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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 1995
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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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Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------------------------------------------------------ ------------------------
<S> <C>
Common Stock, $.25 par value...................................... New York Stock Exchange
7 5/8% Senior Notes due 2004...................................... New York Stock Exchange
7% Senior Debentures due 2023................................. New York Stock Exchange
8 3/8% Senior Debentures due 2023................................. New York Stock Exchange
8 3/8% Senior Debentures due 2024................................. New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
9 1/8% Senior Debentures due 2022
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.
No disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
is contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
At May 1, 1995, 85,162,768 common shares were outstanding, and the
aggregate market value of such shares (based upon the closing price on the New
York Stock Exchange) held by non-affiliates of the registrant was approximately
$3,749,000,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's 1994 definitive proxy statement are
incorporated by reference into Part III.
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PART I
ITEM 1. BUSINESS
GENERAL DESCRIPTION OF BUSINESS
Loral Corporation (the "Company" or "Loral") was incorporated in New York
in 1948. Through its subsidiaries and divisions, the Company is a leading
supplier of advanced electronic systems, components and services to U.S. and
foreign governments for defense and non-defense applications. The Company's
principal business areas are: electronic combat; training and simulation;
tactical weapons; command, control, communications and intelligence
(C3I)/reconnaissance; systems integration; and telecommunications and space
systems. The Company has achieved an incumbent position on a wide range of
existing programs through internal growth and development and a series of
acquisitions focused on its core technologies. Loral's business strategy is to
emphasize upgrades of existing weapons systems, concentrate on further
developing its core of advanced technologies, generate an increasing proportion
of its sales from foreign customers and selectively extend the Company's
proprietary technologies into non-military applications, such as systems
integration, satellite-based telecommunications, air traffic control, postal
systems automation, medical and dental imaging systems, data archiving and
information systems and services.
On May 5, 1995, Loral acquired the Defense Systems operations of Unisys
Corporation. Unisys Defense Systems ("Loral UDS") is a leading systems
integrator and supplier of advanced information technology products and services
to defense and other government agencies worldwide.
BUSINESS SEGMENTS
The Company operates primarily in one industry segment, government
electronic systems.
PRODUCTS
Electronic Combat
Loral is a leading producer of systems that detect, jam and deceive hostile
radars and radar and infrared guided weapons and detect and analyze surface and
submarine threats. Loral's electronic combat systems are used in the protection
of U.S. and allied aircraft and provide antisubmarine and antisurface warfare,
airborne early warning and electronic support measures capabilities.
Loral manufactures the ALR-56 family of advanced, programmable radar
warning systems. The ALR-56C and ALR-56M are utilized aboard U.S. Air Force and
allied F-15 and F-16 jet fighter aircraft, respectively. Loral has sold its
ALQ-178 Rapport fully integrated airborne radar warning and electronic jamming
systems to Israel, Belgium and Turkey principally for the F-16, and has
developed an advanced version called the ALQ-202. Loral also produces the APR-39
radar signal detection system deployed on U.S Army helicopters and transport
aircraft.
Loral supplies the Forward-Looking Infrared (FLIR) targeting and weapon
delivery pod (the "NITE Hawk") aboard U.S. and allied F/A-18 strike jets. This
system permits aircrews to deliver smart weapons to selectively identified
high-value targets through laser rangers and target designators. The Company
also produces the Electronic Support Measures system and the Avionics Control
Units for the U.S. Air Force's B-2 stealth bomber; a day/night adverse weather
missions system for the MC-130H Combat Talon II aircraft; and the central
computer for the F-15.
Loral is the prime contractor for the U.S. Navy's LAMPS MK III helicopter
for antisubmarine warfare, antisurface warfare and airborne early warning, and
for a similar system, the EH-101 Merlin, for the United Kingdom's Ministry of
Defence. Loral UDS is also the U.S. Navy's prime contractor for the Antisurface
Warfare Improvement Program for the P-3C aircraft, improving its ability to
support a broad range of critical naval operations.
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Loral's ALQ-157, Matador and Challenger infrared countermeasures systems
emit infrared energy pulses that counter heat-seeking missiles by directing them
away from aircraft, naval vessels and armored ground vehicles. Loral also
produces antenna assemblies and systems for airborne early warning aboard
tactical aircraft, such as the E-2C.
Training and Simulation
Loral's training systems provide simulated, realistic battlefield
environments that assist air, land and sea forces in achieving and maintaining
combat readiness as well as aiding in the establishment and validation of
requirements for new systems and upgrades. Loral produces a variety of
simulators, including weapons systems simulators and distributed interactive
simulators.
Loral's operational flight and weapons systems trainers simulate the U.S.
