COMSAT Corporation Reports Third Quarter 1999 Financial Results - Company Financial Information

Cambridge Telcom Report, Oct 25, 1999

COMSAT Corporation (NYSE: CQ) has reported a net loss of $18.4 million, or $0.35 per fully diluted share, for the three months ended September 30, 1999, due to the write-off of its direct investment in ICO Global Communications (Holdings) Limited. Exclusive of the write-off of COMSAT's investment in ICO, the corporation's income after taxes, was $5.0 million or $0.09 per fully diluted share. COMSAT's third quarter results compare to net income of $6.6 million, or $0.12 per fully diluted share, in the third quarter of 1998.

ICO filed for Chapter 11 bankruptcy on August 27, 1999. As a result of ICO's current financial status, COMSAT has determined that it is appropriate to write-off its direct investment in ICO, amounting to $36.0 million. In addition, COMSAT holds an indirect investment in ICO of $34.7 million through its ownership stake in Inmarsat, and Inmarsat is not taking a write-off at this time.

Also in the third quarter (September 18), Lockheed Martin Corporation completed its tender offer to acquire 49% of COMSAT stock at $45.50 per share.

"Concluding the tender offer represents a major milestone toward completing the merger of COMSAT and Lockheed Martin," said COMSAT President and Chief Executive Officer Betty C. Alewine. "There can be no doubt that the merger of these two companies will create a stronger American company that will increase competition in the global telecommunications market."

The merger agreement between COMSAT and Lockheed Martin provides for a two-step transaction. To complete the transaction's second phase, the merger of COMSAT with a Lockheed Martin subsidiary, the remaining shares of COMSAT stock will be exchanged for Lockheed Martin stock on a one-for-one basis. The second phase is dependent upon securing Federal legislation to lift the ownership caps on COMSAT stock and satisfaction of other conditions, including FCC approval.

COMSAT revenues this quarter were $155.7 million, compared to $158.4 million in the third quarter of last year. The loss before taxes was $25.8 million, as compared to a loss of $4.7 million in the same period last year. Exclusive of the ICO investment write-off, income before taxes was $10.2 million. The third quarter of 1999 also included $5.3 million in expenses related to the Lockheed Martin merger. The third quarter of 1998 included a $14.0 million write-down of COMSAT International's (CI) investment in BelCom, which operates in Russia and the Commonwealth of Independent States, and $3.5 million in merger costs.

COMSAT World Systems (CWS) posted segment income (before interest costs and taxes) of $36.9 million on $87.1 million in revenues for the quarter, up from income of $27.2 million on revenues of $77.0 million in the third quarter of 1998. CWS' revenue and earnings growth continues to be driven by increased demand for Internet and other high-speed data applications. Improved results are also due to CWS' increased ownership in INTELSAT.

During the third quarter of 1999, CWS extended the depreciable lives of its share of costs on the INTELSAT satellites. The accounting change was based on the current estimate of the useful lives of the INTELSAT satellites, and had the effect of increasing CWS' segment income by $5.0 million this quarter.

COMSAT Mobile Communications (CMC) posted a segment loss of $31.2 million on revenues of $30.8 million in the third quarter, compared to segment income of $7.7 million on revenues of $42.8 million in the same period last year. CMC's results include the write-off of the investment in ICO. Exclusive of the ICO write-off, CMC's third quarter 1999 segment income was $4.8 million. CMC's results this quarter reflect a continued decline in analog telephone traffic and the prior change in accounting for the investment in the privatized Inmarsat satellite system.

In 1999, COMSAT began accounting for its 22.2% ownership in the privatized Inmarsat using the equity method, instead of the previously used pro rata consolidation method. As a result, Inmarsat-related income is reported as equity income rather than as operating income. (Please refer to the attached financial highlights and the corporation's first quarter 1999 Form 10-Q for a more detailed description of this change.)

In the third quarter, COMSAT Mobile Communications signed a three-year contract with Cunard Line Limited to provide worldwide data and voice satellite communications to Cunard's fleet of eight cruise ships, including its flagship - the Queen Elizabeth 2. CMC also signed a three-year agreement with Aerolineas Argentinas (ARG), Argentina's national passenger airline, to provide fax, data, and voice communications for both flight crew and passengers on up to 12 Airbus A340 aircraft. "These recent contracts demonstrate CMC's continuing emphasis on providing an expanded array of high- speed digital services to its customers," commented Alewine.

COMSAT Laboratories had revenues of $14.3 million in the third quarter, up 25% from $11.4 million in the same period last year due to continued growth in technical consulting and sales of its Linkway 2000 networking product. Additionally, Ericsson recently signed an agreement to become a value-added reseller for COMSAT's Linkway technology and will distribute the products worldwide. "The agreement with Ericsson will create a strong global distribution network for COMSAT's state-of-the-art satellite products, helping COMSAT increase its distribution reach to more than 140 countries," said Alewine.