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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1994
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Commission file number 1-4238
LORAL CORPORATION
600 Third Avenue
New York, New York 10016
Telephone: (212) 697-1105
State of incorporation: New York
IRS identification number: 13-1718360
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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 July 26, 1994, there were 83,717,472 shares of Loral Corporation
Common Stock outstanding.
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PART I. FINANCIAL INFORMATION
LORAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
-----------------------
1994 1993
---------- --------
<S> <C> <C>
Sales................................................................ $1,344,825 $849,451
Costs and expenses................................................... 1,231,186 779,269
---------- --------
Operating income..................................................... 113,639 70,182
Interest and investment income....................................... 791 1,328
Interest expense..................................................... 23,699 8,340
---------- --------
Income before income taxes and equity in net income (loss) of
affiliates......................................................... 90,731 63,170
Income taxes......................................................... 34,478 23,373
---------- --------
Income before equity in net income (loss) of affiliates.............. 56,253 39,797
Equity in net income (loss) of affiliates............................ (1,289) 554
---------- --------
Net income........................................................... 54,964 40,351
Retained earnings, beginning of period............................... 643,373 460,288
Dividends............................................................ (11,694) (10,331)
---------- --------
Retained earnings, end of period..................................... $ 686,643 $490,308
========== ========
Weighted average number of common shares outstanding................. 84,737 83,352
========== ========
Earnings per share (primary)......................................... $ .65 $ .48
========== ========
Cash dividends per common share...................................... $ .14 $ .125
========== ========
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE> 3
LORAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1994 1994
---------- ----------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents......................................... $ 196,495 $ 238,498
Contracts in process.............................................. 1,355,030 1,328,338
Deferred income taxes............................................. 89,063 104,063
Other current assets.............................................. 125,131 173,714
---------- ----------
Total current assets................................................ 1,765,719 1,844,613
---------- ----------
Property, plant and equipment....................................... 1,947,565 1,926,978
Less, accumulated depreciation and amortization................... 672,344 620,554
---------- ----------
1,275,221 1,306,424
---------- ----------
Cost in excess of net assets acquired, less amortization............ 1,334,010 1,342,872
Investment in affiliates............................................ 161,002 163,479
Deferred income taxes............................................... 32,873 37,873
Prepaid pension cost and other assets............................... 478,021 480,907
---------- ----------
$5,046,846 $5,176,168
========== ==========
LIABILITIES and SHAREHOLDERS' EQUITY:
Current liabilities:
Current portion of debt........................................... $ 328 $ 173,928
Accounts payable, trade........................................... 216,762 248,657
Customer advances................................................. 277,650 286,273
Accrued employment costs.......................................... 217,405 201,238
Income taxes...................................................... 86,214 77,815
Other current liabilities......................................... 276,108 302,256
---------- ----------
Total current liabilities........................................... 1,074,467 1,290,167
---------- ----------
Postretirement benefits............................................. 633,703 639,266
Other liabilities................................................... 237,350 241,368
Long-term debt...................................................... 1,665,255 1,624,061
Shareholders' equity:
Common stock, $.25 par value...................................... 21,129 21,056
Capital surplus................................................... 784,308 773,676
Retained earnings................................................. 686,643 643,373
---------- ----------
1,492,080 1,438,105
Less:
Treasury stock, at cost........................................ 19,652 19,681
Equity adjustments............................................. 36,357 37,118
---------- ----------
Total shareholders' equity.......................................... 1,436,071 1,381,306
---------- ----------
$5,046,846 $5,176,168
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
2
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LORAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
-----------------------
1994 1993
--------- ---------
<S> <C> <C>
Operating activities:
Net income......................................................... $ 54,964 $ 40,351
Deferred income taxes.............................................. 20,000
Depreciation and amortization...................................... 67,219 37,839
Equity in net (income) loss of affiliates.......................... 1,289 (554)
Changes in assets and liabilities:
Contracts in process............................................ (26,692) 964
Other current assets............................................ 52,135 17,324
Other assets.................................................... (349) 3,291
Accounts payable and accrued liabilities........................ (142) (25,413)
Income taxes.................................................... 9,587 8,284
Postretirement benefits and other liabilities................... (9,581) (12,078)
Other........................................................... (570) (277)
--------- ---------
Net cash provided by operating activities.......................... 167,860 69,731
--------- ---------
Investing activities:
Acquisition of businesses.......................................... (6,100)
Advances to affiliates............................................. (3,552) (1,087)
Capital expenditures, net.......................................... (22,050) (14,177)
--------- ---------
(25,602) (21,364)
--------- ---------
Financing activities:
Net payments under revolving credit facilities and commercial
paper........................................................... (782,317) (60,607)
Proceeds from borrowings........................................... 650,000
Payments of debt................................................... (89) (37,398)
Dividends paid..................................................... (11,694) (10,331)
Proceeds from common stock issuance for stock options and employee
benefit plans................................................... 10,196 2,887
Other.............................................................. (50,357)
--------- ---------
(184,261) (105,449)
--------- ---------
Net decrease in cash and cash equivalents............................ (42,003) (57,082)
Cash and cash equivalents, beginning of period....................... 238,498 116,902
--------- ---------
Cash and cash equivalents, end of period............................. $ 196,495 $ 59,820
========= =========
Supplemental information:
Interest paid during the period.................................... $ 16,525 $ 5,897
========= =========
Income taxes paid during the period................................ $ 4,158 $ 7,451
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
3
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LORAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited condensed consolidated financial statements have
been prepared by the Company 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 financial position, results of operations and cash flows.