Navy's F-15 and F-15E jet aircraft avionics under combat conditions. Loral is
also providing the F-15S Weapons System Trainer to a foreign government. Loral
is developing a comprehensive family of weapons systems trainers, courseware and
mission rehearsal devices for the Special Operations Forces Aircrew Training
System (SOF-ATS). The Company has a contract to assess pilot training
requirements for the U.S. Air Force's new F-22 fighter. Loral is developing full
mission simulators that combine flight weapons systems and mission training for
Sweden's JAS-39 multi-role combat aircraft, and is developing an aircrew and
maintenance training system and curriculum for the U.K.'s Ministry of Defence
EH-101 Merlin helicopter program.
Loral's Multiple Integrated Laser Engagement System (MILES) is at the
forefront of a family of laser-based training systems, including the
Air-to-Ground Engagement System (AGES), the Precision Gunnery Training System
(PGTS), Simulated Area Weapons Effect (SAWE), Precision Range Integrated
Maneuver Exercise (PRIME) and Mobile Automated Instrumentation Suite (MAIS).
These systems are used to train and evaluate ground combat troops and military
equipment for the U.S. and allied defense departments. The equipment simulates
the effect of weapons fire through eye-safe, encoded laser beams. Detector cells
and electronic decoding systems replicate target vulnerability. Data is
transmitted to a central station to allow review of combat performance.
Loral is a principal developer of networked simulators for the U.S. Army.
Loral operates and maintains simulator networks for ground vehicle and airborne
platform training at Fort Knox and Fort Rucker under the Army's Advanced
Distributed Simulation Technology (ADST) program. These simulators are linked to
each other and to combat training ranges, including ranges operated by the
Company.
Loral's Close Combat Tactical Trainer (CCTT) provides the U.S. Army with a
computer-based trainer that simulates vehicles, weapon systems and dismounted
infantry in a virtual battlefield environment. The Company is prime contractor
for the MATBAT tank gunnery training system to provide realistic battlefield
conditions for the Israeli Defense Forces.
Loral operates and maintains the U.S. Navy's and Air Force's primary pilot
training ranges and electronic warfare ranges, provides instructors for
classroom training, and supplies sophisticated avionics and undersea simulators.
Tactical Weapons
Loral produces the Multiple Launch Rocket System (MLRS) for the U. S. Army
and allied forces. The MLRS, a surface-to-surface tactical weapon, spreads
submunitions over a one kilometer target area up to 20 miles away. Loral also
produces the Army Tactical Missile System (ATACMS). Fired from the MLRS
launcher, ATACMS is a long-range surface-to-surface tactical missile. Loral
conducted an initial successful test of a ship-fired version of ATACMS for the
U.S. Navy, and has successfully fired MLRS and ATACMS munitions from the High
Mobility Artillery Rocket System (HIMARS). MLRS has substantial international
markets, and has been purchased by France, Germany, the United Kingdom, Italy,
the Netherlands, Turkey, Bahrain and Japan. The Company also expects an
international market for ATACMS.
Loral has developed the Extended Range Interceptor missile (ERINT), a
kinetic energy, high-altitude missile that destroys tactical ballistic missiles,
aircraft and cruise missiles through force of impact without
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explosives. The system has been selected by the U.S. Army and Loral has been
awarded an engineering and manufacturing development contract for the PAC-3
Theater Missile Defense upgrade of the Patriot Missile System. Loral is also
under contract to develop the LOSAT missile, a low-cost kinetic energy antitank
missile.
Loral's electro-optical (EO) and infrared (IR) sensors, processing
technologies and advanced algorithms are employed in a wide range of tactical
weapons and weapons guidance systems. Loral's IR sensors have been selected for
the Theater High-Altitude Area Defense (THAAD) system.
Loral's guidance programs include the Digital Scene Matching Area
Correlation (DSMAC) system, which permits Tomahawk cruise missiles to direct
themselves for long distances over enemy terrain, and complete missile guidance
control units for air-defense systems and air-to-ground weapons. Loral also
produces the Sidewinder air-to-air missile: the AIM9M and the AIM-9P.
Loral is under contract from the U. S. Marine Corps to develop a
short-range antitank weapon, the Predator, which is a man-portable
fire-and-forget weapon system, and has been funded to demonstrate a
bunker-busting variant for the U.S. Army. The Company's Vertical Launch
Antisubmarine Rocket (VLA) is in production for the U. S. Navy and Japan.
Command, Control, Communications and Intelligence (C3I)/Reconnaissance
Loral offers systems integration, operations management and engineering
services, post-deployment systems support, military satellite communication
terminals, information processing and display hardware, information management
software, secure tactical communications instruments and telemetry equipment to
address a broad spectrum of strategic and tactical C3I requirements.
Loral is the principal technical support contractor for the Space Defense
Operations Center at Cheyenne Mountain for the U.S. