<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
COMMISSION FILE NUMBER 1-14180
LORAL SPACE & COMMUNICATIONS LTD.
C/O LORAL SPACECOM CORPORATION
600 THIRD AVENUE
NEW YORK, NEW YORK 10016
TELEPHONE: (212) 697-1105
JURISDICTION OF INCORPORATION: BERMUDA
IRS IDENTIFICATION NUMBER: 13-3867424
The registrant has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and
has been subject to such filing requirements for the past 90 days.
As of April 30, 2000, there were 295,949,682 shares of Loral Space &
Communications Ltd. common stock outstanding.
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<PAGE> 2
PART I.
FINANCIAL INFORMATION
LORAL SPACE & COMMUNICATIONS LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
2000 1999
--------- --------
<S> <C> <C>
Revenues from satellite sales............................... $ 222,584 $247,830
Revenues from satellite services............................ 95,502 58,096
--------- --------
Total revenues......................................... 318,086 305,926
Costs of satellite sales.................................... 190,974 215,299
Costs of satellite services................................. 78,829 44,952
Selling, general and administrative expenses................ 54,262 46,841
--------- --------
Operating loss.............................................. (5,979) (1,166)
Interest and investment income.............................. 29,239 14,804
Interest expense............................................ (43,316) (17,839)
Gain on investment.......................................... 15,157
--------- --------
Loss before income taxes, equity in net loss of affiliates
and minority interest..................................... (4,899) (4,201)
Income tax expense.......................................... 10,262 2,397
--------- --------
Loss before equity in net loss of affiliates and minority
interest.................................................. (15,161) (6,598)
Equity in net loss of affiliates............................ (108,389) (32,781)
Minority interest........................................... 520 878
--------- --------
Net loss.................................................... (123,030) (38,501)
Preferred dividends and accretion........................... (19,357) (11,607)
--------- --------
Net loss applicable to common stockholders.................. $(142,387) $(50,108)
========= ========
Loss per share:
Basic and diluted......................................... $ (0.49) $ (0.17)
========= ========
Weighted average shares outstanding:
Basic and diluted......................................... 293,282 289,703
========= ========
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE> 3
LORAL SPACE & COMMUNICATIONS LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 490,702 $ 239,865
Restricted and segregated cash............................ 25,206 187,315
Accounts receivable, net.................................. 67,911 47,899
Contracts-in-process...................................... 356,919 439,921
Inventories............................................... 117,308 111,060
Other current assets...................................... 175,660 47,261
---------- ----------
Total current assets.................................... 1,233,706 1,073,321
Property, plant and equipment, net.......................... 1,873,948 1,884,975
Cost in excess of net assets acquired, net.................. 940,736 946,781
Long-term receivables....................................... 172,900 167,464
Investments in and advances to affiliates................... 1,018,430 1,098,003
Deposits.................................................... 178,895 195,875
Other assets................................................ 126,150 244,002
---------- ----------
$5,544,765 $5,610,421
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 91,815 $ 85,496
Accounts payable.......................................... 76,484 207,362
Satellite purchase price payable.......................... 181,928
Accrued employee costs.................................... 49,990 44,797
Customer advances......................................... 32,019 67,725
Accrued interest and preferred dividends.................. 34,382 49,093
Other current liabilities................................. 42,385 37,770
Income taxes payable...................................... 23,962 19,708
---------- ----------
Total current liabilities............................... 351,037 693,879
Pension and other postretirement liabilities................ 53,190 51,601
Long-term liabilities....................................... 187,660 177,300
Long-term debt.............................................. 1,897,342 1,913,826
Minority interest........................................... 22,545 23,151
Commitments and contingencies (Notes 6 and 8)
Shareholders' equity:
Series A convertible preferred stock, $.01 par value...... 459
Series B preferred stock, $.01 par value..................
Series C 6% convertible redeemable preferred stock
($674,922 and $745,472 redemption value at March 31,
2000 and December 31, 1999, respectively)............... 665,831 735,437
Series D 6% convertible redeemable preferred stock
($400,000 redemption value)............................. 388,000
Common stock, $.01 par value.............................. 2,956 2,452
Paid-in capital........................................... 2,432,452 2,347,323
Treasury stock, at cost................................... (3,360) (3,360)
Unearned compensation..................................... (964) (1,253)
Retained deficit.......................................... (551,688) (409,301)
Accumulated other comprehensive income.................... 99,764 78,907
---------- ----------
Total shareholders' equity.............................. 3,032,991 2,750,664
---------- ----------
$5,544,765 $5,610,421
========== ==========
</TABLE>
- ---------------
NOTE: The December 31, 1999 balance sheet has been derived from the audited
consolidated financial statements at that date.
See notes to condensed consolidated financial statements.
2
<PAGE> 4
LORAL SPACE & COMMUNICATIONS LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
2000 1999
--------- ---------
<S> <C> <C>
Operating activities:
Net loss.................................................. $(123,030) $ (38,501)
Non-cash items:
Equity in net loss of affiliates....................... 108,389 32,781
Minority interest...................................... (520) (878)
Deferred taxes......................................... 5,367 1,936
Non-cash interest and investment income................ (10,170) (297)
Non-cash interest expense.............................. 9,827 8,210
Depreciation and amortization.......................... 53,107 37,793
Gain on sale of investment............................. (15,157)
Change in operating assets and liabilities:
Accounts receivable, net............................... (20,012) (408)
Contracts-in-process................................... 83,002 (26,592)
Inventories............................................ (6,248) 8,259
Deposits............................................... 16,980 16,500
Long-term receivables.................................. (5,436) (8,524)
Other current assets and other assets.................. 4,754 2,901
Accounts payable....................................... (130,878) (31,494)
Accrued expenses and other current liabilities......... (4,903) (29,383)
Income taxes payable................................... 4,254 76
Customer advances...................................... (35,706) (12,249)
Long-term liabilities.................................. 10,360 13,007
Other.................................................. 614 2,871
--------- ---------
Cash used in operating activities........................... (55,406) (23,992)
--------- ---------
Investing activities:
Proceeds from sale of investment.......................... 16,341
Investments in and advances to affiliates................. (20,655) (210,877)
Use and transfer of restricted and segregated cash........ 162,109 24,919
Capital expenditures...................................... (215,771) (155,264)
--------- ---------
Cash used in investing activities........................... (57,976) (341,222)
--------- ---------
Financing activities:
Proceeds from the issuance of 9.5% senior notes, net...... 343,875
Proceeds from issuance of Series D 6% preferred stock,
net.................................................... 388,000
Borrowings under revolving credit facility, net........... 45,000
Borrowings under note purchase facility................... 1,922
Repayments under term loan................................ (18,750)
Repayments of other long-term obligations................. (1,242) (454)
Proceeds from common stock issuances...................... 9,686 4,767
Preferred dividends....................................... (13,475) (11,183)
--------- ---------
Cash provided by financing activities....................... 364,219 383,927
--------- ---------
Increase in cash and cash equivalents....................... 250,837 18,713
Cash and cash equivalents -- beginning of period............ 239,865 546,772
--------- ---------
Cash and cash equivalents -- end of period.................. $ 490,702 $ 565,485
========= =========
Non-cash activities:
Conversion of Series A Preferred Stock to common stock.... $ 459
=========
Conversion of Series C Preferred Stock to common stock and
related issuance of additional common shares on
conversion............................................. $ 75,449
=========
Unrealized gain (loss) on available-for-sale securities... $ 36,333 $ (15,720)
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 5
LORAL SPACE & COMMUNICATIONS LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1) ORGANIZATION AND PRINCIPAL BUSINESS
Loral Space & Communications Ltd. together with its subsidiaries ("Loral"
or the "Company") is one of the world's leading satellite communications
companies with substantial activities in satellite manufacturing and
satellite-based communications services. Loral has assembled the building blocks
necessary to provide a seamless, global networking capability for the
information age. Loral is organized into four distinct operating segments (see
Note 9):
Fixed Satellite Services ("FSS"): Leasing transponder capacity to
customers for various applications, including broadcasting, news gathering,
Internet access and transmission, private voice and data networks, business
television, distance learning and direct-to-home television ("DTH"),
through the activities of Loral Skynet, Loral CyberStar, Inc. ("Loral
CyberStar"), Satelites Mexicanos, S.A. de C.V. ("Satmex") and Europe*Star
Limited ("Europe*Star"),
Broadband Data Services: Providing managed communications networks
and Internet and intranet services through Loral CyberStar and delivering
high-speed broadband data communications and business television services
through CyberStar, L.P. ("CyberStar LP"),
Satellite Manufacturing and Technology: Designing and manufacturing
satellites and space systems and developing satellite technology for a
broad variety of customers and applications through Space Systems/Loral,
Inc. ("SS/L"), and
Global Mobile Telephone Service: Acting as the managing general
partner of Globalstar, L.P. ("Globalstar"), which owns and operates a
global telecommunications network designed to serve virtually every
populated area of the world by means of a 52-satellite constellation,
including four in-orbit spares (the "Globalstar System"). The Globalstar
System commenced operations in the first quarter of 2000.
2) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared by Loral pursuant to the rules of the Securities and Exchange
Commission ("SEC") and, in the opinion of the Company, include all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of
results of operations, financial position and cash flows as of and for the
periods presented. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such SEC rules.
The Company believes that the disclosures made are adequate to keep the
information presented from being misleading. The results of operations for the
three months ended March 31, 2000, are not necessarily indicative of the results
to be expected for the full year. It is suggested that these financial
statements be read in conjunction with the audited consolidated financial
statements and notes thereto of Loral included in Loral's latest Annual Report
on Form 10-K.
Restricted and Segregated Cash
At March 31, 2000, Loral CyberStar had $25 million of restricted cash for
an interest payment on its senior notes. In March 2000, Loral CyberStar used
$137 million of segregated cash towards the final payment on the purchase of
Telstar 10/Apstar IIR.
Reclassifications
Certain reclassifications have been made to conform prior period amounts to
the current period presentation.
4
<PAGE> 6
LORAL SPACE & COMMUNICATIONS LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3) COMPREHENSIVE LOSS
The components of comprehensive loss for the three months ended March 31,
2000 and 1999, are as follows (in thousands):
<TABLE>
<CAPTION>
2000 1999
--------- --------
<S> <C> <C>
Net loss.................................................... $(123,030) $(38,501)
Cumulative translation adjustment........................... (319) (913)
Unrealized gains (losses) arising during the period......... 36,333 (15,720)
Less, realized gain included in net loss.................... (15,157)
--------- --------
Comprehensive loss.......................................... $(102,173) $(55,134)
========= ========
</TABLE>
4) INVESTMENTS IN AND ADVANCES TO AFFILIATES
As of March 31, 2000, Loral owned directly and indirectly 24.8 million
ordinary partnership interests (approximately 40%) of the total 61.9 million
Globalstar ordinary partnership interests outstanding.
Investments in and advances to affiliates are as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
---------- ------------
<S> <C> <C>
Globalstar, including advances of $233,430 and $219,823 at
March 31, 2000 and December 31, 1999, respectively........ $ 803,275 $ 878,140
Satmex...................................................... 62,317 70,747
Europe*Star................................................. 65,443 62,300
Other affiliates............................................ 87,395 86,816
---------- ----------
$1,018,430 $1,098,003
========== ==========
</TABLE>
Equity in net loss of affiliates consists of (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
2000 1999
-------- -------
<S> <C> <C>
Globalstar, net of tax benefit.............................. $ 93,217 $17,921
Satmex...................................................... 8,221 6,026
Europe*Star................................................. 1,403 643
SkyBridge, net of tax benefit............................... 6,799
Other affiliates, net of tax benefit........................ 5,548 1,392
-------- -------
$108,389 $32,781
======== =======
</TABLE>
5
<PAGE> 7
LORAL SPACE & COMMUNICATIONS LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4) INVESTMENTS IN AND ADVANCES TO AFFILIATES -- (CONTINUED)
The condensed consolidated statements of operations reflect the effects of
the following amounts related to transactions with or investments in affiliates
(in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
2000 1999
------- --------
<S> <C> <C>
Revenues from satellite sales............................... $41,430 $110,220
Interest and investment income.............................. 13,170 297
Interest expense capitalized on development stage
enterprises............................................... 1,116 8,256
Elimination of Loral's proportionate share of intercompany
profits................................................... 1,423 (227)
Amortization of excess carrying value, capitalized interest
and intercompany profits related to investment in
Globalstar................................................ 7,733
</TABLE>
The following table represents the summary of results of operations of
certain of Loral's affiliates for the three months ended March 31, 2000 and 1999
(in thousands):
<TABLE>
<CAPTION>
2000 1999
-------------------- --------------------
GLOBALSTAR SATMEX GLOBALSTAR SATMEX
---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Sales........................................ $ 609 $32,315 $ $27,977
Operating income (loss)...................... (135,230) 6,282 (42,681) 7,151
Net loss..................................... (208,629) (13,102) (40,368) (8,497)
Net loss applicable to common shareholders... (13,479) (8,497)
Net loss applicable to ordinary partnership
interests.................................. (216,138) (45,118)
</TABLE>
5) CONTRACTS-IN-PROCESS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
U.S. Government contracts:
Amounts billed...................................... $ 10,023 $ 9,003
Unbilled contract receivables....................... 2,341 6,965
-------- --------
12,364 15,968
-------- --------
Commercial contracts:
Amounts billed...................................... 151,908 226,609
Unbilled contract receivables....................... 192,647 197,344
-------- --------
344,555 423,953
-------- --------
$356,919 $439,921
======== ========
</TABLE>
Unbilled amounts include recoverable costs and accrued profit on progress
completed, which have not been billed. Such amounts are billed upon shipment of
the product, achievement of contractual milestones, or completion of the
contract and are reclassified to billed receivables.
