<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 DECEMBER 29, 1997
FILED PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
------------------------
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
================================================================================
<PAGE> 2
AMENDMENT NO. 1
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K dated
December 29, 1997, 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. ("Loral"), Satelites Mexicanos, S.A. de
C.V. ("SatMex"), Orion Network Systems, Inc. ("Orion"), Space
Systems/Loral, Inc. ("SS/L") and AT&T Skynet Satellite Services ("Skynet")
as of September 30, 1997 and for the nine months ended September 30, 1997
and December 31, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
LORAL SPACE & COMMUNICATIONS LTD.
--------------------------------------
(Registrant)
By: /s/ MICHAEL P. DEBLASIO
------------------------------------
Michael P. DeBlasio
Senior Vice President -- Finance
Date: March 4, 1998
2
<PAGE> 3
PRO FORMA FINANCIAL DATA
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND DECEMBER 31, 1996
The following unaudited pro forma condensed consolidated balance sheet as
of September 30, 1997 and statements of operations for the nine months ended
September 30, 1997 and December 31, 1996 give effect to 1) the acquisition of a
49% indirect economic interest in SatMex completed on December 29, 1997, which
will be accounted for using the equity method of accounting, 2) the acquisition
between March 25, 1997 and June 23, 1997 by Loral of the remaining SS/L common
stock not previously owned, pursuant to agreements negotiated in February 1997,
3) the acquisition by Loral of Skynet on March 14, 1997, and 4) the proposed
acquisition by Loral of Orion which is subject to regulatory and Orion
shareholder approvals and is expected to close in the first quarter of 1998. The
SS/L and Skynet acquisitions are reflected in Loral's historical unaudited
condensed consolidated balance sheet as of September 30, 1997 and the unaudited
pro forma condensed consolidated balance sheet assumes the SatMex acquisition
and the proposed Orion acquisition occurred as of September 30, 1997. The
unaudited pro forma condensed consolidated statements of operations assume that
these acquisitions occurred as of April 1, 1996. The unaudited pro forma
condensed consolidated statement of operations for the nine months ended
September 30, 1997 is based on the historical unaudited condensed 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 September 30, 1997. The historical Loral condensed
consolidated statement of operations for the nine months ended December 31, 1996
reflect the results of operations from the inception of Loral in April 1996
through December 31, 1996. The unaudited pro forma condensed consolidated
statement of operations information for the nine months ended December 31, 1996
is based on the historical condensed consolidated statements of operations of
Loral and Orion as well as the condensed statements of operations of SS/L and
Skynet for that period. The unaudited pro forma condensed statements of
operations for Orion for the nine months ended December 31, 1996 and September
30, 1997 reflect the pro forma effects of certain transactions completed by
Orion in January 1997, as if such transactions had occurred January 1, 1996.
Equity in the net loss of SatMex has been included in the unaudited pro forma
condensed consolidated statements of operations for the nine months ended
September 30, 1997 and December 31, 1996, based on Loral's share of the pro
forma results of SatMex for such periods. 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 SS/L, Skynet and SatMex are based upon
preliminary estimates of fair values and the pro forma adjustments for Orion 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 statements 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 statements
of operations data may not be indicative of the results that actually would have
occurred if the acquisitions had taken place on April 1, 1996, or future
results.
