<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT ON FORM 8-K
DATED MARCH 20, 1998
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
------------------------
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): MARCH 20, 1998
LORAL SPACE & COMMUNICATIONS LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
ISLANDS OF BERMUDA 1-14180 13-3867424
(STATE OR OTHER (COMMISSION (IRS EMPLOYER
JURISDICTION OF FILE NUMBER) IDENTIFICATION
INCORPORATION) NUMBER)
600 THIRD AVENUE, NEW YORK, NEW YORK 10016
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 697-1105
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<PAGE> 2
AMENDMENT NO. 1
The Registrant hereby amends the following items, financial statements,
exhibits or other portions of its Current Report on Form 8-K dated March 20,
1998, as set forth below:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(B) PRO FORMA FINANCIAL INFORMATION
Unaudited Pro Forma Condensed Consolidated Financial Statements of
Loral Space & Communications Ltd. as of December 31, 1997 and for the year
ended December 31, 1997
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned hereunto
duly authorized.
LORAL SPACE & COMMUNICATIONS LTD.
--------------------------------------
(Registrant)
Date: April 27, 1998 by /s/ MICHAEL P. DEBLASIO
--------------------------------------
Michael P. DeBlasio
First Senior Vice President -- Finance
1
<PAGE> 3
PRO FORMA FINANCIAL DATA
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 AND FOR THE YEAR ENDED DECEMBER 31, 1997
The following unaudited pro forma condensed consolidated balance sheet as
of December 31, 1997 and statement of operations for the year ended December 31,
1997 give effect to 1) the acquisition of a 49% indirect economic interest in
Satelites Mexicanos, S.A. de C.V. ("SatMex") completed on December 29, 1997,
which is being accounted for using the equity method of accounting, 2) the
acquisition between March 25, 1997 and June 23, 1997 by Loral of the remaining
Space Systems/Loral, Inc. ("SS/L") common stock not previously owned, pursuant
to agreements negotiated in February 1997, 3) the acquisition by Loral of AT&T
Skynet Satellite Services ("Skynet") on March 14, 1997, and 4) the acquisition
by Loral of Orion Network Systems, Inc. ("Orion") on March 20, 1998. The SS/L,
Skynet and SatMex acquisitions are reflected in Loral's historical condensed
consolidated balance sheet as of December 31, 1997 and the unaudited pro forma
condensed consolidated balance sheet assumes the Orion acquisition occurred on
December 31, 1997. The unaudited pro forma condensed consolidated statement of
operations assumes that these acquisitions occurred on January 1, 1997 and is
based on the historical consolidated statement of operations of Loral which
includes the results of operations for SS/L from January 1, 1997 and the related
minority interest, and Skynet for the period March 14, 1997 to December 31, 1997
and equity in the net loss of SatMex for the period from November 17, 1997 to
December 31, 1997. The unaudited pro forma condensed statement of operations for
Orion for the year ended December 31, 1997 reflects the pro forma effects of
certain transactions completed by Orion in January 1997, as if such transactions
had occurred on January 1, 1997. The unaudited pro forma condensed consolidated
financial statements reflect the purchase method of accounting and the
adjustments and assumptions described in the accompanying notes.
Pending completion of valuations and allocation of their respective fair
values, the pro forma adjustments for SatMex are based upon preliminary
estimates of fair values. The pro forma adjustments for Orion are based on
preliminary estimates of fair values which, except for debt, are based on
historical values of assets and liabilities. Actual adjustments will be based on
final appraisals and other analyses of fair values, which are not expected to
result in material adjustments. The unaudited pro forma condensed consolidated
balance sheet and statement of operations should be read in conjunction with the
audited consolidated financial statements and notes of the respective companies.
The unaudited pro forma condensed consolidated statement of operations data may
not be indicative of the results that actually would have occurred if the
acquisitions had taken place on January 1, 1997, or future results.