6
<PAGE> 8
LORAL SPACE & COMMUNICATIONS LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6) LONG TERM DEBT
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
---------- ------------
(IN THOUSANDS)
<S> <C> <C>
Term loan, 7.3% and 7.1% at March 31, 2000 and December 31,
1999 respectively......................................... $ 237,500 $ 256,250
Revolving credit facility, 7.3% and 7.1% at March 31, 2000
and December 31, 1999, respectively....................... 275,000 275,000
Note purchase facility...................................... 139,238 139,238
9.5% senior notes due 2006.................................. 350,000 350,000
Export-Import credit facility............................... 12,872 12,872
Other....................................................... 571 591
Non-recourse debt of Loral CyberStar:
11.25% senior notes due 2007 (principal amount $443
million)............................................... 500,184 501,734
12.5% senior discount notes due 2007 (principal amount at
maturity $484 million and accreted principal of $390
million and $378 million as of March 31, 2000 and
December 31, 1999, respectively)....................... 458,976 448,409
Other..................................................... 14,816 15,228
---------- ----------
Total debt.................................................. 1,989,157 1,999,322
Less, current maturities.................................... 91,815 85,496
---------- ----------
$1,897,342 $1,913,826
========== ==========
</TABLE>
7) LOSS PER SHARE
Basic loss per share is computed based on the weighted average number of
shares of common stock and the Series A preferred stock outstanding. Diluted
loss per share excludes the assumed conversion of the Series C preferred stock,
Series D preferred stock and stock options, as the effect would have been
antidilutive. For the three months ended March 31, 2000 and 1999, weighted
options equating to approximately 1.0 million and 1.3 million shares,
respectively, as calculated using the treasury stock method, were excluded from
the calculation of diluted loss per share, as the effect would have been
antidilutive.
7
<PAGE> 9
LORAL SPACE & COMMUNICATIONS LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7) LOSS PER SHARE -- (CONTINUED)
The following table sets forth the computation of basic and diluted loss
per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
2000 1999
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Numerator:
Net loss.................................................. $123,030 $ 38,501
Preferred dividends and accretion......................... 19,357 11,607
-------- --------
Numerator for basic and diluted earnings per share -- net
loss applicable to common stockholders................. $142,387 $ 50,108
======== ========
Denominator:
Weighted average shares:
Common stock........................................... 247,889 243,806
Series A Preferred Stock............................... 45,393 45,897
-------- --------
Denominator for basic loss per share...................... 293,282 289,703
Effect of dilutive securities:
Series C preferred stock............................... * *
Series D preferred stock............................... * *
Employee stock options................................. * *
-------- --------
Denominator for diluted loss per share.................... 293,282 289,703
======== ========
Basic and diluted loss per share............................ $ 0.49 $ 0.17
======== ========
</TABLE>
- ---------------
* Effect is antidilutive.
In the first quarter of 2000, all of the Company's Series A preferred stock
and 1.4 million shares of Series C preferred stock were converted into the
Company's common stock (see Note 10).
8) COMMITMENTS AND CONTINGENCIES
On December 15, 1995, Globalstar entered into a $250 million credit
agreement (the "Globalstar Credit Agreement") with a group of banks. Lockheed
Martin Corporation ("Lockheed"), SS/L and certain other Globalstar partners have
guaranteed $206.3 million, $11.7 million and $32.0 million of the Globalstar
Credit Agreement, respectively. In addition, Loral agreed to indemnify Lockheed
for any liability in excess of $150 million.
On August 5, 1999, Globalstar entered into a $500 million credit agreement
with a group of banks for the build-out of the Globalstar System of which $400
million was outstanding as of March 31, 2000. The credit facility is guaranteed
by Loral SatCom Ltd. and Loral Satellite, Inc., wholly owned subsidiaries of
Loral, for which Loral received 3,450,000 warrants to purchase Globalstar
partnership interests. The guarantee is secured by the pledge of certain assets
of Loral and its subsidiaries, including the stock of the guarantors and the
Telstar 6 and Telstar 7 satellites. Based on third party valuations, management
believes that the fair value of Telstar 6 and Telstar 7 is in excess of this
$500 million credit agreement. As of March 31, 2000, the net book value of
Telstar 6 and Telstar 7 was $387 million. The guarantee agreement contains
customary financial covenants of the guarantors, including maintenance of a
minimum collateral coverage ratio and maintenance of a combined minimum net
worth and combined earnings before interest, taxes, depreciation and
8
<PAGE> 10
LORAL SPACE & COMMUNICATIONS LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8) COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
amortization ("EBITDA"). In addition, the guarantee agreement contains customary
restrictions, including limitations on indebtedness, liens, fundamental changes,
asset sales, dividends (except that the guarantors may pay dividends to their
parents provided that combined aggregate cash on hand at the guarantors is at
least equal to $50 million and the guarantors hold an intercompany note due from
Loral for at least $100 million), investments, capital expenditures, creating
liens other than those created pursuant to the guarantee and transactions with
affiliates.
In May 2000, Globalstar finalized $531.1 million of vendor financing
arrangements with Qualcomm that replaces the previous $100 million vendor
financing agreement. The vendor financing bears interest at 6%, matures on
August 15, 2003 and requires repayment pro rata with the term loans under
Globalstar's $500 million credit facility discussed above. As of May 5, 2000,
$482 million was outstanding under this facility. In connection with this
agreement, Qualcomm received warrants to purchase 3,450,000 Globalstar
partnership interests at an exercise price of $42.25 per interest. The exercise
price was determined by reference to the fair market value of GTL's common stock
on the closing date of the vendor financing, based on an approximate one
partnership interest for four shares of GTL common stock. Fifty percent of the
warrants vested on the closing date. The remaining 50% will vest generally in
two equal installments on September 1, 2000 and September 1, 2001. The warrants
will expire in 2007.
Loral has agreed that if the principal amount (excluding capitalized
interest, currently amounting to $31.1 million) outstanding under the Qualcomm
vendor financing facility exceeds the principal amount outstanding under
Globalstar's $500 million credit facility, as determined on certain measurement
dates, then Loral will guarantee 50% of such excess amount. As a result, Loral's
aggregate guarantee liability for debt outstanding under the Qualcomm vendor
financing facility and Globalstar's $500 million credit facility will not exceed
$500 million.
Prior to its acquisition by Loral, Loral Skynet sold several transponders
under which title to specific transponders was transferred to the customer.
Under the terms of the sales contracts, Loral Skynet continues to operate the
satellites on which the transponders are located and provides a warranty for a
period of 10 to 14 years. Depending on the contract, Loral Skynet is required to
replace any transponders failing to meet operating specifications. All customers
are entitled to a refund equal to the reimbursement value, as defined, in the
event there is no replacement. The reimbursement value is determined based on
the original purchase price plus an interest factor from the time the payment
was received to acceptance of the transponder by the customer, reduced on a
straight-line basis over the warranty period. In case of satellite failure, the
reimbursement value may be paid from proceeds received from insurance policies.
In late 1998, following the launch of an SS/L-built satellite sold to
PanAmSat, a manufacturing error was discovered that affected the geographical
coverage of the Ku-band transponders on the satellite. On January 6, 2000,
PanAmSat filed an arbitration proceeding in connection with this error claiming
damages of $225 million for lost profits, and increased sales and marketing
costs. SS/L believes it has meritorious defenses to the claim and that its
liability is limited to a loss of a portion of the applicable orbital
incentives, the estimated impact of which is included in Loral's condensed
consolidated financial statements. PanAmSat has received a recovery from its
insurance carrier that should reduce any damage claim. While this proceeding is
in its very early stages, management believes that this matter will not have a
material adverse effect on the financial condition or results of operations of
Loral.
SS/L is a target of a grand jury investigation being conducted by the
office of the U.S. Attorney for the District of Columbia with respect to
possible violations of export control laws that may have occurred in connection
with the participation of SS/L employees on a committee formed in the wake of
the 1996 crash of a Long March rocket in China and whose purpose was to consider
whether studies of the crash made by the Chinese had correctly identified the
cause of the failure. The Company is not in a position to predict the
9
<PAGE> 11
LORAL SPACE & COMMUNICATIONS LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8) COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
direction or outcome of the investigation. If SS/L were to be indicted and
convicted of a criminal violation of the Arms Export Control Act, it would be
subject to a fine of $1 million per violation and could be debarred from certain
export privileges and, possibly, from participation in government contracts.
Since many of SS/L's satellites are built for foreign customers and/or launched
on foreign rockets, such a debarment would have a material adverse effect on
SS/L's business and, therefore, the Company. Indictment for such violations
would subject SS/L to discretionary debarment from further export licenses.
Under the applicable regulations, SS/L could be debarred from export privileges
without being convicted of any crime if it is indicted for these alleged
violations, and loss of export privileges would harm SS/L's business. Whether or
not SS/L is indicted or convicted, SS/L remains subject to the State
Department's general statutory authority to prohibit exports of satellites and
related services if it finds a violation of the Arms Export Control Act that
puts SS/L's reliability in question, and it can suspend export privileges
whenever it determines that grounds for debarment exist and that such suspension
"is reasonably necessary to protect world peace or the security or foreign
policy of the United States."
As far as SS/L can determine, no sensitive information or technology was
conveyed to the Chinese, and no secret or classified information was discussed
with or reported to them. SS/L believes that its employees acted openly and in
good faith and that none engaged in intentional misconduct. Accordingly, the
Company does not believe that SS/L has committed a criminal violation of the
export control laws. The Company does not expect the grand jury investigation or
its outcome to result in a material adverse effect upon its business. However,
there can be no assurance as to these conclusions.
On December 23, 1998, the Office of Defense Trade Controls ("ODTC") of the
U.S. Department of State temporarily suspended the previously approved technical
assistance agreement under which SS/L had been preparing for the launch of the
ChinaSat-8 satellite. According to ODTC, the purpose of the temporary suspension
is to permit that agency to review the agreement for conformity with
newly-enacted legislation (Section 74 of the Arms Export Control Act) with
respect to the export of missile equipment or technology. SS/L has complied with
ODTC's instructions, and believes that a review of the agreement will show that
its terms comply with the new law. The ODTC, however, has not yet completed its
review, and the scheduled launch date for ChinaSat-8 is being delayed. If the
suspension is not lifted by July 31, 2000, ChinaSat could decide to terminate
the contract. If such a termination were to occur, SS/L would have to refund
advances received from ChinaSat ($134 million as of March 31, 2000) and may
incur penalties of up to $11 million and believes it would incur costs of up to
approximately $38 million to refurbish and retrofit the satellite so that it
could be sold to another customer. There can be no assurance that SS/L will be
able to find such a replacement customer for the satellite or its Chinese launch
vehicle. SS/L will record a charge to earnings of approximately $35 million if
it is unable to find a replacement customer for this launch vehicle.
In March 1999, jurisdiction for satellite licensing was transferred from
the Commerce Department to the State Department, and the State Department has
issued regulations relating to the export of, and disclosure of technical
information related to, satellites and related equipment. SS/L anticipates that
obtaining licenses and technical assistance agreements under these new
regulations will take more time and will be considerably more burdensome than in
the past. Delays in obtaining the necessary licenses and technical assistance
agreements may delay SS/L's performance on existing contracts, and, as a result,
SS/L may incur penalties or lose incentive payments under these contracts. In
addition, such delays may have an adverse effect on SS/L's ability to compete
against foreign satellite manufacturers for new satellite contracts.
Under an agreement reached with Eutelsat, Loral CyberStar agreed to operate
Telstar 12, which was originally intended to operate at 12 degrees W.L., at 15
degrees W.L. while Eutelsat will continue to develop its services at 12.5
degrees W.L. Eutelsat has in turn agreed not to use its 14.8 degrees W.L.
orbital slot and will assert its priority rights over such location on Loral
CyberStar's behalf. As part of this coordination effort,
10
<PAGE> 12
LORAL SPACE & COMMUNICATIONS LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8) COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
Loral CyberStar agreed to provide to Eutelsat four transponders on Telstar 12
for the life of the satellite. Eutelsat also has the right to acquire, at cost,
four transponders on the next replacement satellite for Telstar 12. As part of
the international coordination process, Loral continues to conduct discussions
with various administrations regarding Telstar 12's operations at 15 degrees
W.L. If these discussions are not successful, Telstar 12's useable capacity may
be reduced.
9) SEGMENTS
Loral has four reportable business segments: Fixed Satellite Services,
Broadband Data Services, Satellite Manufacturing and Technology and Global
Mobile Telephone Service (see Note 1).
In evaluating financial performance, management uses revenues and EBITDA as
the measure of a segment's profit or loss. Segment results include the results
of Loral's subsidiaries and its affiliates, Satmex, Europe*Star and Globalstar,
which are accounted for using the equity method in these condensed consolidated
financial statements. Intersegment revenues primarily consists of satellites
under construction by Satellite Manufacturing and Technology for Fixed Satellite
Services and Global Mobile Telephone Service and sales by Fixed Satellite
Services to Broadband Data Services for the lease of transponder capacity.
Summarized financial information concerning the reportable segments is as
follows (in millions):
THREE MONTHS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
SATELLITE GLOBAL
FIXED BROADBAND MANUFACTURING MOBILE
SATELLITE DATA AND TELEPHONE
SERVICES(1) SERVICES(2) TECHNOLOGY(3) SERVICE(4) CORPORATE(5) TOTAL
----------- ----------- ------------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUES AND EBITDA:
Revenues from external customers........... $ 94.7 $ 32.5 $ 181.3 $ 0.6 $ 309.1
Intersegment revenues...................... 7.3 66.9 74.2
-------- ------ -------- -------- ---------
Operating segment revenues................. $ 102.0 $ 32.5 $ 248.2 $ 0.6 383.3
======== ====== ======== ========
Revenues of unconsolidated affiliates(6)... (32.9)
Intercompany revenues(7)................... (32.3)
---------
Operating revenue as reported.............. $ 318.1
=========
Segment EBITDA before Broadband investment
and eliminations......................... $ 62.0 $ (9.3) $ 26.4 $ (57.4) $ (9.5) $ 12.2
Broadband investment(8).................... (1.1) (1.1)
EBITDA of unconsolidated affiliates(6)..... 38.0
Intercompany EBITDA(7)..................... (2.0)
---------
EBITDA as reported(9)...................... 47.1
Depreciation and amortization(10).......... 53.1
---------
Operating loss............................. $ (6.0)
=========
OTHER DATA:
Depreciation and amortization before
affiliate eliminations(10)............... $ 54.3 $ 4.9 $ 9.0 $ 78.2 $ 0.3 $ 146.7
======== ====== ======== ======== ========
Depreciation and amortization of
unconsolidated affiliates(6)(10)......... (93.6)
---------
Depreciation and amortization(10).......... $ 53.1
=========
Total assets before affiliate
eliminations............................. $3,722.9 $223.1 $1,566.3 $3,825.4 $1,308.1 $10,645.8
======== ====== ======== ======== ========
Total assets of unconsolidated
affiliates(6)............................ $ 5,101.0
---------
Total assets............................... $ 5,544.8
=========
</TABLE>
(1) Includes 100% of Europe*Star's EBITDA and 100% of Satmex's revenues and
EBITDA.
(2) Broadband Data Services consists of 100% of CyberStar LP and 100% of Loral
CyberStar's data services business and consumer broadband services.