3
<PAGE> 4
LORAL SPACE & COMMUNICATIONS LTD.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SKYNET SATMEX ORION
PRO FORMA PRO FORMA PRO FORMA PRO FORMA
LORAL ADJUSTMENTS ADJUSTMENTS SUBTOTAL ORION ADJUSTMENTS AS ADJUSTED
---------- ----------- ----------- ---------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(NOTE 2) (NOTE 3) (NOTE 5)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...... $ 193,164 $ $(91,700)(h) $ 101,464 $ 82,811 $ -- $ 184,275
Contracts in process........... 459,916 -- -- 459,916 10,616 -- 470,532
Inventories.................... 94,074 -- -- 94,074 -- -- 94,074
Restricted assets.............. -- -- -- -- 50,064 -- 50,064
Other current assets........... 186,087 708((f) -- 186,795 8,076 -- 194,871
---------- -------- -------- ---------- -------- --------- ----------
Total current assets............ 933,241 708 (91,700) 842,249 151,567 -- 993,816
Property, plant and equipment,
net............................ 768,277 34,764(f) -- 803,041 388,813 -- 1,191,854
Cost in excess of net assets
acquired, less amortization.... 436,632 (30,309)(f) -- 406,323 21,119 385,804 (i),(j 792,127
(21,119)(j)
Long-term receivables........... 104,574 -- -- 104,574 -- -- 104,574
Investments in affiliates....... 358,926 91,700(h) 450,626 -- -- 450,626
Restricted and segregated
assets......................... -- -- -- -- 309,734 -- 309,734
Other assets.................... 147,004 4,296(f) -- 151,300 30,211 (5,000)(i) 176,511
---------- -------- -------- ---------- -------- --------- ----------
$2,748,654 $ 9,459 $ -- $2,758,113 $901,444 $ 359,685 $4,019,242
========== ======== ======== ========== ======== ========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............... $ 227,998 $ -- $ -- $ 227,998 $ 3,015 $ 5,000(i) $ 236,013
Customer advances.............. 75,981 -- -- 75,981 -- -- 75,981
Accrued interest and preferred
dividends.................... 11,005 -- -- 11,005 11,315 (875)(j) 21,445
Other current liabilities...... 53,909 (4,052)(f) -- 49,857 18,918 688(j) 69,463
Income taxes payable........... 5,452 -- -- 5,452 -- -- 5,452
Deferred income taxes.......... 64,805 -- -- 64,805 -- -- 64,805
Current portion of long-term
debt......................... 2,146 -- -- 2,146 9,162 -- 11,308
---------- -------- -------- ---------- -------- --------- ----------
Total current liabilities....... 441,296 (4,052) -- 437,244 42,410 4,813 484,467
Deferred income taxes........... 45,108 -- -- 45,108 -- -- 45,108
Pension and other postretirement
liabilities.................... 57,088 -- -- 57,088 -- -- 57,088
Long-term liabilities........... 38,238 13,291(f) -- 51,529 21,850 -- 73,379
Long-term debt.................. 229,323 -- -- 229,323 790,561 (60,000)(j) 959,884
Minority interest............... 11,136 -- -- 11,136 -- -- 11,136
Commitments and contingencies
Redeemable Convertible Preferred
Stock.......................... -- -- -- -- 117,868 (117,868)(j) --
Shareholders' equity:
Series A convertible preferred
stock, par value $.01........ 459 -- -- 459 -- -- 459
Series C convertible redeemable
preferred stock, par value
$.01......................... 731,195 -- -- 731,195 -- -- 731,195
Common stock, par value $.01... 2,007 -- -- 2,007 -- 191(j) 2,198
Paid-in capital................ 1,214,850 -- -- 1,214,850 -- 467,165 (j),(k 1,682,015
Treasury stock................. (1,680) -- -- (1,680) -- -- (1,680)
Unearned compensation.......... -- -- -- -- -- (5,861)(k) (5,861)
Retained deficit............... (20,366) 220(f) -- (20,146) -- -- (20,146)
Orion preacquisition deficit... -- -- -- -- (71,245) 71,245(l) --
---------- -------- -------- ---------- -------- --------- ----------
Total shareholders' equity...... 1,926,465 220 -- 1,926,685 (71,245) 532,740 2,388,180
---------- -------- -------- ---------- -------- --------- ----------
$2,748,654 $ 9,459 $ -- $2,758,113 $901,444 $ 359,685 $4,019,242
========== ======== ======== ========== ======== ========= ==========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
4
<PAGE> 5