2
<PAGE> 4
LORAL SPACE & COMMUNICATIONS LTD.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ORION
PRO FORMA PRO FORMA
LORAL ORION ADJUSTMENTS AS ADJUSTED
---------- -------- ----------- -----------
(NOTE 5)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 226,547 $ 70,009 $ -- $ 296,556
Contracts in process............................. 468,134 11,781 -- 479,915
Inventories...................................... 98,325 -- -- 98,325
Restricted assets................................ -- 50,064 -- 50,064
Other current assets............................. 51,612 6,847 -- 58,459
---------- -------- -------- ----------
Total current assets............................... 844,618 138,701 -- 983,319
Property, plant and equipment, net................. 926,679 401,277 -- 1,327,956
Cost in excess of net assets acquired, less
amortization..................................... 361,411 20,332 512,912(i),(j) 874,323
(20,332)(j)
Long-term receivables.............................. 78,639 -- -- 78,639
Investments in affiliates.......................... 472,639 -- -- 472,639
Restricted and segregated assets................... -- 306,826 -- 306,826
Deposits........................................... 154,970 -- -- 154,970
Other assets....................................... 165,980 29,357 (5,000)(i) 190,337
---------- -------- -------- ----------
$3,004,936 $896,493 $487,580 $4,389,009
========== ======== ======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt................ $ 2,146 $ 6,406 $ -- $ 8,552
Accounts payable................................. 231,519 5,231 5,000(i) 241,750
Accrued employment costs......................... 38,797 -- -- 38,797
Customer advances................................ 68,287 -- -- 68,287
Accrued interest and preferred dividends......... 11,192 24,771 (1,823)(j) 34,140
Other current liabilities........................ 25,931 17,725 688(j) 44,344
Income taxes payable............................. 25,934 -- -- 25,934
Deferred income taxes............................ 4,187 -- -- 4,187
---------- -------- -------- ----------
Total current liabilities.......................... 407,993 54,133 3,865 465,991
Deferred income taxes.............................. 99,696 -- (52,000)(j),(l) 47,696
Pension and other postretirement liabilities....... 48,398 -- -- 48,398
Long-term liabilities.............................. 31,388 21,804 -- 53,192
Long-term debt..................................... 433,252 790,671 98,600(j) 1,322,523
Minority interest.................................. 10,964 -- -- 10,964
Commitments and contingencies
Redeemable Convertible Preferred Stock............. -- 76,734 (76,734)(j) --
Shareholders' equity:
Series A convertible preferred stock, par value
$.01........................................... 459 -- -- 459
Series C convertible redeemable preferred stock,
par value $.01................................. 733,762 -- -- 733,762
Common stock, par value $.01..................... 2,010 -- 179(j) 2,189
Paid-in capital.................................. 1,216,128 -- 472,831(j),(k) 1,688,959
Treasury stock................................... (1,680) -- -- (1,680)
Unearned compensation............................ -- -- (6,010)(k) (6,010)
Retained earnings................................ 22,566 -- -- 22,566
Orion preacquisition deficit..................... -- (46,849) 46,849(l) --
---------- -------- -------- ----------
Total shareholders' equity......................... 1,973,245 (46,849) 513,849 2,440,245
---------- -------- -------- ----------
$3,004,936 $896,493 $487,580 $4,389,009
========== ======== ======== ==========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
3
<PAGE> 5
LORAL SPACE & COMMUNICATIONS LTD.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PERIODS COVERED:
Loral and Orion January 1 -- December 31, 1997
Skynet January 1 -- March 14, 1997 (Pre-acquisition period)
<TABLE>
<CAPTION>
PRO ORION
PRO FORMA FORMA PRO FORMA PRO FORMA
LORAL SKYNET ADJUSTMENTS SUBTOTAL ORION ADJUSTMENTS AS ADJUSTED
---------- -------- ---------------- ---------- --------- ----------- -----------