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 make the
information presented not misleading. The condensed consolidated statement of
income for the three months ended June 30, 1994 is 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 financial
statements and notes thereto included in the Company's latest annual report.
2. ACCOUNTING CHANGE:
Effective April 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits" ("SFAS 112"). SFAS 112 requires that the costs of benefits provided
to employees after employment but before retirement be recognized in the
financial statements on an accrual basis. The adoption of SFAS 112 did not
have a material effect on the financial position or results of operations of
the Company.
3. ACQUISITIONS:
On March 1, 1994, effective January 1, 1994, the Company, through its newly
formed wholly owned subsidiary, Loral Federal Systems Company ("LFS"),
acquired substantially all the assets and liabilities of the Federal Systems
Company, a division of International Business Machines Corporation, for
$1,503,500,000 in cash, plus acquisition costs of $8,000,000.
This acquisition has been accounted for as a purchase. As such, the condensed
consolidated financial statements reflect the results of operations of the
acquired entity from the date of acquisition. Had this acquisition occurred
on April 1, 1993, the unaudited pro forma sales, net income and earnings per
share for the three months ended June 30, 1993 would have been:
$1,419,100,000; $37,500,000; and $.45, respectively. The results, which are
based on various assumptions, are not necessarily indicative of what would
have occurred had the acquisition been consummated as of April 1, 1993.
Performance under acquired contracts in process of LFS and prior acquisitions
contributed after-tax income of $18,852,000 and $11,215,000, net of after-tax
interest cost on debt related to the acquisitions, and incremental
amortization of cost in excess of net assets acquired of $16,704,000 and
$4,985,000 for the three months ended June 30, 1994 and 1993, respectively.
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LORAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. CONTRACTS IN PROCESS:
Billings and accumulated costs and profits on long-term contracts,
principally U.S. Government, comprise the following:
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1994 1994
----------- -----------
(In thousands)
<S> <C> <C>
Billed contract receivables............................ $ 430,094 $ 423,894
Unbilled contract receivables.......................... 1,872,257 1,901,156
Inventoried costs...................................... 484,833 557,259
----------- -----------
2,787,184 2,882,309
Less, unliquidated progress payments................... (1,432,154) (1,553,971)
----------- -----------
Net contracts in process............................... $ 1,355,030 $ 1,328,338
=========== ===========
</TABLE>
5. DEBT:
In May 1994, the Company increased its existing shelf registration statement
to issue up to $800,000,000 of debt or equity securities.
In June 1994, the Company issued $250,000,000 7 3/8% Senior Notes due 2004
and $400,000,000 8 3/8% Senior Debentures due 2024 under the shelf
registration statement. These securities are not callable and are not subject
to any sinking fund provisions. The proceeds were used to reduce the
Company's outstanding commercial paper borrowings.
In June 1994, the Company cancelled its 364-day $500,000,000 revolving credit
facility.