LORAL SPACE & COMMUNICATIONS LTD.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PERIODS COVERED:
Loral and Orion January 1 -- September 30, 1997
Skynet January 1 -- March 14, 1997 (Pre-acquisition period)
<TABLE>
<CAPTION>
PRO ORION
PRO FORMA FORMA PRO FORMA
LORAL SKYNET ADJUSTMENTS SUBTOTAL ORION ADJUSTMENTS
---------- -------- ---------------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
(NOTE 2) (NOTES 1, 2, 3) (NOTE 4) (NOTE 5)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Revenues................. $1,002,619 $ 17,938 $(24,829)(c) $995,728 $ 54,539 $ --
Costs and expenses....... 993,527 14,066 (20,137)(c),(f) 987,456 85,459 6,748(j)(k)
---------- -------- -------- -------- -------- --------
Operating income
(loss)............... 9,092 3,872 (4,692) 8,272 (30,920) (6,748)
Loss from failure of
satellite.............. -- (20,500) -- (20,500) -- --
Interest income (expense)
net.................... 23,106 (2,500) (11,284)(b),(e),(h) 9,322 (52,841) 3,937(k)
Other income (expense)... -- -- -- -- 21 --
---------- -------- -------- -------- -------- --------
Pre-tax income
(loss)............... 32,198 (19,128) (15,976) (2,906) (83,740) (2,811)
Income taxes............. 17,582 (1,465) (3,198)(d),(g) 12,919 -- (27,760)(l)
---------- -------- -------- -------- -------- --------
Income (loss) before
equity in net loss of
affiliates........... 14,616 (17,663) (12,778) (15,825) (83,740) 24,949
Equity in net loss of
affiliates............. (24,320) -- (11,447)(h) (35,767) -- --
Minority interest........ (4,960) -- 4,960(a) -- -- --
---------- -------- -------- -------- -------- --------
Net income (loss)...... (14,664) (17,663) (19,265) (51,592) (83,740) 24,949
Preferred dividends...... (14,580) -- -- (14,580) (6,933) 6,933(k)
---------- -------- -------- -------- -------- --------
Net income (loss)
attributable to
common shares........ $ (29,244) $(17,663) $(19,265) $(66,172) $(90,673) $ 31,882
========== ======== ======== ======== ======== ========
Earnings (loss) per share
(Note 6):
Primary................ $ (0.12) $ (0.27)
========== ========
Fully Diluted.......... $ (0.12) $ (0.27)
========== ========
Shares used in per share
calculations;
Primary................ 240,539 245,665
========== ========
Fully Diluted.......... 240,539 245,665
========== ========
Common shares outstanding
at September 30,
1997................... 200,633 200,633
========== ========
<CAPTION>
<S> <C>
Revenues................. $1,050,267
Costs and expenses....... 1,079,663
----------
Operating income
(loss)............... (29,396)
Loss from failure of
satellite.............. (20,500)
Interest income (expense)
net.................... (39,582)
Other income (expense)... 21
----------
Pre-tax income
(loss)............... (89,457)
Income taxes............. (14,841)
----------
Income (loss) before
equity in net loss of
affiliates........... (74,616)
Equity in net loss of
affiliates............. (35,767)
Minority interest........ --
----------
Net income (loss)...... (110,383)
Preferred dividends...... (14,580)
----------
Net income (loss)
attributable to
common shares........ $ (124,963)
==========
Earnings (loss) per share
(Note 6):
Primary................ $ (0.47)
==========
Fully Diluted.......... $ (0.47)
==========
Shares used in per share
calculations;
Primary................ 264,772
==========
Fully Diluted.......... 264,772
==========
Common shares outstanding
at September 30,
1997................... 219,740
==========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
5
<PAGE> 6
LORAL SPACE & COMMUNICATIONS LTD.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ORION
PRO FORMA PRO FORMA PRO FORMA
LORAL* SS/L SKYNET ADJUSTMENTS SUBTOTAL ORION ADJUSTMENTS
-------- ---------- -------- --------------- ---------- --------- -----------
(NOTE 1) (NOTE 2) (NOTES 1, 2, 3) (NOTE 4) (NOTE 5)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............. $ 5,088 $1,017,653 $ 84,435 $(96,488)(c) $1,010,688 $ 34,201 $ --
