<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 JUNE 30, 1995
------------------------
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
------------------------
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 28, 1995, there were 85,667,936 shares of Loral Corporation
Common Stock outstanding.
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<PAGE> 2
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,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Sales............................................................... $1,504,157 $1,344,825
Costs and expenses.................................................. 1,357,433 1,231,186
---------- ----------
Operating income.................................................... 146,724 113,639
Interest and investment income...................................... 3,658 791
Interest expense.................................................... 34,615 23,699
---------- ----------
Income before income taxes and equity in net loss of affiliates..... 115,767 90,731
Income taxes........................................................ 43,991 34,478
---------- ----------
Income before equity in net loss of affiliates...................... 71,776 56,253
Equity in net loss of affiliates.................................... (2,507) (1,289)
---------- ----------
Net income.......................................................... 69,269 54,964
Retained earnings, beginning of period.............................. 882,104 643,373
Dividends........................................................... (12,800) (11,694)
---------- ----------
Retained earnings, end of period.................................... $ 938,573 $ 686,643
========== ==========
Weighted average number of common shares outstanding................ 86,883 84,737
========== ==========
Earnings per share (primary)........................................ $ .80 $ .65
========== ==========
Cash dividends per common share..................................... $ .15 $ .14
========== ==========
</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,
1995 1995
---------- ----------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents......................................... $ 286,037 $ 125,674
Contracts in process.............................................. 1,475,215 1,147,233
Deferred income taxes............................................. 135,779 138,374
Other current assets.............................................. 159,393 141,846
---------- ----------
Total current assets................................................ 2,056,424 1,553,127
---------- ----------
Property, plant and equipment....................................... 2,141,020 1,899,804
Less, accumulated depreciation and amortization................... 801,171 758,279
---------- ----------
1,339,849 1,141,525
---------- ----------
Cost in excess of net assets acquired, 1ess amortization............ 1,799,120 1,265,932
Investment in affiliates............................................ 248,952 250,977
Deferred income taxes............................................... 36,568 7,568
Prepaid pension cost and other assets............................... 600,468 591,217
---------- ----------
$6,081,381 $4,810,346
========== ==========
LIABILITIES and SHAREHOLDERS' EQUITY:
Current liabilities:
Current portion of debt........................................... $ 3,492 $ 958
Accounts payable, trade........................................... 279,737 169,743
Billings and estimated earnings in excess of cost................. 413,666 313,379
Accrued employment costs.......................................... 234,771 235,260
Income taxes...................................................... 89,858 80,642
Other current liabilities......................................... 352,227 216,585
---------- ----------
Total current liabilities........................................... 1,373,751 1,016,567
---------- ----------
Postretirement benefits............................................. 612,288 611,911
Other liabilities................................................... 203,642 178,798
Long-term debt...................................................... 2,123,750 1,315,530
Shareholders' equity:
Preferred stock, $1.00 par value.................................. -- --
Common stock, $.25 par value...................................... 21,606 21,464
Capital surplus................................................... 851,164 828,734
Retained earnings................................................. 938,573 882,104
---------- ----------
1,811,343 1,732,302
Less:
Treasury stock, at cost........................................ 20,076 19,738
Equity adjustments............................................. 23,317 25,024
---------- ----------
Total shareholders' equity.......................................... 1,767,950 1,687,540
---------- ----------
$6,081,381 $4,810,346
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 4
LORAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Operating activities:
Net income.......................................................... $ 69,269 $ 54,964
Deferred income taxes............................................... 19,000 20,000
Depreciation and amortization....................................... 66,009 67,219
Equity in net loss of affiliates.................................... 2,507 1,289
Changes in assets and liabilities:
Contracts in process.............................................. (113,583) (26,692)
Other current assets.............................................. 25,553 52,135
Other assets...................................................... 5,625 (349)
Accounts payable and accrued liabilities.......................... 84,871 (142)
Income taxes...................................................... 10,788 9,587
Postretirement benefits and other liabilities..................... (9,581)
Other............................................................. 808 (570)
---------- ----------
Net cash provided by operating activities........................... 170,847 167,860
---------- ----------
Investing activities:
Acquisition of businesses, net of cash acquired..................... (779,661)
Advances to affiliates.............................................. (15,426) (3,552)
Capital expenditures, net........................................... (31,194) (22,050)
---------- ----------
(826,281) (25,602)
---------- ----------
Financing activities:
Net borrowings (payments) under revolving credit facilities and
commercial paper.................................................. 656,450 (782,406)
Proceeds from borrowing............................................. 150,000 650,000
Seller financing in connection with acquisition of business......... (50,357)
Dividends paid...................................................... (12,800) (11,694)
Proceeds from common stock issuance for stock options and employee
benefit plans..................................................... 22,147 10,196
---------- ----------
815,797 (184,261)
---------- ----------
Net increase (decrease) in cash and cash equivalents................ 160,363 (42,003)
Cash and cash equivalents, beginning of period...................... 125,674 238,498
---------- ----------
Cash and cash equivalents, end of period............................ $ 286,037 $ 196,495
========== ==========
Supplemental information:
Interest paid during the period................................ $ 38,741 $ 16,525
========== ==========
Income taxes paid during the period............................ $ 12,923 $ 4,158
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 5
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, 1995 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. ACQUISITIONS:
On May 5, 1995, the Company acquired substantially all the assets and
liabilities of the Defense Systems operations of Unisys Corporation ("Loral
UDS"). The previously reported effective purchase price of $803,400,000 was
adjusted to $874,387,000, net of cash acquired, as a result of receiving
additional net assets. The purchase price is subject to further adjustment
based on the finalization of the net asset values, and is currently under
review. Additionally, acquisition expenses of $6,000,000 have been recorded.
