Communications Satellite Corp.

Harvard Business School Case # 276195

Case Software # XLS-728

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Exhibit 1 Proposed Fair Rates of Return, 1964–1975

Comsat Proposal FCC Proposal

1964–1971 12% 7%
1972 12 8.33
1973 12 8.70
1974 12 9.15
1975 15 9.42
Exhibit 2 Balance Sheets, 1968 and 1972–1974 (millions of dollars)

1968 1972 1973 1974

Cash $.8 $.7 $1.2 $.4
Marketable securities 133.3 94.3 129.9 49.7
Accounts receivable 11.5 14.4 14.9 30.6
Accrued interest receivable 1.9 1.1 3.0 0.6
Other current assets 0.8 1.8 1.0 3.4
Current assets 148.3 112.3 150.0 84.7
Property, plant and equipment:
Satellites 21.7 137.9 121.4 129.8
Earth stations 24.6 47.5 41.8 41.9
Headquarters and laboratory 5.5 27.5 29.3 30.2
51.8 212.9 192.5 201.9
Less: accumulated depreciation 20.3 71.7 83.6 100.9
Construction in progress 47.1 35.7 99.5 206.5
Satellite system development costs 20.9 12.9 9.5 6.8
Research and development costs 3.6 20.6 21.7 21.0
Net property, plant, and equipment $103.1 $210.4 $239.6 $335.3
Investments, deferred charges and other assets 1.8 6.5 6.0 10.2
Total assets $253.2 $329.2 $395.6 $430.2

Accounts payable and accrued liabilities $17.1 $ 14.0 $36.0 $36.5

Income taxes payable — 2.0 14.8 9.1
Current liabilities 17.1 16.0 50.8 45.6
Deferred taxes and investment credit 18.1 34.8 36.3 40.2

Common stock 195.2 195.2 195.2 195.2

Retained earnings 22.8 83.2 113.3 149.2
Net worth 218.0 278.4 308.5 344.4
Total liabilities and net worth $253.2 $329.2 $395.6 $430.2
Exhibit 3 Income Statements, 1968 and 1972–1974 (millions of dollars)

1968 1972 1973 1974

Operating revenues $30.5 $105.9 $119.3 $133.5

Operating expenses
Operations and maintenance 18.8 30.5 28.5 29.9
Depreciation 7.2 24.7 22.8 20.0
Amortization 2.3 7.3 8.5 9.9
Operating income 2.2 43.4 59.5 73.7
Interest income 8.6 4.5 8.8 7.4
Other income (expense) 1.7 (0.3) 2.1 5.1
Income before taxes 12.5 47.6 70.4 86.2

Income taxes
On operating income 1.2 22.0 30.1 37.4
On net other income 4.5 0.6 4.0 3.9
5.7 22.6 34.1 41.3

Net income 6.8 25.0 36.3 44.9

Dividends — 5.5 6.2 9.0

Retained earnings $6.8 $19.5 $30.1 $35.9

Exhibit 4 Operating and Financial Performance, 1967–1974 (millions of dollars except per share data)

1967 1968 1969 1970 1971 1972 1973 1974

Operating revenues $18.5 $30.5 $47.0 $69.6 $88.4 $105.9 $119.3 $133.5
Net operating income (after tax) (0.6) 1.0 1.8 10.5 16.4 21.4 29.4 36.3
Interest income 7.9 8.6 7.5 7.9 6.1 4.5 8.8 7.4
Net income 4.6 6.8 7.1 17.5 22.5 25.0 36.3 44.9
Net operating income/average equity — .5% .8% 4.5% 6.6% 8.0% 10.0% 11.1%
Net income/average equity 2.2% 3.2% 3.2% 7.5% 9.0% 9.3% 12.4% 13.8%

Net property, plant, and equipment $70.6 $103.1 $138.5 $182.5 $208.6 $210.3 $239.5 $335.3
Cash and marketable securities 155.6 134.1 102.1 100.6 104.7 95.0 131.2 50.1

Earnings per share $.46 $.68 $.71 $ 1.75 $2.25 $2.50 $3.63 $4.49
Dividends per share — — — 0.125 0.5 0.545 0.62 0.90
Book value per share 21.11 21.80 22.51 24.14 25.89 27.84 30.85 34.44

No. of full-time leased half-circuits—Comsat 717 951 1,433 2,139 2,537 2,971 3,583 3,942
No. of full-time leased half-circuits—Global 1,050 1,525 2,984 4,388 5,834 7,527 9,837 10,969
Exhibit 5 Comparative Stock Market Data for Comsat and AT&T, 1967–1974

Comstata AT&Tb

Price Price
Price per Share Earnings Price per Share Earnings
High Low Ratio High Low Ratio

1967 77-7/8 41-1/8 129.3 62 49 15

1968 64-3/4 41-1/2 78.1 58 48 14
1969 60-7/8 41-3/4 72.3 58 48 13
1970 57-3/4 25 23.6 54 40 12
1971 84-1/2 49-1/8 29.7 54 41 12
1972 75-3/8 52 25.5 54 41 11
1973 64-1/2 37-1/8 14.0 55 45 10
1974 40-3/8 22-3/4 7.0 53 40 9

a
Comsat's Annual Reports and Wall Street Journal
b
Wall Street Journal (rounded figures)
Exhibit 8 Annual Market Returns on Selected Securities, 1967–1974

Moody's
Comstata AT&Tb Industrialsc Baa
Common Common Common Industrial Aa Utility
Stock Stock Stock Index Bondsd Bondse

1967 17.51% -0.92% 29.2% 6.21% 5.66%

1968 9.60 8.28 8.7 6.90 6.35
1969 5.07 -3.13 -5.4 7.76 7.34
1970 -12.06 4.00 3.0 9.00 8.52
1971 29.25 -2.87 14.8 8.37 8.00
1972 0.65 25.03 19.7 7.99 7.60
1973 -37.51 -0.71 -14.3 8.07 7.72
1974 -22.16 -1.52 -27.5 9.48 9.04
Average -1.21 3.52 3.52 7.97 7.53

a
Comsat's Annual Reports and Wall Street Journal
b
AT&T's Annual Reports and Wall Street Journal
c
Moody's Industrial Manual
d
Moody's Industrial Manual
e
Moody's Public Utility Manual
Exhibit 9 Risk Measures for the Common Stock of Selected Firms and Industry Groups, October 1964–June 1970 a

Systematic Risk Total Risk

Estimated Standard
Standard Error of Deviation of
Company Time Period Estimated Beta Estimated Beta Returns

Comsat October 1964–June 1970 1.69 0.30 11.2

Comsat October 1964–July 1967 1.39 0.55 11.1
Comsat August 1967–June 1970 1.79 0.34 10.9
AT&T October 1964–June 1970 0.62 0.11 4.0
AT&T October 1964–JuLy 1967 0.54 0.18 3.7
AT&T August 1967–June 1970 0.70 0.14 4.3
Average of Moody's 24 utilities October 1964–June 1970 0.74 5.3
Average of 7 gas pipeline companies October 1964–June 1970 0.79 6.4
Average of 14 major grocery chains October 1964–June 1970 0.83 6.8
Average of 33 major chemical companies October 1964–June 1970 1.19 7.8
Average of 20 major department stores October 1964–June 1970 1.36 9.1
Average of 21 office machine manufacturers October 1964–June 1970 1.58 11.5
Average of 11 major airlines October 1964–June 1970 1.69 11.7

a
FCC Docket 16070, Testimony of S.C. Myers
Exhibit 9 Risk Measures for the Common Stock of Selected Firms and Industry Groups,
October 1964-June 1970a

Systematic Risk Total Risk

Standard Error Estimated
Estimated of Estimated Standard Deviation
Company Time Period Beta Beta of Returns
Comsat October 1964-June 1970 1.69 0.3 11.2
Comsat October 1964-July 1967 1.39 0.55 11.1
Comsat August 1967-June 1970 1.79 0.34 10.9
AT&T October 1964-June 1970 0.62 0.11 4
AT&T October 1964-JuLy 1967 0.54 0.18 3.7
AT&T August 1967-June 1970 0.7 0.14 4.3
Average of Moody's
24 utilities October 1964-June 1970 0.74 5.3
Average of 7 gas pipeline
companies October 1964-June 1970 0.79 6.4
Average of 14 major
grocery chains October 1964-June 1970 0.83 6.8
Average of 33 major
chemical companies October 1964-June 1970 1.19 7.8
Average of 20 major
department stores October 1964-June 1970 1.36 9.1
Average of 21 office
machine manufacturers October 1964-June 1970 1.58 11.5
Average of 11 major
airlines October 1964-June 1970 1.69 11.7

aFCC Docket 16070, Testimony of S.C. Myers