreement, dated as of December 5, 1995, between the Registrant and Ronald J. Mario.
10.52* Employment Agreement, dated as of January 30, 1994, by and among the Registrant, CTS America, Inc. and Richard E. Thomas. (Incorporated by reference from Exhibit No. 10(a) to Registrant's Registration Statement on Form S-4 (File No. 33-53437) filed on May 3, 1994.)
10.53* Registrant's 1995 Key Employee Stock Plan. (Incorporated by reference from Exhibit No. 99 to the Registrant's definitive Proxy Statement on Schedule 14A filed on April 7, 1995).
10.54 Corporate Agreement, dated as of December 18, 1995, between the Registrant and Ascent relating to certain matters arising in connection with Ascent's initial public offering.
10.55 Intercompany Services Agreement, dated as of December 18, 1995, between the Registrant and Ascent relating to the provision of certain services subsequent to Ascent's initial public offering.
10.56 Tax Sharing Agreement, dated as of December 18, 1995, between the Registrant and Ascent relating to certain tax matters arising subsequent to Ascent's initial public offering.
11 Statement re computation of per share earnings.
21 Subsidiaries of the Registrant as of March 31, 1996.
23 Consents of experts and counsel. Consent of Independent Auditors dated March 29, 1996.
27 Financial Data Schedule.
*Compensatory plan or arrangement.