Costs and expenses... 17,606 963,517 39,051 (58,867)(a),(c),(f) 961,307 64,149 7,119(j),(k)
-------- ---------- -------- -------- ---------- --------- --------
Operating income
(loss)........... (12,518) 54,136 45,384 (37,621) 49,381 (29,948) (7,119)
Interest income
(expense), net..... 28,699 6,081 (11,305) (35,570)(b),(e),(h) (12,095) (70,130) 2,245(k)
-------- ---------- -------- -------- ---------- --------- --------
Pre-tax income
(loss)........... 16,181 60,217 34,079 (73,191) 37,286 (100,078) (4,874)
Income taxes......... 2,912 27,643 13,369 (23,681)(d),(g) 20,243 -- (19,128)(l)
-------- ---------- -------- -------- ---------- --------- --------
Income (loss)
before equity in
net loss of
affiliates....... 13,269 32,574 20,710 (49,510) 17,043 (100,078) 14,254
Equity in net loss of
affiliates......... (4,392) (1,549) -- (36,748)(a),(h) (42,689) -- --
-------- ---------- -------- -------- ---------- --------- --------
Net income
(loss)........... 8,877 31,025 20,710 (86,258) (25,646) (100,078) 14,254
Preferred
dividends.......... -- -- -- -- -- (6,837) 6,837(k)
-------- ---------- -------- -------- ---------- --------- --------
Net income (loss)
attributable to
common shares.... $ 8,877 $ 31,025 $ 20,710 $(86,258) $ (25,646) $(106,915) $ 21,091
======== ========== ======== ======== ========== ========= ========
Earnings (loss) per
share (Note 6):
Primary............ $ 0.04 $ (0.11)
======== ==========
Fully Diluted...... $ 0.04 $ (0.11)
======== ==========
Shares used in per
share calculations;
average shares
outstanding:
Primary............ 229,396 241,026
======== ==========
Fully Diluted...... 229,396 241,026
======== ==========
Common shares
outstanding at
December 31,
1996............... 191,092 199,135
======== ==========
<CAPTION>
PRO FORMA
AS ADJUSTED
------------
<S> <C>
Revenues............. $1,044,889
Costs and expenses... 1,032,575
----------
Operating income
(loss)........... 12,314
Interest income
(expense), net..... (79,980)
----------
Pre-tax income
(loss)........... (67,666)
Income taxes......... 1,115
----------
Income (loss)
before equity in
net loss of
affiliates....... (68,781)
Equity in net loss of
affiliates......... (42,689)
----------
Net income
(loss)........... (111,470)
Preferred
dividends.......... --
----------
Net income (loss)
attributable to
common shares.... $ (111,470)
==========
Earnings (loss) per
share (Note 6):
Primary............ $ (0.43)
==========
Fully Diluted...... $ (0.43)
==========
Shares used in per
share calculations;
average shares
outstanding:
Primary............ 260,133
==========
Fully Diluted...... 260,133
==========
Common shares
outstanding at
December 31,
1996............... 218,242
==========
</TABLE>
* Reflects certain reclassifications to conform to the 1997 presentation.
See notes to unaudited pro forma condensed consolidated financial statements.
6
<PAGE> 7
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND DECEMBER 31, 1996
1. The following facts and assumptions in notes (a) through (d) were used
in determining the effect on the pro forma statements of operations for the
increase in Loral's ownership of SS/L to 100%. Such transactions are reflected
in Loral's September 30, 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 unaudited condensed consolidated balance
sheet as of September 30, 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. A pro forma adjustment of
$1.7 million to amortization expense was made to the unaudited pro forma
condensed consolidated statement of operations for the nine months ended
December 31, 1996. Loral's historical unaudited condensed consolidated
statement of operations for the nine months ended September 30, 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. Loral's historical unaudited condensed consolidated statement of
operations for the nine months ended December 31, 1996 includes SS/L's
operations using the equity method of accounting. Pro forma adjustments
assume that Loral had acquired 100% of the common stock of SS/L as of April
1, 1996.