Pending determination of the final net asset values, included in Other
Current Liabilities is $114,680,000 purchase price obligation, which includes
an amount to reimburse Unisys Corporation for $97,682,000 of cash acquired in
the acquisition. The assets and liabilities recorded in connection with the
purchase price allocation are based upon preliminary estimates of fair
values. The acquisition was financed through commercial paper borrowings.
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, 1994, the unaudited pro forma sales, net income and earnings per
share for the three months ended June 30, 1994 would have been:
$1,704,400,000; $61,400,000; and $.72, 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, 1994. The
pro forma effect of the acquisition of Loral UDS on the results of operations
for the three months ended June 30, 1995, is not material.
Performance under acquired contracts in process of Loral UDS and prior
acquisitions contributed after-tax income of $5,041,000 and $18,852,000, net
of after-tax interest cost on debt related to the acquisitions, and
incremental amortization of cost in excess of net assets acquired of
$21,197,000 and $16,704,000 for the three months ended June 30, 1995 and
1994, respectively. The decline in after-tax income reflects a reduction in
sales from acquired contracts in process of Loral Federal Systems, acquired
effective January 1, 1994 and Loral Vought Systems, acquired August 31, 1992.
4
<PAGE> 6
LORAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. 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,
1995 1995
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Billed contract receivables............................. $ 456,380 $ 380,240
Unbilled contract receivables........................... 1,984,407 1,702,967
Inventoried costs....................................... 643,874 477,955
----------- -----------
3,084,661 2,561,162
Less, unliquidated progress payments.................... (1,609,446) (1,413,929)
----------- -----------
Net contracts in process................................ $ 1,475,215 $ 1,147,233
=========== ===========
</TABLE>
4. DEBT:
In June 1995, the Company issued $150,000,000 7 5/8% Senior Debentures due
2025 under the Company's existing 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.
5. SUBSEQUENT EVENT:
On July 25, 1995, the Board of Directors of the Company declared a
two-for-one stock split in the form of a 100% stock distribution, subject to
stockholder approval to increase the number of authorized shares of Common
Stock from 150,000,000 to 300,000,000.
5
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
JUNE 30, 1995 AND JUNE 30, 1994
On May 5, 1995, the Company acquired the Defense Systems operations of
Unisys Corporation. Unisys Defense Systems ("Loral UDS"), headquartered in
McLean, Virginia, is a leading systems integrator and software developer for
defense and non-defense government agencies worldwide, as well as a supplier of
electronic countermeasures, navigation and communication subsystems for surface
ships and submarines. Historical operating results of Loral UDS for the fiscal
year ended December 31, 1994 include sales of $1.431 billion, operating income
of $157.1 million, funded backlog at December 31, 1994 of $1.098 billion and
approximately 8,600 employees. The results of operations of Loral UDS are
included from the effective date of acquisition. (See Note 2 to Condensed
Consolidated Financial Statements.)
Sales for the quarter ended June 30, 1995 increased to $1.504 billion from
$1.345 billion in the prior year. Net income for the quarter ended June 30, 1995
increased to $69.3 million or $.80 per share, compared with $55.0 million or
$.65 per share in the prior year. The results of operations of Loral UDS
contributed $3.5 million or $.04 per share, to the current quarter's earnings;
the Company's share of development costs of Globalstar, a limited partnership
formed in March 1994 to design, construct, and operate a worldwide
satellite-based telecommunication system, reduced the current quarter's earnings
by $3.3 million or $.04 per share compared to $1.8 million or $.02 per share in
the prior year.