11
<PAGE> 13
LORAL SPACE & COMMUNICATIONS LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9) SEGMENTS -- (CONTINUED)
- ---------------
(3) Satellite Manufacturing and Technology consists of 100% of SS/L's results.
(4) Includes 100% of Globalstar's revenues and EBITDA.
(5) Represents unallocated corporate expenses incurred in support of the
Company's operations.
(6) Represents amounts related to unconsolidated affiliates (Satmex,
Europe*Star and Globalstar). These amounts are eliminated in order to
arrive at Loral's condensed consolidated results. Loral's proportionate
share of these affiliates is included in equity in net loss from affiliates
in Loral's condensed consolidated statements of operations.
(7) Represents the elimination of intercompany sales and EBITDA, primarily for
satellites under construction by SS/L for wholly-owned subsidiaries; as
well as eliminating sales for the lease of transponder capacity by
Broadband Data Services from Fixed Satellite Services.
(8) Excludes capital investment in Broadband Services.
(9) EBITDA (which is equivalent to operating income/loss before depreciation
and amortization, including amortization of unearned compensation) is
provided because it is a measure commonly used in the communications
industry to analyze companies on the basis of operating performance,
leverage and liquidity and is presented to enhance the understanding of
Loral's operating results. EBITDA is not an alternative to net income as an
indicator of a company's operating performance, or cash flow from
operations as a measure of a company's liquidity. EBITDA may be calculated
differently and, therefore, may not be comparable to similarly titled
measures reported by other companies.
(10) Includes amortization of unearned stock compensation charges.
12
<PAGE> 14
LORAL SPACE & COMMUNICATIONS LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
SATELLITE GLOBAL
FIXED BROADBAND MANUFACTURING MOBILE
SATELLITE DATA AND TELEPHONE
SERVICES(1) SERVICES(2) TECHNOLOGY(3) SERVICE(4) CORPORATE(5) TOTAL
----------- ----------- ------------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUE AND EBITDA:
Revenue from external customers........... $ 69.7 $ 16.3 $ 140.7 $ 226.7
Intersegment revenue...................... 2.4 185.8 188.2
-------- ------ -------- ---------
Operating segment revenue................. $ 72.1 $ 16.3 $ 326.5 414.9
======== ====== ========
Revenue of unconsolidated affiliates(6)... (28.0)
Intercompany revenue(7)................... (81.0)
---------
Operating revenue as reported............. $ 305.9
=========
Segment EBITDA before Broadband investment
and eliminations........................ $ 47.6 $ (6.7) $ 31.6 $ (42.1) $ (9.2) $ 21.2
Broadband investment(8)
EBITDA of unconsolidated affiliates(6).... 21.7
Intercompany EBITDA(7).................... (6.3)
---------
EBITDA as reported(9)..................... 36.6
Depreciation and amortization(10)......... 37.8
---------
Operating loss............................ $ (1.2)
=========
OTHER DATA:
Depreciation and amortization before
affiliate eliminations(10).............. $ 38.0 $ 4.2 $ 8.8 $ 0.5 $ 0.8 $ 52.3
======== ====== ======== ======== ========
Depreciation and amortization of
unconsolidated affiliates(6)(10)........ (14.5)
---------
Depreciation and amortization(10)......... $ 37.8
=========
Total assets before affiliate
eliminations............................ $3,484.3 $130.8 $1,679.4 $3,005.0 $1,459.6 $ 9,759.1
======== ====== ======== ======== ========
Total assets of unconsolidated
affiliates(6)........................... $(4,246.1)
---------
Total assets.............................. $ 5,513.0
=========
</TABLE>
10. SHAREHOLDERS' EQUITY
Series A Preferred Stock
In February 2000, Loral and Lockheed filed certain notices under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 in connection with
Lockheed's plan to convert its 45,896,978 shares of Loral Series A preferred
stock into an equal number of shares of Loral common stock. On March 31, 2000,
Lockheed converted the shares of Series A preferred stock into 45,896,978 shares
of Loral common stock. Lockheed may dispose of the common stock in transactions
registered under, or exempt from, the registration provisions of, the federal
securities laws. Loral filed a registration statement to register the shares of
common stock acquired by Lockheed upon the conversion of the Series A preferred
stock, which became effective in May 2000. Loral has agreed to maintain the
effectiveness of such registration until May 19, 2001, subject to certain
extensions, and has agreed to refrain from selling equity securities in the
public markets for its own account until November 2000, subject to certain
extensions.
13
<PAGE> 15
LORAL SPACE & COMMUNICATIONS LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10) SHAREHOLDERS' EQUITY -- (CONTINUED)
Series C Preferred Stock
In February 2000, 1.4 million shares of Series C preferred stock were
converted into 3.5 million shares of Loral common stock. In connection with this
conversion, Loral issued to the converting shareholders 332,777 additional
shares of its common stock, which approximated the dividend prepayments to which
they would have been entitled if a provisional redemption of those securities
had been made.
Series D Preferred Stock
In February 2000, Loral sold $400 million of Series D 6% convertible
redeemable preferred stock due 2007 in an offering exempt from registration. The
preferred stock is convertible into 20,171,152 shares of common stock at a
conversion price of $19.83 per share. Loral intends to apply the net proceeds of
$388 million for general corporate purposes, including investment in its
broadband strategy and expansion of the Loral Global Alliance by acquisition of
additional satellites and orbital slots.
11. SUBSEQUENT EVENT
On April 18, 2000, the Board of Directors of Loral approved a new stock
option plan (the "2000 Plan") in order to provide an inducement to attract and
retain the services of qualified employees. The 2000 Plan is intended to
constitute a "broadly-based plan" as defined in Section 312.04(h) of the New
York Stock Exchange ("NYSE") Listed Company Manual, which provides that at least
50% of grants thereunder exclude senior management. The 2000 Plan provides for
the grant of non-qualified stock options only. Up to 13 million shares of common
stock may be issued under the 2000 Plan, of which approximately 4.5 million
options are currently outstanding. Employees of Loral, its subsidiaries and
affiliates are eligible to participate in the 2000 Plan. The 2000 Plan (but not
outstanding options) will terminate on the tenth anniversary of its adoption.
14
<PAGE> 16
LORAL SPACE & COMMUNICATIONS LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Except for the historical information contained herein, the matters
discussed in the following Management's Discussion and Analysis of Results of
Operations and Financial Condition of Loral Space & Communications, Ltd. and its
subsidiaries ("Loral" or the "Company") are not historical facts, but are
"forward-looking statements," as that term is defined in the Private Securities
Litigation Reform Act of 1995. In addition, the Company or its representatives
have made and may continue to make forward-looking statements, orally or in
writing, in other contexts, such as in reports filed with the SEC, press
releases or statements made with the approval of an authorized executive officer
of the Company. These forward-looking statements can be identified by the use of
forward-looking terminology such as "believes," "expects," "plans," "may,"
"will," "would," "could," "should," "anticipates," "estimates," "project,"
"intend," or "outlook" or the negative of these words or other variations of
these words or other comparable words, or by discussion of strategy that involve
risks and uncertainties. These forward-looking statements are only predictions,
and actual events or results may differ materially as a result of a wide variety
of factors and conditions, many of which are beyond the Company's control. Some
of these factors and conditions include: (i) the Company and its subsidiaries
and affiliates owe significant amounts of money; (ii) the Company's consumer
broadband and streaming media strategies are subject to substantial financing
and execution risks; (iii) Globalstar was a development-stage company through
December 31, 1999, that may continue to lose money, have negative cash flow,
require additional money and suffer delays in meeting its targets; (iv) launch
failures may delay operations; (v) satellites may fail prematurely; (vi)
dependence on operating subsidiaries, especially Space Systems/Loral,
Inc.("SS/L), for operating income; (vii) severe competition in the Company's
industries; and (viii) governmental or regulatory changes. For a detailed
discussion of these factors and conditions, please refer to the periodic reports
filed with the SEC by Loral, Globalstar, L.P. ("Globalstar"), Globalstar
Telecommunications Limited ("GTL"), Loral CyberStar, Inc.("Loral CyberStar") and
Satelites de Mexico, S.A. de C.V. ("Satmex"). In addition, we caution you that
the Company operates in an industry sector where securities values may be
volatile and may be influenced by economic and other factors beyond the
Company's control.
Loral is one of the world's leading satellite communications companies,
with substantial activities in satellite manufacturing and satellite-based
communications services. Loral has assembled the building blocks necessary to
create a seamless, global networking capability for the information age. Loral's
four operating segments are:
Fixed Satellite Services ("FSS"). Through the Loral Global Alliance,
which currently consists of Loral Skynet, Loral CyberStar, its 49% owned
affiliate Satmex, and its 47% owned affiliate Europe*Star Limited
("Europe*Star"), Loral has become one of the world's leading providers of
satellite services using geostationary communications satellites. The
Company leases transponder capacity on its satellites to its customers who
use the capacity for various applications, including broadcasting, news
gathering, Internet access and transmission, private voice and data
networks, business television, distance learning and direct-to-home
television. The Loral Global Alliance currently has ten high-powered
geosynchronous satellites in orbit: the seven satellite Telstar fleet and
three Satmex satellites, with footprints covering almost all of the world's
population.
Broadband Data Services: Through Loral CyberStar and its 82% owned
subsidiary CyberStar, L.P. ("CyberStar LP"), Loral currently (i) delivers
U.S.-based Internet content via satellite to more than 130 Internet Service
Providers ("ISPs") in more than 32 foreign countries, which reach
approximately seven million residential customers around the world, (ii)
distributes high-speed data over private corporate very small aperture
terminal ("VSAT") networks, which reach approximately 2.5 million corporate
desktops around the world, and (iii) offers business television ("BTV")
services by satellite to corporations. Loral's broadband strategy will
build on these existing resources and will initially focus on two
attractive opportunities for early market entry: consumer broadband
services and streaming media services.
15
<PAGE> 17
Satellite Manufacturing and Technology. SS/L is one of the world's
leading manufacturers of satellites and space systems, providing its
customers with a full suite of services, including: developing custom
designs to meet their requirements, manufacturing and testing, and
arranging for launch services and insurance.
Global Mobile Telephone Service: Acting as the managing general
partner of Globalstar, which owns and operates a global telecommunications
network designed to serve virtually every populated area of the world by
means of a 52-satellite constellation, including four in-orbit spares (the
"Globalstar System"). The Globalstar system commenced operations in the
first quarter of 2000 and as of March 31, 2000, 25 countries were in full
service, served by 11 gateways. Loral is the managing general partner and
owned approximately 40% of Globalstar as of March 31, 2000.
CONSOLIDATED OPERATING RESULTS
In evaluating financial performance, management uses revenues and earnings
before interest, taxes, depreciation and amortization ("EBITDA") as a measure of
a segment's profit or loss. The following discussion of revenues and EBITDA
reflects the results of Loral's operating segments for the three months ended
March 31, 2000 and 1999. See Note 9 to Loral's condensed consolidated financial
statements for additional information on segment results. The remainder of the
discussion relates to the consolidated results of Loral, unless otherwise noted.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
2000 1999
------- -------
(IN MILLIONS)
<S> <C> <C>
OPERATING REVENUES:
Fixed satellite services(1)................................. $102.0 $ 72.1
Broadband data services(2).................................. 32.5 16.3
Satellite manufacturing and technology...................... 248.2 326.5
Global mobile telephone service(3).......................... 0.6
------ ------
Operating segment revenues.................................. 383.3 414.9
Affiliate eliminations(4)................................... (32.9) (28.0)
Intercompany eliminations(5)................................ (32.3) (81.0)
------ ------
Operating revenues as reported.............................. $318.1 $305.9
====== ======
EBITDA(6):
Fixed satellite services(1)................................. $ 62.0 $ 47.6
Broadband data services(2).................................. (9.3) (6.7)
Satellite manufacturing and technology...................... 26.4 31.6
Global mobile telephone service(3).......................... (57.4) (42.1)
Corporate expenses(7)....................................... (9.5) (9.2)
------ ------
Segment EBITDA before Broadband investment and
eliminations.............................................. 12.2 21.2
Broadband investment(8)..................................... (1.1)
Affiliate eliminations(4)................................... 38.0 21.7
Intercompany eliminations(5)................................ (2.0) (6.3)
------ ------
EBITDA as reported.......................................... $ 47.1 $ 36.6
====== ======
</TABLE>
16
<PAGE> 18
- ---------------
(1) Includes 100% of Europe*Star's EBITDA and 100% of Satmex's revenues and
EBITDA.
(2) Broadband Data Services consists of 100% of CyberStar LP and 100% of Loral
CyberStar's data services business and consumer broadband services.
(3) Includes 100% of Globalstar's revenue and EBITDA.
(4) Represents amounts related to unconsolidated affiliates (Satmex, Europe*Star
and Globalstar). These amounts are eliminated in order to arrive at Loral's
condensed consolidated results. Loral's proportionate share of these
affiliates is included in equity in net loss of affiliates in Loral's
condensed consolidated statements of operations.
(5) Represents the elimination of sales and EBITDA primarily for satellites
under construction by SS/L for wholly-owned subsidiaries; as well as
eliminating sales for the lease of transponder capacity by Broadband Data
Services from Fixed Satellite Services.
(6) EBITDA (which is equivalent to operating income (loss) before depreciation
and amortization, including amortization of unearned compensation) is
provided because it is a measure commonly used in the communications
industry to analyze companies on the basis of operating performance,
leverage and liquidity and is presented to enhance the understanding of
Loral's operating results. However, EBITDA should not be construed as an
alternative to net income as an indicator of a company's operating
performance, or cash flow from operations as a measure of a company's
liquidity. EBITDA may be calculated differently and, therefore, may not be
comparable to similarly titled measures reported by other companies.
(7) Represents unallocated corporate expenses incurred in support of the
Company's operations.
(8) Excludes capital investment in Broadband Services.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH MARCH 31, 1999
Total revenues for Loral's operating segments were $383 million for 2000
versus $415 million in 1999, before intercompany and affiliate eliminations of
$65 million in 2000 and $109 million in 1999. The decrease in revenues was due
primarily to lower revenues in satellite manufacturing and technology due to the
timing of revenues under contract, offset in part by strong growth in FSS as a
result of the service start-up of Telstar 6 in March 1999, and Telstar 7,
Telstar 10/Apstar IIR and Telstar 12 satellites after the first quarter of 1999
and increased revenues at Satmex, and from growth in the broadband data business
in 2000. The decrease in intercompany eliminations in 2000 primarily reflects
lower sales by satellite manufacturing and technology to fixed satellite
services.