(NOTE 2) (NOTES 1, 2, 3) (NOTE 4) (NOTE 5)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $1,312,591 $ 17,938 $(24,829)(c) $1,305,700 $ 72,741 $ -- $1,378,441
Costs and expenses...... 1,298,913 14,066 (21,173)(c),(f) 1,291,806 116,239 13,263(j)(k) 1,421,308
---------- -------- -------- ---------- --------- -------- ----------
Operating income
(loss).............. 13,678 3,872 (3,656) 13,894 (43,498) (13,263) (42,867)
Loss from failure of
satellite............. -- (20,500) -- (20,500) -- -- (20,500)
Interest income
(expense) net......... 33,839 (2,500) (11,926)(b),(e),(h) 19,413 (64,720) 18,527(k) (26,780)
Other income
(expense)............. 79,591 -- -- 79,591 119 -- 79,710
---------- -------- -------- ---------- --------- -------- ----------
Pre-tax income
(loss).............. 127,108 (19,128) (15,582) 92,398 (108,099) 5,264 (10,437)
Income taxes............ 34,871 (7,460) (2,732)(d),(g) 24,679 -- (36,173)(l) (11,494)
---------- -------- -------- ---------- --------- -------- ----------
Income (loss) before
equity in net loss
of affiliates....... 92,237 (11,668) (12,850) 67,719 (108,099) 41,437 1,057
Equity in net loss of
affiliates............ (47,273) -- (13,355)(h) (60,628) -- -- (60,628)
Minority interest....... (4,960) -- 4,960(a) -- -- -- --
---------- -------- -------- ---------- --------- -------- ----------
Net income (loss)..... 40,004 (11,668) (21,245) 7,091 (108,099) 41,437 (59,571)
Preferred dividends..... (26,315) -- -- (26,315) (6,687) 6,687(k) (26,315)
---------- -------- -------- ---------- --------- -------- ----------
Net income (loss)
attributable to
common shares....... $ 13,689 $(11,668) $(21,245) $ (19,224) $(114,786) $ 48,124 $ (85,886)
========== ======== ======== ========== ========= ======== ==========
Earnings (loss) per
share (Note 6):
Basic................. $ 0.06 $ (0.08) $ (0.32)
========== ========== ==========
Diluted............... $ 0.06 $ (0.08) $ (0.32)
========== ========== ==========
Shares used in per share
calculations;
Basic................. 242,070 247,196 265,096
========== ========== ==========
Diluted............... 243,591 248,717 266,817
========== ========== ==========
Common shares
outstanding at
December 31, 1997..... 200,951 200,951 218,851
========== ========== ==========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
4
<PAGE> 6
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 AND FOR THE YEAR ENDED DECEMBER 31, 1997
1. The following facts and assumptions in notes (a) through (d) were used
in determining the effect on the pro forma statement of operations for the
increase in Loral's ownership of SS/L to 100%. Such transactions are reflected
in Loral's December 31, 1997 historical balance sheet.
(a) Pursuant to agreements negotiated in December 1996 and February
1997, Loral acquired 49% of SS/L from four international aerospace and
communications companies (the "Alliance Partners") between March 25, 1997
and June 23, 1997 for $374 million. These transactions, in which Loral
acquired 24.5% of SS/L for $93.5 million in cash and $93.5 million in
convertible preferred equivalent obligations ("CPEOs"), and the remaining
24.5% of SS/L acquired on June 23, 1997 for 8,042,922 shares of Loral
Common Stock and 1,063,663 shares of Loral Series C Preferred Stock are
reflected in Loral's historical consolidated balance sheet as of December
31, 1997. On June 5, 1997, the CPEOs were exchanged into shares of Loral's
Series C Preferred Stock after shareholder approval (the "Exchange").
In August 1996, Loral increased its ownership of SS/L to 51% through
the acquisition of an 18.3% interest held by certain partnerships
affiliated with Lehman Brothers (the "Lehman Partnerships") for $110.0
million including cash of $4 million, 7.5 million shares of Loral Common
Stock, and 267,256 shares of common stock of Globalstar Telecommunications
Limited previously held by a Loral subsidiary. In accordance with the terms
of Loral's agreement with the Lehman Partnerships, the purchase price was
increased by $9.2 million in April 1997.
Loral increased its ownership of SS/L to 75.5% and entered into
agreements to acquire the remaining 24.5% during the first quarter of 1997.