6. CONTINGENCIES:
At acquisition, LFS's contracts in process included a systems integration
contract with the Federal Aviation Administration ("FAA") for the
modernization of the U.S. air traffic control system. Prior to the
acquisition, discussions were held between LFS and FAA officials with respect
to modifying certain terms and conditions of the contract. In December 1993,
the FAA initiated a comprehensive review of the contract. In June 1994, the
FAA (i) reduced the scope of the contract by eliminating certain requirements
of the program and (ii) suspended certain other program activities pending
completion of their review. The ultimate extent of the contract modifications
is not determinable at this time. The final purchase price of LFS is subject
to a reduction, up to a specified limit, based upon the outcome of these
matters. In the opinion of management, and in light of the potential
reduction of the LFS purchase price and reserves provided, the ultimate
outcome of this matter will not have a material adverse effect on the
financial position or results of operations of the Company.
5
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
COMPARISON OF RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1994 AND JUNE 30, 1993
Effective January 1, 1994, the Company, through Loral Federal Systems
Company ("LFS") acquired substantially all the assets and liabilities of the
Federal Systems Company, a division of International Business Machines
Corporation. The results of operations of LFS are included from the effective
date of acquisition. (See Note 3 to Condensed Consolidated Financial
Statements.)
Sales for the quarter ended June 30, 1994 increased to $1,344,825,000 from
$849,451,000 in the prior year. Net income for the quarter ended June 30, 1994
increased to $54,964,000 or $.65 per share, compared with $40,351,000, or $.48
per share in the prior year.
Earnings per share for the quarter ended June 30, 1994 are based on
84,737,000 primary weighted average shares outstanding, compared with 83,352,000
in the prior year.
The sales increase was attributable to the results of the acquired LFS
business, and higher volume on Multiple Launch Rocket System (MLRS), Army
Tactical Missile System (ATACMS) and F/A-18 Forward-Looking Infrared (FLIR)
targeting and weapon delivery system; offset by lower volume on AN/BSY-2 combat
control system for the U.S. Navy's SSN-21 attack submarine, gyro-optic
assemblies for Maverick missiles, Rapid Execution and Combat Targeting (REACT)
launch control system and Automated Remote Tracking Station (ARTS).
Operating income increased to $113,639,000 from $70,182,000 in the prior
year. Operating income as a percentage of sales increased to 8.5% in the quarter
ended June 30, 1994 from 8.3% in the prior year, as a result of improved margins
due to operating efficiencies, particularly at the Loral Vought Systems business
acquired in August 1992; offset by lower margins of the acquired LFS business.
Excluding the effect of the acquired LFS business, operating income, as a
percentage of sales increased to 10.0% from 8.3%.
Net interest expense increased to $22,908,000 from $7,012,000 in the prior
year, primarily due to the impact of debt incurred as a result of the LFS
acquisition. The Company continues to benefit from an emphasis on cash
management procedures. The Company's free cash flow (net cash from operating
activities, less net capital expenditures, plus proceeds of stock purchases by
employee benefit plans and exercises of stock options) was $156,006,000 and
$58,441,000 for the quarters ended June 30, 1994 and 1993, respectively.
The Company's effective tax rate increased to 38% in the quarter ended June
30, 1994 from 37% in the prior year due to the Omnibus Budget Reconciliation Act
of 1993, which was signed into law on August 10, 1993.
Equity in net income (loss) of affiliates was a loss of $1,289,000 for the
quarter ended June 30, 1994, compared with income of $554,000 in the prior year,
reflecting the Company's share of the development costs of Globalstar, a limited
partnership formed in March 1994.
FINANCIAL CONDITION
The LFS purchase price was initially financed through cash on hand and
commercial paper borrowings which were supported by $1,200,000,000 five-year and
$500,000,000 364-day revolving credit facilities. As originally planned, in
order to fix interest costs and lengthen maturities, in June 1994, the Company
issued $250,000,000 7 3/8% Senior Notes due 2004 and $400,000,000 8 3/8% Senior
Debentures due 2024. The proceeds were used to reduce the Company's outstanding
commercial paper borrowings, including the $173,548,000 which was classified as
current portion of debt at March 31, 1994. Additionally, the Company cancelled
the 364-day $500,000,000 revolving credit facility. (See Note 5 to Condensed
Consolidated Financial Statements.)
The Company's current ratio improved to 1.6:1 at June 30, 1994, compared
with 1.4:1 at March 31, 1994. The debt (net of cash) to equity ratio improved to
1.02:1 at June 30, 1994 from 1.13:1 at March 31, 1994.