EBITDA as reported increased to $47 million in 2000 from $37 million in
1999, mainly due to a strong increase in FSS EBITDA as a result of the service
start-up of the Telstar 6, Telstar 7, Telstar 10/Apstar IIR and Telstar 12
satellites.
Depreciation and amortization rose to $53 million in 2000 from $38 million
in 1999, and excludes depreciation and amortization of unconsolidated affiliates
of $94 million and $15 million for 2000 and 1999, respectively, for Globalstar
and Satmex. The increase primarily results from depreciation of satellites
recently placed in service, including, Telstar 6, Telstar 7, Telstar 10/Apstar
IIR and Telstar 12.
Interest and investment income increased to $29 million in 2000 from $15
million in 1999, principally due to $10 million of non-cash interest income
related to warrants received in connection with Globalstar's 1999 credit
agreement and higher average cash balances available for investment in 2000,
primarily resulting from proceeds received from the issuance of the Series D 6%
convertible redeemable preferred stock due 2007 (the "Series D Preferred Stock")
in February 2000.
Interest expense was $43 million in 2000, net of capitalized interest of
$2.4 million, versus $18 million in 1999, net of capitalized interest of $22
million. Capitalized interest decreased due to the commencement of Globalstar
service in 2000 and the successful launches in 1999 of Telstar 6, Telstar 7 and
Telstar 12.
The Company realized a $15 million gain from the sale of a portion of its
investment in The Fantastic Corporation's common stock in 2000.
For 2000, the Company recorded an income tax provision of $10.3 million on
a loss of $4.9 million, yielding an effective rate of 209%. For 1999, the
Company recorded an income tax provision of $2.4 million on a loss of $4.2
million yielding an effective rate of 57%. When comparing 2000 to 1999, the
change in the effective rate is primarily attributed to an increase in foreign
losses and state and local income tax expense for the current period.
17
<PAGE> 19
The minority interest benefit in 2000 primarily reflects the reduction of
CyberStar LP's loss attributed to CyberStar LP's other investor, who owned 17.6%
as of March 31, 2000.
The equity in net loss of affiliates was $108 million in 2000 compared to
$33 million in 1999. Loral's share of equity in net loss of affiliates for
Globalstar, net of the related tax benefit, was $93 million in 2000 compared to
$18 million in 1999. This increase was primarily due to Globalstar moving from
the development stage into revenue operations, which initiated depreciation of
the Globalstar system, and expensing of interest. Loral's share of Satmex's
losses was $8 million for 2000 and $6 million for 1999. Also included in net
loss from affiliates is Loral's share of losses from Europe*Star and losses from
other affiliates (see Note 4 to Loral's condensed consolidated financial
statements).
Preferred distributions were $19 million in 2000 as compared to $12 million
for 1999. The increase was primarily due to the issuance of the Series D
Preferred Stock in February 2000 and the 332,777 shares of common stock issued
in connection with the conversion of 1.4 million shares of Loral's Series C 6%
convertible redeemable preferred stock due 2006 (the "Series C Preferred Stock")
into common stock during the first quarter of 2000 (see "Liquidity and Capital
Resources").
As a result of the above, the net loss applicable to common stockholders
for 2000 was $142 million or $0.49 per basic and diluted share, compared to the
net loss of $50 million or $0.17 per basic and diluted share, for 1999. Basic
and diluted weighted average shares were 293.3 million for 2000 and 289.7
million for 1999. The increase in shares primarily relates to the conversion of
the Series C Preferred Stock into Loral common stock.
RESULTS BY OPERATING SEGMENT
Fixed Satellite Services
FSS revenue for 2000 was $102 million versus $72 million in 1999. EBITDA
was $62 million in 2000, up from EBITDA of $48 million, in 1999. As of March 31,
2000, FSS had 10 operational satellites (including three satellites owned by
Satmex), up from seven (including three satellites owned by Satmex) in March
1999. Funded backlog for FSS totaled $1.9 billion at March 31, 2000, an increase
of 119% over the $889 million as of March 31, 1999, including intercompany
backlog of $4 million in both 2000 and 1999 and affiliate backlog for Satmex of
$481 million in 2000 and $179 million in 1999.
Broadband Data Services
Revenues for the Broadband Data Services segment in 2000 were $33 million
versus $16 million in 1999, primarily from Loral CyberStar's corporate data
networking and Internet and intranet services businesses. EBITDA in 2000 was a
loss of $9 million versus a loss of $7 million in 1999. This increase primarily
relates to consolidation costs arising from the Company's purchase of Global
Access's business television service. As of March 31, 2000, funded backlog for
the segment increased to $232 million from $165 million as of March 31, 1999
(all from external sources).
Total investment in Broadband Data Services was $1 million in 2000 which
relates to consumer broadband services.
Satellite Manufacturing and Technology
Revenues at SS/L, the Company's satellite manufacturing and technology
subsidiary, before intercompany eliminations were approximately $248 million in
2000 versus $327 million in 1999, primarily due to the timing of revenues for
customer contracts. EBITDA in 2000 was $26 million versus $32 million in 1999,
primarily due to lower revenues. Funded backlog for SS/L as of March 31, 2000
and 1999, was $1.6 billion and $1.5 billion, respectively, including
intercompany backlog of $325 million in 2000 and $292 million in 1999.
18
<PAGE> 20
Global Mobile Telephone Service
Loral manages and is the largest equity owner of Globalstar, Loral's global
mobile telephone service segment. Through December 31, 1999, Globalstar was a
development stage partnership and in 2000 began commercial operations. In 2000,
Globalstar realized revenues of $0.6 million and its EBITDA loss increased to
$57 million from $42 million in 1999, primarily as a result of increased
operations costs and marketing, general and administrative costs, associated
with the commencement of service. Globalstar has expended significant funds for
the construction, testing and deployment of the Globalstar system and expects
deployment and system enhancement costs to continue throughout 2000.
LIQUIDITY AND CAPITAL RESOURCES
Loral intends to capitalize on its innovative capabilities, market position
and advanced technologies to offer value-added satellite-based services as part
of the evolving worldwide communications networks and, where appropriate, to
form strategic alliances with major telecommunications service providers and
equipment manufacturers to enhance and expand its satellite-based communications
service opportunities. In order to pursue such opportunities, Loral may seek
funds from strategic partners and other investors, and through incurrence of
debt or the issuance of additional equity.
Debt
The Amended and Restated Credit Agreement, dated as of November 10, 1999,
among Loral SpaceCom Corporation ("Loral SpaceCom"), SS/L and the banks party
thereto (the "Credit Agreement"), provides for a $275 million term loan
facility, a $500 million revolving credit facility (the "Revolving Credit
Facility"), of which up to $175 million can be used for letters of credit and a
separate $75 million letter of credit facility. The facility is secured by the
stock of Loral SpaceCom Corporation and SS/L, and contains various covenants,
including an interest coverage ratio, debt to capitalization ratios and
restrictions on cash transfers to its parent. As of March 31, 2000, there was
approximately $652 million of borrowings outstanding under the Credit Agreement.
Total borrowing availability under the Credit Agreement was $52 million at March
31, 2000. The Company had outstanding letters of credit of approximately $117
million as of March 31, 2000. The Company also had $20 million of Canadian
Dollar letters of credit outstanding at March 31, 2000.
Loral CyberStar's outstanding debt as of March 31, 2000, was $974 million,
is non-recourse to Loral, and includes certain restrictions on Loral CyberStar's
ability to pay dividends or make loans to Loral.
Equity
In February 2000, Loral and Lockheed Martin Corporation ("Lockheed") filed
certain notices under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
in connection with Lockheed's plan to convert its 45,896,978 shares of Loral
Series A preferred stock into an equal number of shares of Loral common stock.
On March 31, 2000, Lockheed converted the shares of Series A preferred stock
into 45,896,978 shares of Loral common stock. Lockheed may dispose of the common
stock in transactions registered under, or exempt from, the registration
provisions of, the federal securities laws. Loral filed a registration statement
to register the shares of common stock acquired by Lockheed upon the conversion
of the Series A preferred stock which became effective in May 2000. Loral has
agreed to maintain the effectiveness of such registration until May 19, 2001,
subject to certain extensions, and has agreed to refrain from selling equity
securities in the public markets for its own account until November 2000,
subject to certain extensions.
In February 2000, 1.4 million shares of the Series C Preferred Stock were
converted into 3.5 million shares of Loral common stock. In connection with this
conversion, Loral issued to converting holders 332,777 additional shares of its
common stock, which approximated the dividend prepayments to which they would
have been entitled if a provisional redemption of those securities had been
made.
In February 2000, Loral sold $400 million of the Series D Preferred Stock
in an offering exempt from registration. The preferred stock is convertible into
20,171,152 shares of common stock at a conversion price of $19.83 per share.
Loral intends to apply the proceeds of $388 million for general corporate
purposes, including
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<PAGE> 21
investment in its broadband strategy and expansion of the Loral Global Alliance
by acquisition of additional satellites and orbital slots.
Cash and Restricted and Segregated Cash
As of March 31, 2000, Loral had $515 million of cash, including $25 million
of restricted cash, which will be used for an interest payment on Loral
Cyberstar's senior notes in July 2000. Loral intends to utilize its existing
capital base and access to the capital markets to construct and operate
additional satellites, make additional investments in Globalstar and Globalstar
service provider opportunities, invest in its other core businesses, expand the
Loral Global Alliance and pursue its broadband strategy. In March 2000, Loral
CyberStar used $137 million of segregated cash towards the final payment on the
purchase of Telstar 10/ Apstar IIR.
Net Cash Used in Operating Activities
Net cash used in operating activities for 2000 was $55 million, primarily
due to decreases in accounts payable of $131 million and customer advances of
$36 million, offset by the net loss as adjusted for non-cash operating items of
$28 million and a decrease in contracts-in-process of $83 million.
Net cash used in operating activities for the three months ended March 31,
1999 was $24 million, primarily due to decreases in accounts payable of $31
million and accrued expenses and other current liabilities of $29 million and an
increase in contracts-in-process of $27 million, offset by the net loss as
adjusted for non-cash operating items of $41 million and a decrease in deposits
of $17 million.
Net Cash Used in Investing Activities
Net cash used in investing activities for 2000 was $58 million, primarily
as a result of capital expenditures of $216 million (including approximately
$181 million for the final payment for Telstar 10/Apstar IIR), mainly for the
construction or acquisition of satellites, $10 million of advances to affiliates
and $10 million of investments in affiliates, offset by a reduction in
restricted and segregated cash of $162 million and proceeds from the sale of The
Fantastic Corporation's common stock of $16 million.
Net cash used in investing activities was $341 million in 1999, primarily
as a result of $155 million of capital expenditures, mainly for the construction
of satellites, the $145 million cost of acquiring GTL preferred stock and $66
million of other investments in and advances to affiliates, offset by a
reduction in restricted cash of $25 million used for Loral CyberStar's interest
payment.
Net Cash Provided by Financing Activities
Net cash provided by financing activities for 2000 was $364 million,
primarily due to net proceeds of $388 million from the Company's issuance of the
Series D Preferred Stock and proceeds from other equity transactions of $10
million, offset by repayments of debt obligations of $20 million and preferred
dividend payments of $13 million.
Net cash provided by financing activities was $384 million in 1999,
primarily due to the $344 million of net proceeds from the issuance of 9.5%
senior notes, and borrowings of $45 million under the Revolving Credit Facility.
Fixed Satellite Services
Loral Skynet currently has four high-power satellites in orbit. Loral
intends to expand Loral Skynet's business to become a worldwide satellite
service provider through the construction of additional satellites.
To replace Orion 3, on September 28, 1999, Loral CyberStar purchased from
APT Satellite Company Limited ("APT") for approximately $273 million, the rights
to all transponder capacity and existing customer leases on the Apstar IIR
satellite (except for one C-band transponder retained by APT), and renamed the
satellite the Telstar 10/Apstar IIR satellite. Loral CyberStar has full use of
the transponders for the remaining
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<PAGE> 22
life of Telstar 10/Apstar IIR. Loral CyberStar will also have the option to
lease from APT replacement satellites upon the end of life of Telstar 10/Apstar
IIR. In March 2000, the Company made the final payment of $181 million to APT.
Satmex currently has three satellites in orbit (Satmex 5, Solidaridad 1 and
Solidaridad 2) and one satellite in inclined orbit (Morelos 2).
On February 16, 2000, Satmex obtained amendments to certain of its debt
agreements which adjusted certain financial covenants. As a result, Satmex
believes that its future operating cash flow and the availability of its
revolving credit facility will be sufficient to service its interest and debt
repayment requirements and ensure compliance with its debt agreements.
Broadband Data Services
Based upon its current expectations for growth, Loral CyberStar anticipates
it will have additional funding requirements over the next three years to fund
the purchase of VSATs, senior note interest payments, other capital expenditures
and other operating needs. Interest charges on the senior notes are fully
provided for by restricted cash through July 2000. Loral CyberStar does not have
a revolving credit facility. Accordingly, Loral CyberStar will need to secure
funding from Loral, or raise additional financing. Sources of additional capital
may include public or private debt, equity financings or strategic investments.
To the extent that Loral CyberStar seeks to raise additional debt financing, its
indentures limit the amount of such additional debt and prohibit Loral CyberStar
from using Telstar 11, Telstar 10/Apstar IIR and Telstar 12 as collateral for
indebtedness for money borrowed. If Loral CyberStar requires additional
financing and is unable to obtain such financing from Loral or from outside
sources in the amounts and at the times needed, there would be a material
adverse effect on Loral CyberStar.
Broadband Investment
Loral's broadband strategy will build on its existing resources to address
both the expanding market for today's broadband services and to become a leading
medium for delivery of even richer Internet content in the future. The Company's
initial focus will be on two attractive opportunities for early market entry:
consumer broadband services and streaming media services.
Consumer Broadband Services. The Company plans to serve the growing
consumer broadband services market, initially in North America, with an
affordable, ubiquitous, two-way, high-speed Internet access service employing a
hybrid satellite/fiber network. When fully deployed, this network will be
capable of serving at least ten million homes and small businesses. The network
will offer point-to-point downlink data rates of 1.5 megabits per second and
uplink data rates of 128 kilobits per second or greater. In addition, the system
will offer streaming multimedia in multicast mode at speeds of up to 30 megabits
per second. The Company intends to serve as the "wholesaler" of this
connectivity service to ISPs, cable companies, and telephone companies who will
market and sell the service to their customers as a high-value extra feature in
their own portfolio of services. The Company currently estimates that the
required investment for the consumer broadband services business in North
America will be approximately $3 billion, with the services implemented and the
associated investments made in several phases. Total investment by the Company
during the first quarter of 2000 was $1 million.