(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 intends to refinance 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 reflects 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 nine months ended September
30, 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. Other pro forma adjustments to the unaudited
pro forma condensed consolidated
7
<PAGE> 8
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
statement of operations for the nine months ended December 31, 1996 include
elimination of SS/L's sales to Skynet of $96.5 million and related cost of
sales of $82.1 million and elimination of Loral's equity in the net income
of SS/L based on its historical ownership interest during the period.
(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.
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 $478.1
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. The price is
subject to further adjustment based upon net assets delivered at closing, as
defined.
This acquisition has been accounted for as a purchase. Loral's historical
unaudited condensed consolidated statement of operations for the nine months
ended September 30, 1997 reflects the operations of Skynet from the date of
acquisition through September 30, 1997. The Skynet preacquisition period January
1, 1997 through March 14, 1997 is presented in the unaudited pro forma condensed
consolidated statement of operations for the nine months ended September 30,
1997. The Skynet historical unaudited condensed consolidated statement of
operations included in the unaudited pro forma condensed consolidated statement
of operations for the nine months ended December 31, 1996 includes the
operations of Skynet for the entire period. The Skynet operations have been
calculated by deducting the Skynet operations for the three month period ended
March 31, 1996 from the Skynet operations for the year ended December 31, 1996.
Revenues, operating income and net income for Skynet for the three months ended
March 31, 1996 were $39.9 million, $19.0 million and $9.3 million, respectively.
Pro forma adjustments have been calculated for the nine month period.
(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 is expected to be
refinanced with debt. The pro forma adjustment for interest expense
reflects charges for interest based on an adjusted purchase price of $478.1
million for the period January 1, 1997 through March 14, 1997 and an
unadjusted price of $712.5 million for the nine months ended December 31,
1996 at an assumed interest rate of 7%, reduced for capitalized interest of
$2.9 million for the period January 1, 1997 through March 14, 1997 and $7.5
million for the nine months ended December 31, 1996 and interest expense
recorded by Skynet of $2.5 million for the period January 1, 1997 through
March 14, 1997 and $11.3 million for the nine months ended December 31,
1996. Loral intends to refinance a portion of the purchase price with debt.
The interest charge of 7% on the cash portion of the purchase price
reflects the interest rate on Loral's current borrowing under its revolving
credit facility. The unadjusted purchase price of $712.5 million was used
as the basis of the interest expense calculation during the nine months
ended December 31, 1996 because Telstar 401 was operating and generating
revenues during that entire period.
(f) During the fourth quarter of 1997, Loral revised its allocations
of fair values for the acquisition, which are included in Loral's September
30, 1997 historical balance sheet. Such adjustments resulted primarily in
an increase to the value of the satellites and a reduction in cost in
excess of net assets acquired. Other adjustments to the unaudited pro forma
condensed consolidated balance sheet include an additional accrual for
long-term customer obligations associated with the failure of Telstar 401
which reflects finalization of lease obligations related to replacement and
backup capacity for sold transponders on Telstar 401. These adjustments and
the resulting changes in accumulated depreciation and amortization of cost
in excess of net assets acquired have been reflected in the pro forma
balance sheet as of September 30, 1997. After giving effect to such revised
allocations, the estimated excess of purchase price over net assets
acquired of $69.4 million is being amortized over 40 years. Other purchase
accounting
8
<PAGE> 9
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
adjustments to the unaudited pro forma condensed consolidated statement of
operations for the period January 1, 1997 through March 14, 1997, pursuant
to the provisions of Accounting Principles Board Opinion No. 16, include
depreciation expense related to the excess of fair value over carrying
value of $89.2 million using estimated useful lives of 12.5 to 18 years.