Accordingly, Loral discontinued the equity method of accounting and began
consolidating the results of SS/L as of January 1, 1997, with a reduction
for SS/L's earnings attributable to its other shareholders.
The acquisition of SS/L common stock has been accounted for as a
purchase. The cost in excess of net assets acquired arising from this
acquisition is being amortized over 40 years. Loral's historical unaudited
condensed consolidated statement of operations for the year ended December
31, 1997 reflects the results of operations of SS/L from January 1, 1997
and the related minority interest of the SS/L equity not owned by Loral
during the period. Pro forma adjustments assume that Loral had acquired
100% of the common stock of SS/L as of January 1, 1997.
(b) The purchase price for SS/L was determined through arm's length
bargaining between Loral and the Alliance Partners and Loral and the Lehman
Partnerships. The cash portion of the acquisition was financed with cash on
hand. The unaudited pro forma condensed consolidated statements of
operations reflect charges for interest expense of 7% on the cash portion
of the purchase price and 6% on the CPEOs and preferred stock portion of
the purchase price. Loral has refinanced the cash portion of the purchase
price with debt. The fixed payments under the CPEOs and preferred stock
have been reflected as interest expense for periods prior to the exchange.
The interest charge of 7% on the cash portion of the purchase price
approximates the interest rate on Loral's current borrowing under its
revolving credit facility.
(c) Other pro forma adjustments to the unaudited pro forma condensed
consolidated statement of operations for the year ended December 31, 1997,
include elimination of SS/L's sales to Skynet of $24.8 million and related
costs and expenses of $22.5 million for the period January 1, 1997 through
March 14, 1997.
(d) A statutory (Federal and state) tax rate of 41%, adjusted for
non-deductible interest and goodwill, was assumed with respect to the pro
forma adjustments.
5
<PAGE> 7
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
2. The following facts and assumptions in notes (e) through (g) were used
in determining the pro forma effect of the acquisition of Skynet from AT&T.
On March 14, 1997 Loral acquired certain assets of Skynet for $462.1
million in cash. The price reflects a reduction from the $712.5 million price
originally agreed upon in September 1996 arising from an adjustment resulting
from the failure of Skynet's Telstar 401 satellite in January 1997 and a final
adjustment based upon net assets delivered at closing.
This acquisition has been accounted for as a purchase. Loral's historical
consolidated statement of operations for the year ended December 31, 1997
reflects the operations of Skynet from the date of acquisition through December
31, 1997. The Skynet preacquisition period January 1, 1997 through March 14,
1997 is presented in the unaudited pro forma condensed consolidated statement of
operations.
(e) The purchase price for Skynet was determined through arm's length
bargaining between Loral and AT&T. The acquisition was initially financed
with cash on hand. A portion of the purchase price has been refinanced with
debt. The pro forma adjustment for interest expense reflects charges for
interest based on the purchase price of $462.1 million for the period
January 1, 1997 through March 14, 1997 at an assumed interest rate of 7%,
reduced for capitalized interest of $2.9 million and interest expense
recorded by Skynet of $2.5 million. The interest charge of 7% on the cash
portion of the purchase price approximates the interest rate on Loral's
current borrowing under its revolving credit facility.
(f) Purchase accounting adjustments to the condensed consolidated
statement of operations for the period from January 1, 1997 to March 14,
1997 include adjustments of $0.2 million for amortization of cost in excess
of net assets acquired of $39.0 million over 40 years and $1.1 million for
depreciation expense related to the excess of fair value of property, plant
and equipment over carrying value of $113.9 million using estimated useful
lives of 12.5 to 18 years.
(g) A statutory (Federal and state) tax rate of 39% was assumed with
respect to the pro forma adjustments.
3. The following facts and assumptions in note (h) were used in
determining the pro forma effect of the investment in SatMex.
(h) Loral and Telefonica Autrey, (the "Sponsors") formed a joint
venture ("Holdings") which acquired, through a wholly owned subsidiary
("Acquisition Sub"), 75% of the outstanding capital stock of SatMex for
$646.8 million, paid in two installments. The first installment was paid on
November 17, 1997 using $145.5 million of equity contributed by the
Sponsors and $52.5 million of debt incurred by Acquisition Sub. Loral's
investment was $94.6 million for a 49% indirect economic interest in
SatMex. As part of the Acquisition, Holdings entered into a $125.1 million
seven year obligation to the Mexican government ("Government Obligation")
in consideration for the assumption by SatMex of the debt incurred in
connection with the Acquisition. The final installment plus interest,
financed with debt incurred by Acquisition Sub, was paid on December 29,
1997. Loral is accounting for this investment under the equity method of
accounting. Loral's historical consolidated balance sheet reflects Loral's
investment in SatMex. Loral's historical consolidated statement of
operations includes Loral's equity in the loss of SatMex for the period
November 17, 1997 to December 31, 1997 in equity in net loss of affiliates.
Pro forma adjustments were made to the unaudited pro forma condensed
consolidated statement of operations for the period January 1, 1997 to
November 17, 1997 to reflect the equity in the loss of SatMex as if the
investment was made January 1, 1997. The pro forma adjustments were based
on the financial statements of SatMex for the nine months ended September
30, 1997. Interim historical financial statements of SatMex for the period
October 1, 1997 to November 17, 1997 are not available. Therefore, net loss
for the period January 1, 1997 to November 17, 1997 was calculated using
the pro forma net loss for the nine months ended September 30, 1997 and an
estimate of net loss for the period
6
<PAGE> 8
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
October 1, 1997 to November 17, 1997. This estimate was calculated on a pro
rata basis using pro forma net loss for the nine months ended September 30,
1997. Management believes that this method provides a reasonable
approximation of SatMex's pro forma results of operations for the period
January 1, 1997 to November 17, 1997.
The pro forma adjustment for equity in net loss of affiliates was
calculated as follows (amounts in thousands of U.S. dollars):
<TABLE>
<S> <C>
Nine Months Ended September 30, 1997
- -------------------------------------------
Historical net income of SatMex........................... $ 35,052
Pro forma adjustments:
Amortization of Concessions............................... (8,265)
Interest expense.......................................... (43,920)
Amortization of deferred financing costs.................. (1,785)
Amortization of offering costs............................ (667)
Adjustments to reflect post-acquisition operations........ (3,942)
Reversal of Government assessment......................... 4,809
Income tax benefit........................................ 2,479
--------
Total pro forma adjustments............................... (51,291)
--------
Pro forma net loss of SatMex.............................. (16,239)
Loral indirect ownership interest in SatMex............... 49%
--------
Loral share of SatMex pro forma net loss.................. (7,957)
Loral share of management and intellectual property
fees................................................... 1,499
Loral share of Holdings' interest on Government
Obligation............................................. (4,989)
--------
Pro forma equity in net loss of affiliates................ (11,447)
October 1, 1997 to November 17, 1997
- ------------------------------------------------------------
Pro forma equity in net loss of affiliates -- estimate.... (1,908)
--------
$(13,355)
========
</TABLE>
The cost in excess of net assets acquired has been assigned to the
orbital slot concessions received from the Mexican government
("Concessions") and is being amortized over 40 years. Interest has been
reflected at rates ranging from 9.37% to 10.13% plus Mexican withholding
tax, and deferred financing and offering costs are being amortized over 6
to 7 years, when the related debt matures. Other pro forma adjustments have
been made to reflect revenue and expenses on a post-acquisition basis.
Revenue adjustments reflect reduced revenues from Telecomm based upon new
contracts entered into concurrent with the acquisition. Operating expense
adjustments include increased payroll cost to post-acquisition pay scales,
increased in-orbit insurance premiums driven by higher levels of insurance
required due to the financings, incremental lease costs, reversal of
non-recurring bad debt recoveries recorded in 1997, management and
intellectual property fees to be paid to the Sponsors and elimination of
non-recurring bonuses and employment costs related to the privatization.
Pro forma adjustments have been made to eliminate assessments from the
Mexican Government. A pro forma tax benefit has been reflected on the pro
forma adjustments and historical income.