Earnings per share for the quarter ended June 30, 1995 are based on 86.9
million primary weighted average shares outstanding, compared with 84.7 million
in the prior year.
The sales increase was attributable primarily to the sales of the acquired
Loral UDS which amounted to $145.6 million. Sales also include higher volume of
$31.1 million for the United Kingdom's EH-101 Merlin ASW helicopter and $25.7
million for the Patriot Advanced Capability ("PAC-3") missile, formerly known as
Extended Range Interceptor ("ERINT"); offset by lower volume of $49.8 million
for the Multiple Launch Rocket System ("MLRS"). The Company has a diverse base
of programs, none of which is expected to account for more than 6% of fiscal
1996 revenues. The change in sales from period to period includes increases and
decreases on a variety of programs which individually are not significant to the
overall change.
Operating income increased to $146.7 million from $113.6 million in the
prior year. Operating income as a percentage of sales increased to 9.8% in the
quarter ended June 30, 1995 from 8.5% in the prior year, as a result of improved
margins due to operating efficiencies at the Loral Federal Systems business
acquired effective January 1994; offset by lower pension credit in the current
period as a result of the prior year's asset performance. The acquisition of
Loral UDS did not have a significant effect on operating margins.
Interest expense, net of interest and investment income, increased to $31.0
million from $22.9 million in the prior year. This increase was primarily due to
the $11.1 million impact of debt incurred to finance the acquisition of Loral
UDS. Excluding the impact of the Loral UDS acquisition, interest expense, net
decreased by $3.0 million primarily as a result of strong Free Cash Flow, offset
by an increase in the weighted average interest rate of debt. The Company's Free
Cash Flow (net cash from operating activities, less capital expenditures, plus
proceeds of stock purchases by employee benefit plans and exercises of stock
options) was $582.4 million for the twelve months ended June 30, 1995, of which
$161.8 million was generated in the quarter ended June 30, 1995. The Company's
weighted average interest rate of debt was 7.44% for the quarter ended June 30,
1995 compared with 5.07% for the quarter ended June 30, 1994, due to the
issuance of $650 million of fixed long-term debt in June 1994 and $150 million
in June 1995 and an increase in interest rates during the period affecting the
Company's commercial paper.
The Company's effective tax rate was 38% in the quarters ended June 30,
1995 and 1994.
6
<PAGE> 8
FINANCIAL CONDITION
The Loral UDS purchase price was financed through additional commercial
paper borrowings which are supported by the Company's $1.2 billion revolving
credit facility. In June 1995, to take advantage of a decline in interest rates
and to fix interest costs and lengthen maturities, the Company issued $150
million 7 5/8% Senior Debentures due 2025, under the Company's existing shelf
registration statement. The proceeds were used to reduce the Company's
outstanding commercial paper borrowings. (See Note 4 to Condensed Consolidated
Financial Statements.) Based on the current financial condition of the Company,
management believes that the internal cash flows of the combined operations will
be adequate to fund the future growth of the Company while servicing interest
and retiring the principal of the debt.
The majority of the Company's foreign currency hedges are entered into at
the direction of the customer pursuant to contractual requirements. Any gain or
loss on the hedges accrues to the benefit or detriment of the customer and does
not expose the Company to risk. The remaining foreign currency hedges are not
material.
The Company's current ratio remained constant at 1.5:1 at June 30, 1995,
compared with March 31, 1995. The debt (net of cash) to equity ratio grew to
1.04:1 at June 30, 1995 from .71:1 at March 31, 1995 due to the acquisition of
Loral UDS.
Although the Company is not immune to the effects of declining U.S. defense
spending, the Company believes that its areas of concentration, its diverse base
of programs, complemented and broadened by the program base of businesses
recently acquired, as well as other business opportunities, such as Globalstar,
will enable the Company to offset overall U.S. budget decline impacts.