Other purchase accounting adjustments to the unaudited pro forma condensed
consolidated statement of operations for the nine months ended December 31,
1996 include depreciation expense over an estimated weighted average ten
year life for the excess of fair value over the carrying value of $278.6
million. For purposes of this adjustment, the fair value of fixed assets
includes an estimated fair value of Telstar 401, and historical book value
includes the carrying value of Telstar 401. Additional pro forma
adjustments to the unaudited pro forma condensed consolidated statement of
operations for the nine months ended September 30, 1997 and December 31,
1996 include $0.4 million and $1.3 million, of amortization of the excess
of purchase price over fair value and $0.7 million and $20.2 million of
depreciation expense related to the difference between the fair value of
assets acquired and their related carrying values.
(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
$638.0 million, paid in two installments. The first installment was paid on
November 17, 1997 using $141.1 million of equity contributed by the
Sponsors and $52.5 million of debt incurred by Acquisition Sub. Loral's
investment was $91.7 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 will account for this investment under the equity method of
accounting. The unaudited pro forma condensed consolidated balance sheet
reflects a reduction in cash and increase in investments in affiliates to
record Loral's investment in SatMex.
Pro forma adjustments were made to the unaudited pro forma condensed
consolidated statements of operations for the nine months ended September
30, 1997 and December 31, 1996 to reflect the equity in earnings of SatMex
as if the investment was made April 1, 1996. The pro forma adjustments were
based on the unaudited pro forma financial statements of SatMex for the
nine months ended September 30, 1997 and the year ended December 31, 1996.
Interim historical financial statements of SatMex for the nine months ended
December 31, 1996 are not available. Therefore, net income for the nine
months ended December 31, 1996 was calculated on a pro rata basis using the
historical net income for the year ended December 31, 1996 adjusted for a
major customer contract entered into in October 1997. The pro forma
adjustments for the nine months ended December 31, 1996 were calculated on
a pro rata basis with the exception of financing fees which were assumed to
have been incurred on April 1, 1996. Management believes that this method
provides a reasonable approximation of SatMex's historical and pro forma
results of operations for the nine months ended December 31, 1996.
9
<PAGE> 10
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
The pro forma adjustment for equity in net loss of affiliates was
calculated as follows (amounts in thousands of U.S. dollars):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Historical net income of SatMex.................... $ 35,052 $ 14,744
Pro forma adjustments:
Amortization of Concessions........................ (8,265) (8,265)
Interest expense................................... (43,920) (43,920)
Amortization of deferred financing costs........... (1,785) (1,785)
Financing fees..................................... -- (8,850)
Amortization of offering costs..................... (667) (667)
Adjustments to reflect post-acquisition
operations....................................... (3,942) (4,406)
Reversal of Government assessment.................. 4,809 3,401
Income tax benefit................................. 2,479 10,501
-------- --------
Total pro forma adjustments........................ (51,291) (53,991)
-------- --------
Pro forma net loss of SatMex....................... (16,239) (39,247)
Loral indirect ownership interest in SatMex........ 49% 49%
-------- --------
Loral share of SatMex pro forma net loss........... (7,957) (19,231)
Loral share of management and intellectual property
fees............................................. 1,499 868
Loral share of Holdings' interest on Government
Obligation....................................... (4,989) (4,989)
-------- --------
Pro forma equity in net loss of affiliates......... $(11,447) $(23,352)
======== ========
</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 affiliates.
The unaudited pro forma condensed consolidated statements of
operations reflect charges for interest expense of 7% on the cash portion
of the purchase price. Loral intends to refinance a portion of the purchase
price with debt. The interest charge of 7% on the cash portion of the
purchase price reflects the interest rate on Loral's current borrowing
under its revolving credit facility.
10
<PAGE> 11
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
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 "Information about
Orion -- Recent Developments"):
The unaudited pro forma condensed consolidated statements of
operations for the nine months ended September 30, 1997 and December 31,
1996 have been prepared as if the transactions took place on April 1, 1996.
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 statements of operations for the nine month periods ended
September 30, 1997 and December 31, 1996. Certain historical items have been
reclassified to conform to the condensed pro forma presentation.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1997
(IN THOUSANDS)
--------------------------------------
PRO FORMA ORION
--------------------------------------
ACTUAL ORION ORION
ORION ADJUSTMENTS PRO FORMA
-------- ----------- ---------
<S> <C> <C> <C>
Revenues................................................... $ 54,539 $ -- $ 54,539
Costs and expenses......................................... 85,042 417(ii) 85,459
-------- -------- --------
Operating loss........................................... (30,503) (417) (30,920)
Interest income (expenses), net............................ (44,036) (8,805)(iii) (52,841)
Other income (expenses).................................... 21 -- 21
-------- -------- --------
Loss before extraordinary item and minority interest..... (74,518) (9,222) (83,740)
Extraordinary item......................................... (15,763) 15,763(i) --
Minority interest.......................................... 12,043 (12,043)(iv) --
-------- -------- --------
Net loss................................................. (78,238) (5,502) (83,740)
Preferred dividends........................................ (6,281) (652)(v) (6,933)
-------- -------- --------
Net loss attributable to common shares................... $(84,519) $ (6,154) $(90,673)
======== ======== ========
</TABLE>
11
<PAGE> 12
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31, 1996
(IN THOUSANDS)
--------------------------------------
PRO FORMA ORION
--------------------------------------
ACTUAL ORION ORION
ORION ADJUSTMENTS PRO FORMA
-------- ----------- ---------
<S> <C> <C> <C>
Revenues.................................................. $ 34,201 $ -- $ 34,201
Costs and expenses........................................ 60,398 3,751(ii) 64,149
-------- -------- ---------
Operating loss.......................................... (26,197) (3,751) (29,948)
Interest income (expenses), net........................... (18,642) (51,488)(iii) (70,130)
Other income (expenses)................................... -- -- --
-------- -------- ---------
Loss before minority interest........................... (44,839) (55,239) (100,078)
Minority interest......................................... 24,896 (24,896)(iv) --
-------- -------- ---------
Net loss................................................ (19,943) (80,135) (100,078)
Preferred dividends....................................... (991) (5,846)(v) (6,837)
-------- -------- ---------
Net loss attributable to common shares.................. $(20,934) $(85,981) $(106,915)
======== ======== =========
</TABLE>
- ---------------
(i) Excludes 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 and $2.4 million for the nine months ended September 30, 1997
and December 31, 1996, respectively; and the amortization of excess cost
over fair value of net assets acquired of $.1 million and $1.4 million for
the nine months ended September 30, 1997 and December 31, 1996,
respectively, 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.
(iii) Reflects the adjustment to interest as follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Reduction in Orion 1 Credit Facility interest
expense.......................................... $(1,359) $(12,003)
Reduction in Orion 1 Credit Facility interest rate
cap expense...................................... (377) (1,092)
Reduction in amortization of deferred financing
costs on the Orion 1 Credit Facility............. (178) (1,598)
Interest expense on Senior Notes................... 4,172 37,837
Interest expense on Senior Discount Notes.......... 6,155 26,029
Interest expense on Debentures..................... 438 2,245
Interest expense from amortization of deferred
financing costs on new borrowings................ 194 1,748
Reduction in interest expense relating to repayment
of other obligations to Limited Partners......... (240) (1,678)
------- --------
Net increase in pro forma interest expense.... $ 8,805 $ 51,488
======= ========
</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 proposed acquisition of Orion.