Pro forma adjustments related to affiliates of Loral other than SatMex
include Loral's share of the Government Obligation interest expense which
accrues at 12% per year applied to the discounted amount of $85.3 million
and management and intellectual property fees payable from SatMex to other
Loral
7
<PAGE> 9
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
affiliates. The unaudited pro forma condensed consolidated statement of
operations reflects charges for interest expense of 7% on the cash portion
of the purchase price.
4. The following facts and assumptions were used in determining the pro
forma effect on Orion of the January Merger, Exchange, Bond Offering and
Debentures Offering completed in January 1997 (see Orion historical financial
statements):
The unaudited pro forma condensed consolidated statement of operations
for the year ended December 31, 1997 has been prepared as if the
transactions took place on January 1, 1997. The unaudited pro forma
condensed consolidated financial statements do not purport to present the
actual financial position or results of operations of Orion had the
transactions in fact occurred on the dates specified, nor are they
indicative of the results of operations that may be achieved in the future.
The unaudited pro forma condensed consolidated financial statements are
based on the assumptions and adjustments further described herein.
The tables below illustrate the January Transaction adjustments made to the
Orion historical statement of operations for the year ended December 31, 1997.
Certain historical items have been reclassified to conform to the condensed pro
forma presentation.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
(IN THOUSANDS)
---------------------------------------
PRO FORMA ORION
---------------------------------------
ACTUAL ORION ORION
ORION ADJUSTMENTS PRO FORMA
--------- ----------- ---------
<S> <C> <C> <C>
Revenues................................................. $ 72,741 $ -- $ 72,741
Costs and expenses....................................... 115,822 417(ii) 116,239
--------- -------- ---------
Operating loss......................................... (43,081) (417) (43,498)
Interest income (expenses), net.......................... (59,058) (5,662)(iii) (64,720)
Other income (expenses).................................. 119 -- 119
--------- -------- ---------
Loss before extraordinary item and minority interest... (102,020) (6,079) (108,099)
Extraordinary item....................................... (15,763) 15,763(i) --
Minority interest........................................ 12,043 (12,043)(iv) --
--------- -------- ---------
Net loss............................................... (105,740) (2,359) (108,099)
Preferred dividends...................................... (6,034) (653)(v) (6,687)
--------- -------- ---------
Net loss attributable to common shares................. $(111,774) $ (3,012) $(114,786)
========= ======== =========
</TABLE>
- ---------------
(i) To exclude the $15.8 million extraordinary loss on the extinguishment of
debt as a result of the refinancing of the Orion 1 Credit Facility.
(ii) Reflects depreciation on the step up in basis on the Orion 1 satellite of
$.3 million for the year ended December 31, 1997 and the amortization of
excess cost over fair value of net assets acquired of $.1 million for the
year ended December 31, 1997 resulting from the acquisition of the Limited
Partners' partnership interests in Orion Atlantic over the estimated
useful life of the satellite of 10.5 years.
8
<PAGE> 10
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(iii) Reflects the adjustment to interest as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
Reduction in Orion 1 Credit Facility interest expense....... $(1,359)
Reduction in Orion 1 Credit Facility interest rate cap
expense................................................... (377)
Reduction in amortization of deferred financing costs on the
Orion 1 Credit Facility................................... (178)
Interest expense on Senior Notes............................ 4,171
Interest expense on Senior Discount Notes................... 3,013
Interest expense on Debentures.............................. 438
Interest expense from amortization of deferred financing
costs on new borrowings................................... 194
Reduction in interest expense relating to repayment of other
obligations to Limited Partners........................... (240)
-------
Net increase in pro forma interest expense............. $ 5,662
=======
</TABLE>
(iv) Elimination of minority interest as a result of the Exchange.
(v) Dividend requirement on the Orion Newco Series C Preferred Stock issued as
a result of the Exchange, as well as pro rata accretion to redemption value
over a 25 year period.
5. The following facts and assumptions in notes (i) and (l) were used in
determining the pro forma effect of the acquisition of Orion.
(i) On March 20, 1998, Loral acquired all the outstanding stock, as
defined, of Orion in exchange for Loral Common Stock. Loral issued 17.9
million shares of its Common Stock and assumed existing Orion options and
warrants to purchase 1.9 million shares of Loral Common Stock representing
an aggregate purchase price of $467.0 million. The purchase price was
determined pursuant to the requirements of APB 16 and EITF 95-19. The
unaudited pro forma condensed consolidated balance sheet has been prepared
as if the acquisition of Orion's net assets had been completed on December
31, 1997.
This acquisition will be accounted for as a purchase. Pro forma
adjustments to the unaudited condensed consolidated statement of operations
have been calculated for the year ended December 31, 1997. These unaudited
pro forma condensed consolidated statement of operations adjustments have
been prepared as if the acquisition of Orion had occurred on January 1,
1997, and give effect on a pro forma basis to certain transactions
completed by Orion in January 1997, as if such transactions had been
completed January 1, 1997.
(j) The estimated excess of purchase price over the net assets
acquired of $512.9 million is being amortized over 40 years. Orion's
identifiable assets and liabilities used in the preparation of these
unaudited pro forma condensed consolidated financial statements were based
on preliminary estimates of fair values which, except for debt, were based
on historical cost, pending the completion of an independent valuation and
allocation of their respective fair values, which are not expected to
result in material adjustments. The unaudited pro forma condensed
consolidated balance sheet includes a pro forma adjustment of $148.6
million to reflect Orion's senior notes and senior discount notes at fair
value based on quoted market values and related adjustment to deferred
income taxes. Other pro forma adjustments to the unaudited condensed
consolidated balance sheet as of December 31, 1997 include (i) the assumed
conversion to equity of Orion's Series A 8% Cumulative Redeemable
Convertible Preferred Stock aggregating $8.6 million plus accrued
dividends; Series B 8% Cumulative Redeemable Convertible Preferred Stock
aggregating $2.5 million plus accrued dividends; Series C 6% Cumulative
9
<PAGE> 11
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
Redeemable Convertible Preferred Stock aggregating $65.7 million plus
accrued dividends and $50.0 million principal amount, 8.75% convertible
debentures and the elimination of the accrued interest thereon; (ii) the
elimination of Orion's goodwill aggregating $20.3 million; and (iii) the
accrual of $.7 million relating to the assumed acceleration of vesting of
Non-Employee Director unvested stock options in connection with the Merger.
(k) Other pro forma adjustments to the unaudited condensed
consolidated statement of operations include amortization expense of the
preliminary valuation of the excess purchase price, decreased interest
expense of $13.3 million related to the pro forma adjustment to reflect
debt at fair value, preferred dividends, interest expense on the
convertible debentures from the historical Orion results and unearned
compensation of $6.0 million and the related amortization, resulting from
the difference between the purchase price and exercise price of unvested
options.
(l) A tax benefit was recorded as an adjustment to the unaudited pro
forma condensed consolidated statement of operations for the year ended
December 31, 1997 related to the Orion loss which would have been available
to Loral on its US income tax return. A tax rate of 40% or 35%, as
applicable, was applied to certain pro forma adjustments for the year ended
December 31, 1997.
6. Basic earnings per share is computed based upon the weighted average
number of Loral common shares and the Loral Series A Preferred Stock
outstanding. Diluted earnings per share excludes the assumed conversion of the
Loral Series C Preferred Stock as the effect would have been anti-dilutive. Both
basic and diluted earnings per share computations give pro forma effect to the
shares issued for the transactions described above.
The following table presents the shares used in the pro forma earning
(loss) per share calculations (in thousands):
<TABLE>
<CAPTION>
BASIC DILUTED
------- -------
<S> <C> <C>
Shares -- historical financial statements................ 242,070 243,591
Shares issued to acquire SS/L -- weighted average........ 5,126 5,126
------- -------
247,196 248,717
Issuance of shares to Orion shareholders................. 17,900 18,100
------- -------
Pro forma shares used in per share calculations.......... 265,096 266,817
======= =======
</TABLE>
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