6
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PART II -- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 26, 1994, at the Company's Annual Meeting of Stockholders, the
following proposals were acted on:
(1) In an uncontested election four nominees for the Board of
Directors were elected to three year terms expiring in 1997, and one
nominee was elected to a two year term expiring in 1996. The votes were as
follows:
<TABLE>
<CAPTION>
FOR WITHHELD
---------- --------
<S> <C> <C>
Charles Lazarus.................................. 68,558,941 286,046
Malvin A. Ruderman............................... 68,571,898 273,089
Bernard L. Schwartz.............................. 68,567,160 277,827
E. Donald Shapiro................................ 68,566,747 278,240
Thomas J. Stanton, Jr. .......................... 68,572,920 272,067
</TABLE>
(2) The Incentive Compensation Plan for Senior Executives was
approved. The votes were as follows:
<TABLE>
<S> <C>
For.......................................................... 50,798,538
Against...................................................... 11,638,044
Abstentions.................................................. 675,765
Broker non-votes............................................. 5,732,640
</TABLE>
(3) The 1994 Stock Option and Incentive Stock Purchase Plan was
approved. The votes were as follows:
<TABLE>
<S> <C>
For.......................................................... 48,902,031
Against...................................................... 13,713,412
Abstentions.................................................. 494,081
Broker non-votes............................................. 5,735,463
</TABLE>
(4) The selection of Coopers & Lybrand to serve as independent
auditors for the fiscal year ending March 31, 1995, was ratified. The votes
were as follows:
<TABLE>
<S> <C>
For.......................................................... 66,714,835
Against...................................................... 1,042,513
Abstentions.................................................. 1,087,639
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed as part of this report:
<TABLE>
<S> <C>
Exhibit 11 Computation of Earnings per Common Share for the three
months ended June 30, 1994 and 1993
Exhibit 12 Computation of Ratio of Earnings to Fixed Charges for the
three months ended June 30, 1994 and 1993
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30,
1994.
7
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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 CORPORATION
--------------------------------------
Registrant
Date: August 11, 1994 MICHAEL P. DEBLASIO
--------------------------------------
Michael P. DeBlasio
Senior Vice President -- Finance
(Principal Financial Officer)
and
Registrant's Authorized Officer
8
<PAGE> 10
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
11 Computation of Earnings per Common Share
12 Computation of Ratio of Earnings to Fixed Charges
<PAGE> 1
EXHIBIT 11
LORAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
-------------------
1994 1993
------- -------
<S> <C> <C>
Primary:
Net income applicable to common shares.............................. $54,964 $40,351
======= =======
Shares:
Weighted average common shares outstanding.......................... 83,332 82,352
Common equivalent shares applicable to stock options................ 1,405 1,000
------- -------
Average number of shares outstanding and common equivalent shares... 84,737 83,352
======= =======
Primary earnings per common share and common equivalent share............ $ .65 $ .48
======= =======
Fully Diluted:
Net income applicable to common shares.............................. $54,964 $40,351
======= =======
Shares:
Average number of common shares as adjusted for primary
computation........................................................ 84,737 83,352
Incremental increase to shares under stock options where the
quarter's ending market price is higher than the average market
price during the quarter........................................... 136
------- -------
Average number of shares outstanding on a fully diluted basis....... 84,737 83,488
======= =======
Earnings per common share assuming full dilution......................... $ .65 $ .48
======= =======
</TABLE>
9
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EXHIBIT 12
LORAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS, EXCEPT RATIOS)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
--------------------
1994 1993
-------- -------
<S> <C> <C>
Earnings:
Income before taxes and equity in net
income (loss) of affiliates........................................ $ 90,731 $63,170
Add:
Interest expense................................................... 23,252 8,283
Amortization of debt expense....................................... 447 57
Amortization of capitalized interest............................... 290 355
Interest component of rent expense................................. 6,347 3,431
-------- -------
Earnings.............................................................. $121,067 $75,296
======== =======
Fixed charges:
Interest expense...................................................... $ 23,252 $ 8,283
Amortization of debt expense.......................................... 447 57
Capitalized interest.................................................. 59 7
Interest component of rent expense.................................... 6,347 3,431
-------- -------
Fixed charges......................................................... $ 30,105 $11,778
======== =======
Ratio of earnings to fixed charges...................................... 4.02x 6.39x
======== =======
</TABLE>
10