Streaming Media Services. The Company intends to exploit the technical
advantages of satellites to deliver streaming media services more effectively
than terrestrial alternatives. Instead of flooding the Internet with multiple
point-to-point transmissions of these massive files, the Company's system will
move content directly from its source via satellite to multiple servers located
at the "edge of the net," near the end user. This should eliminate bottlenecks,
improve quality, lower cost and expand content choices and applications. The
Company plans to focus its marketing efforts initially on its existing base of
ISP and corporate customers. The Company intends to enter three streaming media
business segments: transport services to the "edge of the net" for content and
applications service providers; content aggregation services for customers
wishing to outsource their streaming media distribution process; and development
of a portal tailored for businesses. The
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<PAGE> 23
Company currently estimates the required investment for the streaming media
services business at approximately $500 million.
The Company is seeking strategic partners to enhance the establishment and
prospects of both the planned consumer broadband and streaming media businesses.
The Company expects that such third party strategic partners will bear a
significant portion of the costs of these projects.
Global Mobile Telephone Service
On August 5, 1999, Globalstar entered into a $500 million credit agreement
with a group of banks for the build-out of the Globalstar system, of which $400
million was outstanding at March 31, 2000. The credit facility is guaranteed by
Loral SatCom Ltd. and Loral Satellite, Inc., wholly owned subsidiaries of Loral.
The guarantee is secured by the pledge of certain assets of Loral and its
subsidiaries, including the stock of the guarantors and the Telstar 6 and
Telstar 7 satellites. Based on third party valuations, management believes that
the fair value of Telstar 6 and Telstar 7 is in excess of this $500 million
credit agreement. As of March 31, 2000, the net book value of Telstar 6 and
Telstar 7 was $387 million. The guarantee agreement contains customary financial
covenants of the guarantors, including maintenance of a minimum collateral
coverage ratio and maintenance of a combined minimum net worth and combined
EBITDA. In addition, the guarantee agreement contains customary restrictions,
including limitations on indebtedness, liens, fundamental changes, asset sales,
dividends (except that the guarantors may pay dividends to their parents
provided that combined aggregate cash on hand at the guarantors is at least
equal to $50 million and the guarantors hold an intercompany note due from Loral
for at least $100 million), investments, capital expenditures, creating liens
other than those created pursuant to the guarantee and transactions with
affiliates.
In consideration for the guarantee, Loral received warrants to purchase
3,450,000 Globalstar partnership interests at an exercise price of $91 per
interest, which were valued at $141 million (based on the guarantee provided).
The exercise price was determined by reference to the fair market value of GTL
common stock on the closing date of the credit agreement, based on an
approximate one partnership interest for four shares of GTL common stock
exchange ratio. 50% of the warrants vested in February 2000. Assuming the
guarantee remains in effect, an additional 25% will vest in August 2000 with the
remaining 25% vesting in August 2001. The warrants expire in 2006. Globalstar
may call the warrants after August 5, 2001 if GTL's common stock price exceeds
$45.50 for a defined period.
In February 2000, GTL sold 8,050,000 shares of its common stock to the
public under its shelf registration statement. GTL used the net proceeds from
the offering of approximately $268.5 million to purchase 1,987,654 ordinary
partnership interests in Globalstar. Globalstar intends to use the offering
proceeds for general corporate purposes, including: the acceleration of
Globalstar's roll-out through increased support for service provider marketing
activities and the funding of promotional discounts, development of new service
features, and possible repayment of debt.
From April 1, 2000 through December 31, 2000, Globalstar expects to spend
approximately $180 million, for the enhancement of its system software, for the
eight spare satellites being constructed by SS/L, for development work completed
but not paid at March 31, 2000, and for the net financing provided to
Globalstar's service providers to assist in the purchase of gateways, fixed
access terminals and handsets (which includes expected receipts of $181 million
from the service providers as repayment of such financing). In addition, cash
interest, preferred dividends and operating costs are expected to be
approximately $125 million per quarter in 2000. Globalstar believes that, its
cash on hand ($235 million at March 31, 2000), remaining available credit as of
March 31, 2000 of approximately $410 million, under its $250 million and $500
million credit agreements and vendor financing arrangements, will be sufficient
to cover its expected cash outflows for 2000. If Globalstar does not negotiate
reinstatement of the December 30, 2000 maturity date of its $250 million credit
facility and if revenues are less than $160 million in 2000, Globalstar believes
that it will require additional funds to the extent revenue falls short of $160
million. While Globalstar believes it will be able to obtain the additional
funds, there can be no assurance, however, that such funds will be available on
favorable terms or on a timely basis, if at all.
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<PAGE> 24
In May 2000, Globalstar finalized $531.1 million of vendor financing
arrangements with Qualcomm that replaces the previous $100 million vendor
financing agreement. The vendor financing bears interest at 6%, matures on
August 15, 2003 and requires repayment pro rata with the term loans under
Globalstar's $500 million credit facility discussed above. As of May 5, 2000,
$482 million was outstanding under this facility. In connection with this
agreement, Qualcomm received warrants to purchase 3,450,000 Globalstar
partnership interests at an exercise price of $42.25 per interest. The exercise
price was determined by reference to the fair market value of GTL's common stock
on the closing date of the vendor financing, based on an approximate one
partnership interest for four shares of GTL common stock. Fifty percent of the
warrants vested on the closing date. The remaining 50% will vest generally in
two equal installments on September 1, 2000 and September 1, 2001. The warrants
will expire in 2007.
Loral has agreed that if the principal amount (excluding capitalized
interest, currently amounting to $31.1 million) outstanding under the Qualcomm
vendor financing facility exceeds the principal amount outstanding under
Globalstar's $500 million credit facility, as determined on certain measurement
dates, then Loral will guarantee 50% of such excess amount. As a result, Loral's
aggregate guarantee liability for debt outstanding under the Qualcomm vendor
financing facility and Globalstar's $500 million credit facility will not exceed
$500 million.
COMMITMENTS AND CONTINGENCIES
On December 15, 1995, Globalstar entered into a $250 million credit
agreement (the "Globalstar Credit Agreement") with a group of banks. Lockheed,
SS/L and certain other Globalstar partners have guaranteed $206.3 million, $11.7
million and $32.0 million of the Globalstar Credit Agreement, respectively. In
addition, Loral agreed to indemnify Lockheed for any liability in excess of $150
million.
Prior to its acquisition by Loral, Loral Skynet sold several transponders
under which title to specific transponders was transferred to the customer.
Under the terms of the sales contracts, Loral Skynet continues to operate the
satellites on which the transponders are located and provides a warranty for a
period of 10 to 14 years. Depending on the contract, Loral Skynet is required to
replace any transponders failing to meet operating specifications. All customers
are entitled to a refund equal to the reimbursement value, as defined, in the
event there is no replacement. The reimbursement value is determined based on
the original purchase price plus an interest factor from the time the payment
was received to acceptance of the transponder by the customer, reduced on a
straight-line basis over the warranty period. In case of satellite failure, the
reimbursement value may be paid from proceeds received from insurance policies.
In late 1998, following the launch of an SS/L-built satellite sold to
PanAmSat, a manufacturing error was discovered that affected the geographical
coverage of the Ku-band transponders on the satellite. On January 6, 2000,
PanAmSat filed an arbitration proceeding in connection with this error claiming
damages of $225 million for lost profits, and increased sales and marketing
costs. SS/L believes it has meritorious defenses to the claim and that its
liability is limited to a loss of a portion of the applicable orbital
incentives, the estimated impact of which is included in Loral's consolidated
financial statements. PanAmSat has received a recovery from its insurance
carrier that should reduce any damage claim. While this proceeding is in its
very early stages, management believes that this matter will not have a material
adverse effect on the financial condition or results of operations of Loral.
SS/L is a target of a grand jury investigation being conducted by the
office of the U.S. Attorney for the District of Columbia with respect to
possible violations of export control laws that may have occurred in connection
with the participation of SS/L employees on a committee formed in the wake of
the 1996 crash of a Long March rocket in China and whose purpose was to consider
whether studies of the crash made by the Chinese had correctly identified the
cause of the failure. The Company is not in a position to predict the direction
or outcome of the investigation. If SS/L were to be indicted and convicted of a
criminal violation of the Arms Export Control Act, it would be subject to a fine
of $1 million per violation and could be debarred from certain export privileges
and, possibly, from participation in government contracts. Since many of SS/L's
satellites are built for foreign customers and/or launched on foreign rockets,
such a debarment would have a material adverse effect on SS/L's business and,
therefore, the Company. Indictment for such violations would subject SS/L to
discretionary debarment from further export licenses. Under the applicable
regulations, SS/L
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could be debarred from export privileges without being convicted of any crime if
it is indicted for these alleged violations, and loss of export privileges would
harm SS/L's business. Whether or not SS/L is indicted or convicted, SS/L remains
subject to the State Department's general statutory authority to prohibit
exports of satellites and related services if it finds a violation of the Arms
Export Control Act that puts SS/L's reliability in question, and it can suspend
export privileges whenever it determines that grounds for debarment exist and
that such suspension "is reasonably necessary to protect world peace or the
security or foreign policy of the United States."
As far as SS/L can determine, no sensitive information or technology was
conveyed to the Chinese, and no secret or classified information was discussed
with or reported to them. SS/L believes that its employees acted openly and in
good faith and that none engaged in intentional misconduct. Accordingly, the
Company does not believe that SS/L has committed a criminal violation of the
export control laws. The Company does not expect the grand jury investigation or
its outcome to result in a material adverse effect upon its business. However,
there can be no assurance as to these conclusions.
On December 23, 1998, the Office of Defense Trade Controls ("ODTC") of the
U.S. Department of State temporarily suspended the previously approved technical
assistance agreement under which SS/L had been preparing for the launch of the
ChinaSat-8 satellite. According to ODTC, the purpose of the temporary suspension
is to permit that agency to review the agreement for conformity with
newly-enacted legislation (Section 74 of the Arms Export Control Act) with
respect to the export of missile equipment or technology. SS/L has complied with
ODTC's instructions, and believes that a review of the agreement will show that
its terms comply with the new law. The ODTC, however, has not yet completed its
review, and the scheduled launch date for ChinaSat-8 is being delayed. If the
suspension is not lifted by July 31, 2000, ChinaSat could decide to terminate
the contract. If such a termination were to occur, SS/L would have to refund
advances received from ChinaSat ($134 million as of March 31, 2000) and may
incur penalties of up to $11 million and believes it would incur costs of up to
approximately $38 million to refurbish and retrofit the satellite so that it
could be sold to another customer. There can be no assurance that SS/L will be
able to find such a replacement customer for the satellite or its Chinese launch
vehicle. SS/L will record a charge to earnings of approximately $35 million if
it is unable to find a replacement customer for this launch vehicle.
In March 1999, jurisdiction for satellite licensing was transferred from
the Commerce Department to the State Department, and the State Department has
issued regulations relating to the export of, and disclosure of technical
information related to, satellites and related equipment. SS/L anticipates that
obtaining licenses and technical assistance agreements under these new
regulations will take more time and will be considerably more burdensome than in
the past. Delays in obtaining the necessary licenses and technical assistance
agreements may delay SS/L's performance on existing contracts, and, as a result,
SS/L may incur penalties or lose incentive payments under these contracts. In
addition, such delays may have an adverse effect on SS/L's ability to compete
against foreign satellite manufacturers for new satellite contracts.
Under an agreement reached with Eutelsat, Loral CyberStar agreed to operate
Telstar 12, originally intended to operate at 12 degrees W.L., at 15 degrees
W.L. while Eutelsat continues to develop its services at 12.5 degrees W.L.
Eutelsat has in turn agreed not to use its 14.8 degrees W.L. orbital slot and to
assert its priority rights at such location on Loral CyberStar's behalf. As part
of this coordination effort, Loral CyberStar agreed to provide to Eutelsat four
transponders on Telstar 12 for the life of the satellite. Eutelsat also has the
right to acquire, at cost, four transponders on the next replacement satellite
for Telstar 12. As part of the international coordination process, Loral
continues to conduct discussions with various administrations regarding Telstar
12's operations at 15 degrees W.L. If these discussions are not successful,
Telstar 12's useable capacity may be reduced.
OTHER MATTERS
Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No.
133 Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"),
which requires that all derivative instruments be recorded on the balance sheet
at their fair value. Changes in the fair value of derivatives are recorded each
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period in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. The Company has not yet determined the impact that the
adoption of SFAS 133 will have on its earnings or financial position. The
Company is required to adopt SFAS 133 on January 1, 2001.
PART II. OTHER INFORMATION
ITEM 2(C). CHANGES IN SECURITIES
In February 2000, Loral sold $400 million face amount of 6% Series D
convertible redeemable preferred stock due 2007 in a private offering pursuant
to Rule 144A and Regulation S under the Securities Act of 1933. The initial
purchasers were Lehman Brothers, Banc of America Securities LLC, Bear, Stearns &
Co., Inc., ING Barings, C.E. Unterberg, Towbin, Credit Lyonnais Securities (USA)
Inc. and S.G. Cowen. Underwriting discounts and other costs for this offering
were approximately $12 million. The price to the initial purchasers was 97.25%
of the face amount of the preferred stock. The preferred stock is convertible
into shares of Loral common stock at the option of the holder, initially at the
conversion price of $19.8303 per share.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed as part of this report:
Exhibit 10.1 -- Guarantee dated as of May 5, 2000, made by Loral Space &
Communications Ltd. in favor of Qualcomn Incorporated
Exhibit 12 -- Computation of Deficiency of Earnings to Cover Fixed Charges
Exhibit 27 -- Financial Data Schedule
(b) Reports on Form 8-K
<TABLE>
<CAPTION>
DATE OF REPORT DESCRIPTION
- -------------- -----------
<S> <C> <C>
February 9, 2000 Item 5 -- Other Events Offering of Series D Preferred
Stock
</TABLE>
25
<PAGE> 27
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 thereunto duly authorized.
LORAL SPACE & COMMUNICATIONS LTD.