12
<PAGE> 13
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(i) On October 7, 1997, Loral agreed to acquire 100% of Orion's
outstanding capital stock for Loral common stock. The purchase price of
approximately $461.5 million, including estimated expenses of $5 million,
was based on a closing price of $22.75 of Loral Common Stock on December 2,
1997. The price was determined pursuant to the requirements of APB No. 16
and EITF 95-19 and assumed the issuance of 19.1 million shares of Loral
Common Stock (including the conversion of Orion's redeemable convertible
preferred stock and 8.75% convertible debentures), the exchange of options
and warrants to purchase common stock and the elimination of the Orion
shares held by SS/L. The transaction is expected to close in the first
quarter of 1998 and is subject to regulatory and Orion shareholder
approvals. At the close, each share of Orion Capital Stock will be
converted into $17.50 worth of Loral Common Stock assuming the
"determination price", as defined, of Loral Common Stock is between $16.305
and $24.458. If the determination price is at or outside either end of this
range, each Orion share will be converted into a fixed number of Loral
common shares obtained by dividing $17.50 by the high or low end of the
range, as appropriate. In no case will the exchange ratio be fewer than
0.71553 shares of Loral Common Stock for each share of Orion Capital Stock.
The purchase price excludes the repurchase of Orion's Senior Notes and
Senior Discount Notes ("Notes"). Under certain change in control provisions
contained in the applicable agreements thereto, Orion is required to offer
to repurchase the Notes. Since the market value of the Notes exceeds the
call value, Loral does not believe the noteholders will accept the
repurchase offer. See "Risk Factors -- Risk Related to the
Transactions -- Offer to Purchase Orion's Senior Notes and Senior Discount
Notes." The unaudited pro forma condensed consolidated balance sheet has
been prepared as if the acquisition of Orion's net assets had been
completed on September 30, 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 nine month periods ended December 31, 1996 and
September 30, 1997, respectively. These unaudited pro forma condensed
consolidated statement of operations adjustments have been prepared as if
the proposed acquisition of Orion had occurred on April 1, 1996. Orion
operations have been calculated by deducting the Orion operations for the
three month period ended March 31, 1996 from the Orion operations for the
year ended December 31, 1996. Such operations 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, 1996. Revenues, operating
loss and net loss attributable to common shareholders for Orion on a pro
forma basis for the three months ended March 31, 1996 were $7.6 million,
$11.1 million and $37.4 million, respectively.
(j) The estimated excess of purchase price over the net assets
acquired of $385.8 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 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. Other pro forma adjustments to the
unaudited condensed consolidated balance sheet include (i) the assumed
conversion to equity at September 30, 1997 of Orion's Series A 8%
Cumulative Redeemable Convertible Preferred Stock aggregating $16.9 million
at September 30, 1997 plus accrued dividends; Series B 8% Cumulative
Redeemable Convertible Preferred Stock aggregating $5.1 million at
September 30, 1997 plus accrued dividends; Series C 6% Cumulative
Redeemable Convertible Preferred Stock aggregating $95.9 million at
September 30, 1997 plus accrued dividends and $60.0 million, 8.75%
convertible debentures dated January 31, 1997 and the elimination of the
accrued interest thereon; (ii) the elimination of Orion's goodwill
aggregating $21.1 million at September 30, 1997; 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, preferred
13
<PAGE> 14
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
dividends, interest expense on the convertible debentures from the
historical Orion results and unearned compensation of $5.9 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 nine months
ended December 31, 1996 and September 30, 1997 related to the Orion loss
which would have been available to Loral on its US income tax return. A
statutory (federal and state) tax rate of 40% was applied to certain pro
forma adjustments for the nine months ended September 30, 1997.
6. Primary and fully diluted earnings per share are computed based upon
the weighted average number of shares of common stock and common equivalent
shares (Loral Series A Preferred Stock) outstanding, after giving pro forma
effect to the shares issued for the transactions described above. The Loral
Series C Preferred Stock was excluded from the earnings per share calculations
as their effect would have been anti-dilutive.
The following table presents the shares used in the pro forma earning
(loss) per share calculations (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Shares -- historical financial statements.......... 240,539 229,396
Shares issued to acquire SS/L -- weighted
average.......................................... 5,126 11,630
------- -------
245,665 241,026
Assumed issuance of shares to Orion shareholders... 19,107 19,107
------- -------
Pro forma shares used in per share calculations.... 264,772 260,133
======= =======
</TABLE>
14