PART II -- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 25, 1995, 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 1998. The votes were as
follows:
<TABLE>
<CAPTION>
FOR WITHHELD
---------- --------
<S> <C> <C>
Howard Gittis................................................. 69,023,342 461,024
Gershon Kekst................................................. 68,831,825 652,541
Arthur L. Simon............................................... 68,986,207 498,159
Daniel Yankelovich............................................ 69,050,529 433,837
</TABLE>
(2) The amendment to Article Seventh of the Restated Certificate of
Incorporation was approved. The votes were as follows:
<TABLE>
<S> <C>
For...................................................................... 67,911,752
Against.................................................................. 929,546
Abstentions.............................................................. 643,068
</TABLE>
(3) The selection of Coopers & Lybrand L.L.P. to serve as independent
auditors for the fiscal year ending March 31, 1996, was ratified. The
votes were as follows:
<TABLE>
<S> <C>
For...................................................................... 68,905,116
Against.................................................................. 190,833
Abstentions.............................................................. 388,417
</TABLE>
7
<PAGE> 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed as part of this report:
Exhibit 11 Computation of Earnings per Common Share for the three
months ended June 30, 1995 and 1994
Exhibit 12 Computation of Ratio of Earnings to Fixed Charges for the
three months ended June 30, 1995 and 1994
(b) Reports on Form 8-K
<TABLE>
<CAPTION>
DATE OF REPORT ITEM(S) REPORTED
-------------- ------------------------------------------------------------------------------
<S> <C>
May 5, 1995 Item 2 -- Acquisition of Assets and
Item 7 -- Financial Statements, Pro Forma Financial Information and Exhibits:
The Company acquired the Defense Systems operations of Unisys Corporation.
May 31, 1995 Item 5 -- Other Events:
The Company filed a Restated Certificate of Incorporation.
</TABLE>
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, 1995
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 for
the three months ended June 30, 1995 and 1994
12 Computation of Ratio of Earnings to Fixed Charges
for the three months ended June 30, 1995 and 1994
<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,
-------------------
1995 1994
------- -------
<S> <C> <C>
Primary:
Net income applicable to common shares................................. $69,269 $54,964
========== ==========
Shares:
Weighted average common shares outstanding.......................... 85,244 83,332
Common equivalent shares applicable to stock options................ 1,639 1,405
-------- --------
-- --
Average number of shares outstanding and common equivalent shares... 86,883 84,737
========== ==========
Primary earnings per common share and common equivalent share............ $.80 $.65
========== ==========
Fully Diluted:
Net income applicable to common shares................................. $69,269 $54,964
========== ==========
Shares:
Average number of common shares as adjusted for
primary computation............................................... 86,883 84,737
Incremental increase to shares under stock options where the
quarter's ending market price is higher than the average market
price during the quarter........................................... 127
-------- --------
-- --
Average number of shares outstanding on a fully diluted basis....... 87,010 84,737
========== ==========
Earnings per common share assuming full dilution......................... $.80 $.65
========== ==========
</TABLE>
9
<PAGE> 1
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,
---------------------
1995 1994
-------- --------
<S> <C> <C>
Earnings:
Income before taxes and equity in net loss of affiliate.............. $115,767 $ 90,731
Add:
Interest expense.................................................. 34,524 23,252
Amortization of debt expense...................................... 91 447
Amortization of capitalized interest.............................. 247 290
Interest component of rent expense................................ 6,390 6,347
-------- --------
Earnings............................................................. $157,019 $121,067
======== ========
Fixed charges:
Interest expense..................................................... $ 34,524 $ 23,252
Amortization of debt expense......................................... 91 447
Capitalized interest................................................. 2,083 59
Interest component of rent expense................................... 6,390 6,347
-------- --------
Fixed charges........................................................ $ 43,088 $ 30,105
======== ========
Ratio of earnings to fixed charges..................................... 3.64x 4.02x
======== ========
</TABLE>
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LORAL CORPORATION FOR THE THREE MONTHS ENDED JUNE 30,
1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> JUN-30-1995
<CASH> 286,037
<SECURITIES> 0
<RECEIVABLES> 1,031,341
<ALLOWANCES> 0
<INVENTORY> 443,874
<CURRENT-ASSETS> 2,056,424
<PP&E> 2,141,020
<DEPRECIATION> 801,171
<TOTAL-ASSETS> 6,081,381
<CURRENT-LIABILITIES> 1,373,751
<BONDS> 2,123,750
<COMMON> 21,606
0
0
<OTHER-SE> 1,746,344
<TOTAL-LIABILITY-AND-EQUITY> 6,081,381
<SALES> 1,504,157
<TOTAL-REVENUES> 1,507,815
<CGS> 1,357,433
<TOTAL-COSTS> 1,357,433
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,615
<INCOME-PRETAX> 115,767
<INCOME-TAX> 43,991
<INCOME-CONTINUING> 69,269
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 69,269
<EPS-PRIMARY> .80
<EPS-DILUTED> .80
</TABLE>