Registrant
/s/ RICHARD J. TOWNSEND
--------------------------------------
Richard J. Townsend
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer) and
Registrant's Authorized Officer
Date: May 15, 2000
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C> <C>
Exhibit 10.1 -- Guarantee dated as of May 5, 2000, made by Loral Space &
Communications Ltd. in favor of Qualcomn Incorporated
Exhibit 12 -- Computation of Deficiency of Earnings to Cover Fixed Charges
Exhibit 27 -- Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
GUARANTY
THIS GUARANTY, dated as of May 5, 2000 (this "GUARANTY"), is made by LORAL
SPACE & COMMUNICATIONS LTD., a Bermuda company ("GUARANTOR"), in favor of
QUALCOMM INCORPORATED, a Delaware corporation ("QUALCOMM"), as agent (in such
capacity, "AGENT") for the several lenders ("LENDERS") from time to time parties
to the Credit Agreement, dated as of the date hereof (as amended, supplemented
or otherwise modified from time to time, the "CREDIT AGREEMENT"), among
GLOBALSTAR, L.P., a Delaware limited partnership ("BORROWER"), Lenders, and
QUALCOMM, as a Vendor, and Agent.
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, Lenders have severally agreed to
make Loans to Borrower upon the terms and subject to the conditions set forth
therein;
WHEREAS, it is a condition precedent to the obligation of Lenders to make
their respective Loans to Borrower under the Credit Agreement that Guarantor
shall have executed and delivered this Guaranty to Agent for the ratable benefit
of Lenders; and
WHEREAS, as a result of entering into this Guaranty, Guarantor will derive
substantial direct and indirect benefit.
NOW, THEREFORE, in consideration of the premises and to induce Agent and
Lenders to enter into the Credit Agreement and to induce Lenders to make their
respective Loans to Borrower under the Credit Agreement, Guarantor hereby agrees
with Agent, for the ratable benefit of Lenders, as follows:
1. DEFINED TERMS.
(a) Unless otherwise defined herein, terms defined in the Credit
Agreement and used herein shall have the meanings given to them in the Credit
Agreement. As used herein, the following terms shall have the following
meanings:
"BANKRUPTCY LAW": Title 11, United States Code, or any similar Federal
or state law for the relief of debtors.
"BOARD OF DIRECTORS": the board of directors of Guarantor.
"CHANGE OF CONTROL": an event or series of events as a result of which
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")), is or becomes
the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act) of shares entitling the holder thereof to cast more than 35% of the votes
for the election of directors of Guarantor, or (ii) at any time, Continuing
Directors do not constitute a majority of the Board of Directors if, in either
case (i) or (ii), the lowest rating that has most recently been announced
thereafter for any class of non-credit
1.
<PAGE> 2
enhanced long-term senior unsecured debt of Guarantor by either Moody's
Investors Service, Inc. or Standard & Poor's, a division of The McGraw-Hill
Companies, Inc. is lower than such rating immediately prior thereto.
"COMMONLY CONTROLLED ENTITY": an entity, whether or not incorporated,
which is under common control with Guarantor within the meaning of Section 4001
of ERISA or is part of a group which includes Guarantor and which is treated as
a single employer under Section 414 of the Code.
"CONTINUING DIRECTOR": the directors of Guarantor on the Closing Date
and each other director, if, in each case, such other director's nomination for
election to the Board of Directors is recommended by at least a majority of the
then Continuing Directors.
"CUSTODIAN": any receiver, trustee, assignee, liquidator, custodian or
similar official under any Bankruptcy Law.
"DEFAULT": any of the events specified in Section 13 whether or not any
requirement for the giving of notice, the lapse of time, or both, has been
satisfied.
"ENVIRONMENTAL LAWS": any and all foreign, federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees
or requirements of any Governmental Authority regulating, relating to or
imposing liability or standards of conduct concerning environmental protection
matters, including without limitation, Hazardous Materials, as now or may at any
time hereafter be in effect.
"ERISA": the Employment Retirement Income Securities Act of 1974, as
amended.
"EVENT OF DEFAULT": any of the events specified in Section 13, provided
that any requirement for the giving of notice, the lapse of time, or both, has
been satisfied.
"FCC": the Federal Communications Commission.
"GLOBALSTAR BANK AGREEMENT GUARANTEE": the Guarantee and Collateral
Agreement, dated as of August 5, 1999, made by SatCom and Loral Satellite in
favor of Bank of America, National Association, as collateral agent for the
several Lenders named therein, and all exhibits and schedules thereto, and,
except as may be stated to the contrary herein, as the same may be amended,
restated, supplemented or otherwise modified from time to time.
"GUARANTEED AMOUNT:" as defined in Section 2(a).
"GUARANTEED OBLIGATIONS:" as defined in Section 2(b).
"HAZARDOUS MATERIALS": any hazardous materials, hazardous wastes,
hazardous constituents, hazardous or toxic substances, and petroleum products
(including crude oil or any fraction thereof), defined or regulated as such in
or under any Environmental Law.
2.
<PAGE> 3
"INSOLVENCY OR INSOLVENT": at any particular time, the condition that a
Multiemployer Plan is insolvent within the meaning of Section 4245 of ERISA.
"LORAL INDENTURE": Indenture, dated as of January 15, 1999, between
Guarantor, as Issuer, and The Bank of New York, as Trustee, as amended or, if
such indenture is not at any date of determination then effective, as such
indenture was in effect on the date of termination or defeasance of such
indenture.
"LORAL SATELLITE": Loral Satellite, Inc., a Delaware corporation.
"LORAL SPACECOM": Loral SpaceCom Corporation, a Delaware corporation.
"MATERIAL ADVERSE EFFECT": a material adverse effect on (a) the
business, assets, property or condition (financial or otherwise) of Guarantor
and its Subsidiaries, taken as a whole, (b) the ability of Guarantor to perform
its obligations under this Guaranty or any other Credit Document or (c) the
validity or enforceability of any of the Credit Documents or the material rights
or remedies of Agent or Lenders hereunder or thereunder.
"MULTIEMPLOYER PLAN": a plan which is a multiemployer plan as defined
in Section 4001(a)(3) of ERISA.
"PBGC": the Pension Benefit Guarantee Corporation.
"PLAN": at any particular time, any employee benefit plan which is
covered by ERISA and in respect of which Guarantor or a Commonly Controlled
Entity is (or, if such plan were terminated at such time, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"REORGANIZATION": at a particular time, the condition that a
Multiemployer Plan is in organization within the meaning of Section 4241 of
ERISA.
"REPORTABLE EVENT": any of the events set forth in Section 4043(b) of
ERISA or the regulations thereunder, other than those events as to which the
third day notice period is waived under subsections .27, .28, .29, .30, .31,
.32, .33. .34 or .35 of PBGC Reg. Section 4043.
"RESPONSIBLE OFFICER": the Chairman, the President or any Vice
President of Guarantor.
"SATCOM": Loral SatCom Ltd., a Bermuda company.
"SIGNIFICANT SUBSIDIARY": any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated by
the Commission, as such Regulation is in effect on the date hereof, using a
percentage of 5% for such calculations instead of the percentage set forth
therein.
"SINGLE EMPLOYER PLAN": any Plan which is covered by Title IV of ERISA
but which is not a Multiemployer Plan.
3.
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(b) The words "HEREOF," "HEREIN" and "HEREUNDER" and words of similar
import when used in this Guaranty shall refer to this Guaranty as a whole and
not to any particular provision of this Guaranty, and section and paragraph
references are to this Guaranty unless otherwise specified.
(c) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
(d) For purposes of this Guaranty, the term "LENDER" shall include any
Affiliate of a lender which has entered into a Hedge Agreement with Borrower if
such Hedge Agreement is designated by Borrower as a Hedge Agreement for purposes
of this Guaranty and the term "CREDIT DOCUMENT" shall include any such Hedge
Agreement.
2. GUARANTY.
(a) UNCONDITIONAL GUARANTY. Guarantor hereby severally,
unconditionally, absolutely and irrevocably guarantees to Agent, for the ratable
benefit of Agent, Lenders and their respective successors, indorsees,
transferees and assigns, the prompt and complete payment when due (whether at
stated maturity, by acceleration or otherwise) of an amount, if any, at any time
of determination (such amount is referred to herein as the "GUARANTEED AMOUNT")
equal to 50% of the excess, if any, as of the most recent Measurement Date, of
(x) the principal amount outstanding under the Credit Agreement (excluding
deemed capitalized interest of $31,115,827.71, as of the date hereof, and
additional interest capitalized pursuant to SECTION 2.5 of the Credit Agreement)
over (y) the principal amount outstanding under the Globalstar Bank Agreement
(excluding capitalized interest, if any). A Measurement Date shall occur on June
30 and December 31 of each year.
(b) EXPENSES UNDER THIS GUARANTY. Guarantor also agrees to pay on
demand from time to time all expenses of Lenders or Agent (including, without
limitation, all fees, costs and disbursements of any law firm or other external
counsel) related or incidental to the collection of the Guaranteed Amount. The
Guaranteed Amount and all other obligations and covenants to be performed by
Guarantor under this Guaranty are collectively referred to herein as the
"GUARANTEED OBLIGATIONS." This Guaranty shall remain in full force and effect
until the Obligations are paid in full and the Tranche A Commitments and Tranche
B Commitments are terminated, notwithstanding that from time to time prior
thereto there may be no Obligations or the Guaranteed Amount may be zero.
(c) GUARANTEED OBLIGATIONS UNAFFECTED. No payment or payments made by
Borrower, Guarantor or any other Person, or received or collected by Agent or
any Lender from Borrower or any other Person by virtue of any action or
proceeding or any setoff or appropriation or application, at any time or from
time to time, in reduction of or in payment of the Obligations shall be deemed
to modify, reduce, release or otherwise affect the liability of Guarantor
hereunder which liability shall continue, notwithstanding any such payment or
payments, until the Guaranteed Obligations are paid in full and the Credit
Agreement is terminated pursuant to its terms.
4.
<PAGE> 5
(d) JOINT AND SEVERAL LIABILITY. Guarantor and its successors and
assigns shall be jointly and severally liable for the payment of the Guaranteed
Obligations notwithstanding any relationship or contract of co-obligation by or
among Guarantor and its successors and assigns.
(e) ACCELERATION OF THE GUARANTEED AMOUNT. Upon the occurrence and
during the continuance of an Event of Default (as defined in this Agreement),
then and in any such event all or any part of the Guaranteed Amount may, at the
option of the Requisite Lenders and as provided in the Credit Agreement, and
without demand, notice or legal process of any kind, be declared, and
immediately shall become, due and payable.
(f) NOTICE OF PAYMENT UNDER GUARANTY; APPLICATION OF PAYMENTS.
Guarantor agrees that whenever, at any time, or from time to time, it shall make
any payment to Agent or any Lender on account of its liability hereunder, it
will notify such Person (and, if such Person is not Agent, Guarantor will also
notify Agent) in writing that such payment is made under this Guaranty for such
purpose. Agent, Lenders and Guarantor agrees that all payments in respect of the
Guaranteed Amount made by Guarantor pursuant to this Guaranty will be applied to
reduce the aggregate principal amount outstanding under the Credit Agreement,
and the payments will be applied in the inverse order of maturity of the
scheduled principal payments thereunder.
(g) SUBORDINATION. Any indebtedness or other obligation of Borrower or
its Subsidiaries now or hereafter held by or owing to Guarantor under this
Guaranty is hereby subordinated in time and right of payment to all obligations
of Borrower to any or all of Agent and Lenders under the Credit Agreement and
the other Credit Documents. No amendment to subsection 2.5 of the Credit
Agreement and no amendment to the Credit Agreement which increases the amount of
any of the Commitments or which extends the Tranche B Commitment Period or the
final maturity date of any of the Loans shall be effective as to Guarantor
without its prior written consent.
3. RIGHT OF SET-OFF. Each of Agent and each Lender is hereby irrevocably
authorized at any time and from time to time to the extent permitted by law
without notice to Guarantor, any such notice being expressly waived by
Guarantor, to set off and appropriate and apply any and all deposits (general or
special, time or demand, provisional or final), in any currency, and any other
credits, indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time held or
owing by Agent or such Lender to or for the credit or the account of Guarantor,
or any part thereof in such amounts as Agent or such Lender may elect, against
or on account of the obligations and liabilities of Guarantor to Agent or such
Lender hereunder and claims of every nature and description of Agent or such
Lender against Guarantor, in any currency, whether arising hereunder, under the
Credit Agreement, any Note, any Credit Document or otherwise, as Agent or such
Lender may elect, whether or not Agent or such Lender has made any demand for
payment and although such obligations, liabilities and claims may be contingent
or unmatured. Agent and each Lender shall notify Guarantor promptly of any such
set-off and the application made by Agent or such Lender, as the case may be, of
the proceeds thereof; provided that the failure to give such notice shall not
affect the validity of such set-off and application. The rights
5.
<PAGE> 6
of Agent and each Lender under this paragraph are in addition to other rights
and remedies (including, without limitation, other rights of set-off) which
Agent or such Lender may have.
4. NO SUBROGATION. Notwithstanding any payment or payments made by
Guarantor hereunder, or any set-off or application of funds of Guarantor by
Agent or any Lender, Guarantor shall not be entitled to be subrogated to any of
the rights of Agent or any Lender against Borrower or against any collateral
security or Guaranty or right of set-off held by Agent or any Lender for the
payment of the Guaranteed Obligations, nor shall Guarantor seek or be entitled
to seek any contribution or reimbursement from Borrower in respect of payments
made by Guarantor hereunder, until all amounts owing to Agent and Lenders by
Borrower on account of the Guaranteed Obligations are paid in full and the
Tranche A Commitments and the Tranche B Commitments are terminated. If any
amount shall be paid to Guarantor on account of such subrogation rights at any
time when all of the Guaranteed Obligations shall not have been paid in full,
such amount shall be held by Guarantor in trust for Agent and Lenders,
segregated from other funds of Guarantor, and shall, forthwith upon receipt by
Guarantor, be turned over to Agent in the exact form received by Guarantor (duly
indorsed by Guarantor to Agent, if required), to be applied against the
Guaranteed Obligations, whether matured or unmatured, in accordance with the
Credit Agreement.
5. AMENDMENTS, ETC. WITH RESPECT TO THE OBLIGATIONS; WAIVER OF RIGHTS.
Guarantor shall remain obligated hereunder notwithstanding that, without any
reservation of rights against Guarantor, and without notice to or further assent
by Guarantor, any demand for payment of any of the Obligations made by Agent or
any Lender may be rescinded by Agent or by such Lender, and any of the
Obligations continued, and the Obligations, or the liability of any other Person
upon or for any part thereof, or any collateral security or Guaranty therefor or
right of set-off with respect thereto, may from time to time, in whole or in
part, be renewed, extended, amended, modified, accelerated, compromised, waived,
surrendered or released by Agent or any Lender, and the Credit Agreement, the
Commitments thereunder, any Notes, and the other Credit Documents and any other
documents executed and delivered in connection therewith may be amended,
modified, extended, supplemented or terminated, in whole or in part, as Agent
(or the Requisite Lenders) may deem advisable from time to time, and any
collateral security, Guaranty or right of offset at any time held by Agent or
any Lender for the payment of the Obligations may be sold, exchanged, waived,
surrendered or released. Neither Agent nor any Lender shall have any obligation
to protect, secure, perfect or insure any Lien at any time held by it as
security for the Obligations or for this Guaranty or any property subject
thereto. When making any demand hereunder against Guarantor, Agent or any Lender
may, but shall be under no obligation to, make a similar demand on Borrower, and
any failure by Agent, or any Lender to make any such demand or to collect any
payments from Borrower or any release of Borrower shall not relieve Guarantor of
its obligations or liabilities hereunder, and shall not impair or affect the
rights and remedies, express or implied, or as a matter of law, of Agent or any
Lender against Guarantor. For the purposes hereof "DEMAND" shall include the
commencement and continuance of any legal proceedings.
6. GUARANTY ABSOLUTE AND UNCONDITIONAL. Guarantor waives any and all notice
of the creation, renewal, extension or accrual of any of the Obligations and
notice of or proof of reliance by Agent or any Lender upon this Guaranty or
acceptance of this Guaranty; the Obligations, and any of them, shall
conclusively be deemed to have been created, contracted or
6.
<PAGE> 7
incurred, or renewed, extended, amended or waived, in reliance upon this
Guaranty; and all dealings between Borrower and Guarantor, on the one hand, and
Agent and Lenders, on the other, shall likewise be conclusively presumed to have
been had or consummated in reliance upon this Guaranty. Guarantor waives
diligence, presentment, protest, demand for payment and notice of default or
nonpayment to or upon Borrower with respect to the Obligations. This Guaranty
shall be construed as a continuing, absolute and unconditional guarantee of
payment without regard to:
(a) the validity, regularity or enforceability of the Credit Agreement,
any Note, or any other Credit Document, any of the Obligations or any other
collateral security therefor or Guaranty or right of offset with respect thereto
at any time or from time to time held by Agent or any Lender;
(b) any defense, set-off or counterclaim (other than a defense of
payment or performance or release as a result of the termination of this
Guaranty in accordance with its terms) which may at any time be available to or
be asserted by Borrower against Agent or any Lender; or
(c) any other circumstance whatsoever (with or without notice to or
knowledge of Borrower or Guarantor) which constitutes, or might be construed to
constitute, an equitable or legal discharge of Borrower for the Obligations, or
of Guarantor under this Guaranty, in bankruptcy or in any other instance. When
pursuing its rights and remedies hereunder against Guarantor, Agent and any
Lender may, but shall be under no obligation to, pursue such rights and remedies
as it may have against Borrower or any other Person or against any collateral
security or Guaranty for the Obligations or any right of offset with respect
thereto, and any failure by Agent or any Lender to pursue such other rights or
remedies or to collect any payments from Borrower or any such other Person or to
realize upon any such collateral security or guarantee or to exercise any such
right of offset, or any release of Borrower or any such other Person or of any
such collateral security, guarantee or right of offset, shall not relieve
Guarantor of any liability hereunder, and shall not impair or affect the rights
and remedies, whether express, implied or available as a matter of law, of Agent
or any Lender against Guarantor. This Guaranty shall remain in full force and
effect and be binding in accordance with and to the extent of its terms upon
Guarantor and its successors and assigns thereof, and shall inure to the benefit
of Agent and Lenders, and their respective successors, indorsees, transferees
and assigns, until all the Obligations and the other obligations of Guarantor
under this Guaranty shall have been satisfied by payment in full and the Tranche
A Commitments and the Tranche B Commitments shall be terminated, and
notwithstanding that from time to time during the term of the Credit Agreement
Borrower may be free from any Obligations. Guarantor shall not be released from
its obligations under this Guaranty because of the failure of any Subsidiary
Guarantor under the Subsidiary Guaranty to perform its obligations thereunder.
7. EFFECTIVENESS; REINSTATEMENT. Application of the terms and conditions,
covenants and Events of Default contained in this Guaranty shall be suspended
during such time or times the Guaranteed Amount is zero. This Guaranty shall
continue to be effective, or be reinstated, as the case may be, if at any time
payment, or any part thereof, of any of the Guaranteed Obligations is rescinded
or must otherwise be restored or returned by Agent or any Lender upon the
insolvency, bankruptcy, dissolution, liquidation or reorganization of Borrower
7.
<PAGE> 8
or upon or as a result of the appointment of a receiver, intervenor or
conservator of, or trustee or similar officer for, Borrower or any substantial
part of its property, or otherwise, all as though such payments had not been
made.
8. PAYMENTS. Guarantor hereby agrees that the Guaranteed Obligations will
be paid without set-off or counterclaim in U.S. Dollars to Agent at Agent's
Payment Office, and to any Lender at its Domestic Lending Office.
9. REPRESENTATIONS AND WARRANTIES. In order to induce Lenders to make the
Loans pursuant to the Credit Agreement, Guarantor hereby represents and warrants
to Agent and to each Lender as of the date of this Agreement that except as
disclosed in its filings with the Securities and Exchange Commission:
(a) FINANCIAL CONDITION. The audited financial statements of Guarantor
on a consolidated basis at December 31, 1999, copies of which have been filed
with the Securities Exchange Commission, and present fairly the financial
condition and results of operations of Guarantor as at such date.
(b) NO CHANGE. Since December 31, 1999:
(i) there has been no change in the business, operations,
property or financial or other condition of Guarantor that has or could
reasonably be expected to have a Material Adverse Effect; and
(ii) no dividends or other distributions have been declared, paid
or made upon any shares of common stock of Guarantor nor have any shares of
common stock of Guarantor been redeemed, retired, purchased or otherwise
acquired for value by Guarantor.
(c) CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Guarantor and each of its
Subsidiaries (i) is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or organization, (ii) has the
corporate power and authority and the legal right to own and operate its
property, to lease the property it operates as lessee and to conduct the
business in which it is currently engaged, (iii) is duly qualified as a foreign
corporation and in good standing under the laws of each jurisdiction where its
ownership, lease or operation of property or the conduct of its business
requires such qualification, except to the extent that the failure to be so
qualified could not, in the aggregate, reasonably be expected to have a Material
Adverse Effect, and (iv) is in compliance with all Requirements of Law except to
the extent that the failure to comply therewith could not, in the aggregate,
reasonably be expected to have a Material Adverse Effect.
(d) CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. Guarantor
has the corporate power and authority and the legal right to make, deliver and
perform this Guaranty and has taken all necessary corporate action to authorize
the execution, delivery and performance of this Guaranty. Except as set forth on
Schedule 9(d), no consent or authorization of, filing with or other act by or in
respect of any Governmental Authority is required in connection with the
execution, delivery, performance, validity or enforceability of this Guaranty,
none other than those which have been obtained or made and are in full force and
effect. This Guaranty has been duly executed and delivered by Guarantor. This
Guaranty constitutes a legal,
8.
<PAGE> 9
valid and binding obligation of Guarantor enforceable against Guarantor in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles
(whether enforcement is sought by proceedings in equity or at law).
(e) NO LEGAL BAR. The execution, delivery and performance of this
Guaranty will not violate any Requirement of Law or any Contractual Obligation
applicable to Guarantor or any of its Subsidiaries, and will not result in, or
require, the creation or imposition of any Lien on any of its properties or
revenues pursuant to any Requirement of Law or Contractual Obligation.
(f) NO MATERIAL LITIGATION. No litigation, investigation or proceeding
of or before any arbitrator or Governmental Authority is pending or, to the
knowledge of Guarantor, threatened by or against Guarantor or any of its
Subsidiaries or against any of its or their respective properties or revenues
(i) with respect to this Guaranty or any of the transactions contemplated hereby
or thereby, or (ii) which could reasonably be expected to have a Material
Adverse Effect.
(g) NO DEFAULT. Guarantor is not in default under or with respect to
any Contractual Obligation in any respect which could reasonably be expected to
have a Material Adverse Effect.
(h) OWNERSHIP OF PROPERTY. Guarantor has good record and marketable
title in fee simple to or valid leasehold interests in all its real property,
and good title to all its other property.
(i) TAXES. Guarantor has filed or caused to be filed all tax returns
which to the knowledge of Guarantor are required to be filed and has paid all
taxes shown to be due and payable on said returns or on any assessments made
against it or any of its property and all other taxes, fees or other charges
imposed on it or any of its property by any Governmental Authority (other than
those the amount or validity of which is currently being contested in good faith
by appropriate proceedings and with respect to which reserves in conformity with
GAAP have been provided on the books of Guarantor, as the case may be, and other
than those the non-payment of which could not, in the aggregate, reasonably be
expected to have a Material Adverse Effect); and no federal income tax liens
have been filed and, to the knowledge of Guarantor, no claims are being asserted
with respect to any such taxes, fees or other charges, except any such claims
which could not reasonably be expected to have a Material Adverse Effect.
(j) FEDERAL REGULATIONS. Guarantor is not engaged in the business of
extending credit for the purpose of "purchasing" or "carrying" "margin stock"
within the respective meanings of each of the quoted terms under Regulation U of
the Board of Governors of the Federal Reserve System as now and from time to
time hereafter in effect.
(k) ERISA. Neither a Reportable Event nor an "accumulated funding
deficiency" (within the meaning of Section 412 of the Code or Section 302 of
ERISA) has occurred during the five-year period prior to the date on which this
representation is made or
9.
<PAGE> 10
deemed made with respect to any Plan which has resulted or could reasonably be
expected to result in a liability to Guarantor in excess of $1,000,000, and each
Plan has complied in all material respects with the applicable provisions of
ERISA and the Code. No termination of a Single Employer Plan has occurred, and
no Lien in favor of the PBGC or a Plan has arisen, during such five-year period.
The present value of all accrued benefits under each Single Employer Plan (based
on those assumptions used to fund such Plans) did not, as of the last annual
valuation date prior to the date on which this representation is made or deemed
made, exceed, by more than $1,000,000, the value of the assets of such Plan
allocable to such accrued benefits. Neither Guarantor nor any Commonly
Controlled Entity has had a complete or partial withdrawal from any
Multiemployer Plan, and neither Guarantor nor any Commonly Controlled Entity
would become subject to any liability under ERISA if Guarantor or any such
Commonly Controlled Entity were to withdraw completely from all Multiemployer
Plans as of the valuation date most closely preceding the date on which this
representation is made or deemed made, where such liability could, in the
aggregate, reasonably be expected to have a Material Adverse Effect. No such
Multiemployer Plan is in Reorganization or Insolvent.
(l) INVESTMENT COMPANY ACT; OTHER REGULATIONS. Guarantor is not an
"investment company," or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended. Guarantor
is not subject to regulation under any federal or state statute or regulation
which limits its ability to incur Indebtedness.
(m) SUBSIDIARIES. Guarantor has no Subsidiaries as of the Closing Date
required to be disclosed in its 1999 Annual Report on Form 10-K.
(n) FULL DISCLOSURE. All information heretofore furnished by Guarantor
to Agent or any Lender for purposes of or in connection with this Guaranty or
any transaction contemplated hereby is, and all such information hereafter
furnished by Guarantor to Agent or any Lender will be, true and accurate in all
material respects on the date as of which such information is stated or
certified.
10. AFFIRMATIVE COVENANTS. Guarantor hereby agrees that, so long as this
Guaranty remains in effect or any amount is owing to any Lender or Agent
hereunder, it shall (and, in the case of the covenants set forth in Sections
10(c), (d) and (e), it shall cause its Subsidiaries to):
(a) FINANCIAL STATEMENTS. Furnish to Agent:
(i) all quarterly and annual financial information that would be
required to be contained in a filing with the Securities and Exchange Commission
on Forms 10-Q and 10-K (or any successor forms) if Guarantor were required to
file such Forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that describes the financial condition and
results of operations of Guarantor and its Subsidiaries and, with respect to the
annual information only, a report on the annual financial statements by the
Issuer's certified independent accountants; and
10.
<PAGE> 11
(ii) all current reports that would be required to be filed with
the Commission on Form 8 - K (or any successor form) if Guarantor were required
to file such reports.
(b) PAYMENT OF OBLIGATIONS. Pay, discharge or otherwise satisfy at or
before maturity or before they become delinquent, as the case may be, all its
material obligations of whatever nature including, without limitation, taxes,
except when the amount or validity thereof is currently being contested in good
faith by appropriate proceedings and reserves in conformity with GAAP with
respect thereto have been provided on the books of Guarantor or its
Subsidiaries, as the case may be.
(c) CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. Preserve, renew
and keep in full force and effect its corporate existence and maintain all
rights, privileges and franchises necessary or desirable in the normal conduct
of its business and comply in all material respects with all material
Contractual Obligations (other than judgments, Indebtedness and Contingent
Obligations, which shall be beyond the scope of this Section) and material
Requirements of Law (except for Environmental Laws, which shall be governed by
Section 11(j) of the Globalstar Bank Agreement Guarantee), except as otherwise
expressly permitted by this Guaranty.
(d) MAINTENANCE OF PROPERTY; INSURANCE. Keep all property useful and
necessary in its business in good working order and condition; maintain with
financially sound and reputable insurance companies insurance on all its
property in at least such amounts and against at least such risks, but including
in any event public liability, product liability and business interruption, as
are usually insured against in the same general area by companies engaged in the
same or a similar business; and furnish to each Lender, upon written request,
full information as to the insurance carried.
(e) INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. Keep proper
books of records and account in which full, true and correct entries in
conformity with GAAP and all Requirements of Law shall be made of all dealings
and transactions in relation to its business and activities.
(f) NOTICES. Promptly give notice (to be confirmed promptly in writing)
to Agent and each Lender:
(i) of any (x) default or event of default under any Contractual
Obligation of Guarantor or any of its Subsidiaries or (y) litigation,
investigation or proceeding which may exist at any time between Guarantor or any
of its Subsidiaries and any Governmental Authority, which in either case, if not
cured or if adversely determined, as the case may be, could reasonably be
expected to have a Material Adverse Effect;
(ii) of any litigation or proceeding affecting Guarantor or any
of its Subsidiaries in which the amount involved is $25,000,000 or more and not
covered by insurance; or in which injunctive or similar relief is sought and
which could reasonably be expected to have a Material Adverse Effect;
11.
<PAGE> 12
(iii) as soon as possible and in any event within 30 days after
Guarantor knows or has reason to know of the following events: (i) the
occurrence or expected occurrence of any Reportable Event with respect to any
Plan which could reasonably be expected to result in any liability to Guarantor
or any Subsidiary in excess of $25,000,000 or any withdrawal from, or the
termination, Reorganization or Insolvency of, any Multiemployer Plan, or (ii)
the institution of proceedings or the taking or expected taking of any other
action by the PBGC or Guarantor or any Commonly Controlled Entity with respect
to the withdrawal from, or the terminating, Reorganization or Insolvency of, any
Plan. Guarantor shall deliver to Agent and each Lender a certificate of the
chief financial officer of such Guarantor setting forth the details thereof and
the action that Guarantor or Commonly Controlled Entity proposes to take with
respect thereto; and
(iv) of the occurrence of any event having or which could
reasonably be expected to have a Material Adverse Effect. Each notice pursuant
to this Section shall be accompanied by a statement of a Responsible Officer
setting forth details of the occurrence referred to therein and stating what
action, if any, Guarantor proposes to take with respect thereto.
11. ADDITIONAL COVENANTS APPLICABLE WHEN LORAL INDENTURE NOT IN EFFECT.
Upon such time as the Loral Indenture has been terminated and the covenants set
forth therein are not effective, then the financial covenants set forth in
SECTIONS 4.04, 4.05, 4.06, 4.07(i), 4.08, 4.10, 4.11, and 5.01 of the Loral
Indenture effective as of the date hereof will be deemed to become part of this
Guaranty, and shall remain, effective. For the purposes of this SECTION 12,
capitalized terms used in each such section of the Loral Indenture shall have
the meanings given to such terms in the Loral Indenture, provided, however, that
for purposes of this SECTION 11: (i) any reference to the term "Issuer" shall be
deemed to be a reference to Guarantor; (ii) any reference to the term "Trustee"
shall be deemed to be a reference to Agent; and (iii) any reference to an
"Unrestricted Subsidiary or "Unrestricted Subsidiaries" shall be deemed to refer
to Subsidiaries of Guarantor that were Unrestricted Subsidiaries under the Loral
Indenture immediately prior to its termination.
12. EVENTS OF DEFAULT. Upon the occurrence of any of the following events:
(a) Any representation or warranty made or deemed made by or on behalf
of Guarantor herein or which is contained in any certificate, document or
financial or other statement furnished at any time under or in connection with
this Guaranty shall prove to have been incorrect in any material respect on or
as of the date made or deemed made; or
(b) Guarantor shall default in the observance or performance of any
agreement contained in SECTION 11 and such default shall continue unremedied for
a period exceeding 60 days; or
(c) Guarantor shall default in the observance or performance of any
other agreement contained in this Guaranty, and such default shall continue
unremedied for a period of 30 days; or
(d) Guarantor shall:
12.
<PAGE> 13
(i) default in any payment of principal of or interest on any
Indebtedness or in the payment of any Contingent Obligation in respect of
Indebtedness, beyond the period of grace, if any, provided in the instrument or
agreement under which such Indebtedness or Contingent Obligation was created and
(I) in each case, the aggregate principal amount of all such Indebtedness equals
or exceeds $25,000,000 and (II) with respect to a default in the payment of
interest by Guarantor or Loral SpaceCom, the effect of such default is to cause,
or permit the holder or holders of such Indebtedness or beneficiary or
beneficiaries of such Contingent Obligation (or a trustee or agent on behalf of
such holder or holders or beneficiary or beneficiaries) to cause, with the
giving of notice if required, such Indebtedness to become due prior to its
stated maturity or such Contingent Obligation to become payable; or
(ii) default in the observance or performance of any other
agreement or condition referred to in clause (i) above of any such Indebtedness
or such Contingent Obligation referred to in clause (i) above, the effect of
which default or other event or condition is to cause, or to permit the holder
or holders of such Indebtedness or beneficiary or beneficiaries of such
Contingent Obligation (or a trustee or agent on behalf of such holder or holders
or beneficiary or beneficiaries) to cause, with the giving of notice if
required, such Indebtedness to become due prior to its stated maturity or such
Contingent Obligation to become payable; or
(e) Guarantor or any Significant Subsidiary pursuant to or within the
meaning of any Bankruptcy Law:
(i) commences a voluntary case;
(ii) consents to the entry of an order for relief against it in
an involuntary case;
(iii) consents to an appointment of a Custodian of it or for any
substantial part of its property; or
(iv) makes a general assignment for the benefit of its creditors;
or takes any comparable action under any foreign laws relating to
insolvency; or
(f) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(i) is for relief against Guarantor or any Significant Subsidiary
in an involuntary case;
(ii) appoints a Custodian of the Guarantor or any significant
Subsidiary or for any substantial part of its property; or
(iii) orders the winding up or liquidation of Guarantor or any
Significant Subsidiary or any similar relief is granted under any foreign laws
and the order or decree remains unstayed and in effect for 60 days.
13.
<PAGE> 14
(g) Any judgment or decree for the payments thereunder of money in
excess of $25,000,000 or its foreign currency equivalent at the time is entered
against Guarantor or any of its Subsidiaries, remains outstanding for a period
of 60 days following the entry of such judgment or decree and is not discharged,
waived or the execution thereof stayed.
(h) This Guaranty shall cease, except as provided in SECTION 7, for any
reason, to be in full force and effect, or any Credit Party or any Affiliate of
any Credit Party shall so assert; or
(i) A Change of Control shall occur; or
(j) The acceleration of any indebtedness under the Loral Indenture; or
(k) The sixty-first (61st) day after the occurrence of an Event of
Default under the Loral Indenture other than under Section 6.01(1) thereof; or
(l) the thirty-first (31st) day after the occurrence of an Event of
Default under Section 6.01(1) of the Loral Indenture.
then, and in any such event, an Event of Default shall have occurred.
13. AUTHORITY OF AGENT. Guarantor acknowledges that the rights and
responsibilities of Agent under this Guaranty with respect to any action taken
by Agent or the exercise or non-exercise by Agent of any option, right, request,
judgment or other right or remedy provided for herein or resulting or arising
out of this Guaranty shall, as between Agent and Lenders, be governed by the
Credit Agreement and by such other agreements with respect thereto as may exist
from time to time among them, but, as between Agent and Guarantor, Agent shall
be conclusively presumed to be acting as agent for Lenders with full and valid
authority so to act or refrain from acting, and Guarantor shall not be under any
obligation, or entitlement, to make any inquiry respecting such authority.
14. NOTICES. All notices, requests and demands to or upon Agent, any Lender
or Guarantor to be effective shall be in writing (or by telex, fax or similar
electronic transfer confirmed in writing) and shall be deemed to have been duly
given or made when delivered by hand or if given by mail, when deposited in the
mails by certified mail, return receipt requested, or if by telex, fax or
similar electronic transfer, when sent and receipt has been confirmed, addressed
as follows:
(a) if to Agent or any Lender, at its address or transmission number
for notices provided in Section 8.2 of the Credit Agreement; and
(b) if to Guarantor, at its address or transmission number for notices
set forth under its signature below. Agent, each Lender and Guarantor may change
its address and transmission numbers for notices by notice in the manner
provided in this Section.
15. SEVERABILITY. Any provision of this Guaranty which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any
14.
<PAGE> 15
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
16. INTEGRATION. This Guaranty and the other Credit Documents represent the
agreement of the Credit Parties, Agent and Lenders with respect to the subject
matter hereof, and there are no promises, undertakings, representations or
warranties by Agent or any Lender relative to subject matter hereof not
expressly set forth or referred to herein or in the other Credit Documents.
17. AMENDMENTS IN WRITING; NO WAIVER; CUMULATIVE REMEDIES.
(a) Subject to subsection 8.1 of the Credit Agreement, none of the
terms or provisions of this Guaranty may be waived, amended, supplemented or
otherwise modified except by a written instrument executed by Guarantor and
Agent.
(b) Neither Agent nor any Lender shall by any act (except by a written
instrument pursuant to Section 18(a) hereof), delay, indulgence, omission or
otherwise be deemed to have waived any right or remedy hereunder or to have
acquiesced in any Default or Event of Default or in any breach of any of the
terms and conditions hereof. No failure to exercise, nor any delay in
exercising, on the part of Agent or any Lender, any right, power or privilege
hereunder shall operate as a waiver thereof. No single or partial exercise of
any right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. A
waiver by Agent or any Lender of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which Agent or
such Lender would otherwise have on any future occasion.
(C) The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.
18. SECTION HEADINGS. The section headings used in this Guaranty are for
convenience of reference only and are not to affect the construction hereof or
be taken into consideration in the interpretation hereof.
19. SUCCESSORS AND ASSIGNS. This Guaranty shall be binding upon the
successors and assigns of Guarantor and shall inure to the benefit of Agent and
Lenders and their successors and assigns. Guarantor may not transfer any of its
rights or obligations under this Guaranty without the written consent of each
Lender.
20. GOVERNING LAW. This Guaranty shall be governed by, and construed and
interpreted in accordance with, the law of the State of New York.
21. SUBMISSION TO JURISDICTION; WAIVERS. Guarantor hereby irrevocably and
unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Guaranty and the other Credit Documents to which it
is a party, or for recognition and enforcement of any judgement in respect
thereof, to the non-exclusive general jurisdiction of the
15.
<PAGE> 16
Courts of the State of California, the courts of the United States of America
for the Southern District of California, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in such
courts and waives any objection that it may now or hereafter have to the venue
of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same;
(c) agrees that service of process in any such action or proceeding may
be effected by mailing a copy thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to Guarantor at its
address set forth under its signature below or at such other address of which
Agent shall have been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect service
of process in any other manner permitted by law or shall limit the right to sue
in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred to in
this subsection any special, exemplary, punitive or consequential damages.
22. ACKNOWLEDGMENTS. Guarantor hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Guaranty and the other Credit Documents;
(b) neither Agent nor any Lender has any fiduciary relationship with or
duty to any Credit Party solely arising out of or in connection with this
Guaranty or any of the other Credit Documents, and the relationship between
Agent and Lenders, on one hand, and the Credit Parties, on the other hand, in
connection herewith or therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Credit Documents
or otherwise exists by virtue of the transactions contemplated hereby among
Lenders or among the Credit Parties and Lenders.
23. WAIVERS OF JURY TRIAL. GUARANTOR, AGENT AND LENDERS HEREBY IRREVOCABLY
AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS GUARANTY OR ANY OTHER CREDIT DOCUMENT AND FOR ANY COUNTERCLAIM
THEREIN.
24. REGULATORY APPROVALS.
(a) Any provision contained herein to the contrary notwithstanding,
upon the occurrence and during the continuation of an Event of Default, this
Agreement, the other Credit Documents and the transactions contemplated hereby
and thereby:
(i) do not and will not constitute, create, or have the effect of
constituting or creating, directly or indirectly, actual or practical ownership
of any Credit Parties
16.
<PAGE> 17
by Lenders, or control, affirmative or negative, or direct or indirect, by
Lenders over the management or any other aspect of the operation of Guarantor,
which ownership and control remain exclusively and at all times in Guarantor;
and
(ii) do not and will not constitute the transfer, assignment, or
disposition in any manner, voluntarily or involuntarily, directly or indirectly,
of any license, permit, certificate or authorization at any time issued to
Guarantor by the FCC, any other federal, state or local regulatory or
governmental bodies applicable to or having jurisdiction over Guarantor or any
Governmental Authority, or the transfer of control of Guarantor within the
meaning of the Federal Communications Act of 1934, as amended, and the
respective rules and regulations thereunder and thereof, any other federal or
state laws, rules and regulations of other operating municipality regulatory or
governmental bodies applicable to or having jurisdiction over Guarantor as well
as pursuant to the terms of any franchise, license or similar operating right
held by Guarantor.
17.
<PAGE> 18
IN WITNESS WHEREOF, the undersigned have caused this Guaranty to be duly
executed and delivered by its duly authorized officer as of the day and year
first above written.
LORAL SPACE & COMMUNICATIONS LTD.
/s/ Richard J. Townsend
Name: Richard J. Townsend
Title: Senior Vice President and CFO
Address for Notices: c/o Loral SpaceCom Corporation
600 Third Avenue New York, New York 10016
Attn: General Counsel
Fax: 212-338-5320
QUALCOMM INCORPORATED,
as Agent for Lenders
/s/ Anthony S. Thornley
Name: Anthony S. Thornely
Title: Executive Vice President and CFO
<PAGE> 1
EXHIBIT 12
LORAL SPACE & COMMUNICATIONS LTD.
COMPUTATION OF DEFICIENCY OF EARNINGS TO COVER FIXED CHARGES
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
2000 1999
-------- --------
<S> <C> <C>
Earnings
Loss before income taxes, equity in net loss of affiliates
and minority interest.................................. $ (4,899) $ (4,201)
Plus fixed charges:
Interest expense....................................... 45,735 39,447
Interest component of rent expense(1).................. 2,352 2,122
Less: capitalized interest................................ 2,419 21,811
-------- --------
Earnings available to cover fixed charges................... $ 40,769 $ 15,557
======== ========
Fixed charges(2)............................................ $(75,380) $(49,007)
======== ========
Deficiency of earnings to cover fixed charges............... $(34,611) $(33,450)
======== ========
</TABLE>
- ---------------
(1) The interest component of rent expense is deemed to be approximately 25% of
total rent expense.
(2) Fixed charges include preferred dividends as adjusted for taxes.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LORAL SPACE & COMMUNICATIONS LTD. FOR THE QUARTER ENDED
MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 490,702
<SECURITIES> 0
<RECEIVABLES> 424,830
<ALLOWANCES> 4,429
<INVENTORY> 117,308
<CURRENT-ASSETS> 1,233,706
<PP&E> 2,240,134
<DEPRECIATION> (366,186)
<TOTAL-ASSETS> 5,544,765
<CURRENT-LIABILITIES> 351,037
<BONDS> 1,897,342
0
1,053,831
<COMMON> 2,956
<OTHER-SE> 1,976,204
<TOTAL-LIABILITY-AND-EQUITY> 5,544,765
<SALES> 318,086
<TOTAL-REVENUES> 318,086
<CGS> 269,803
<TOTAL-COSTS> 324,065
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,316
<INCOME-PRETAX> (4,899)
<INCOME-TAX> 10,262
<INCOME-CONTINUING> (123,030)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (142,387)
<EPS-BASIC> (0.49)
<EPS-DILUTED> (0.49)
</TABLE>
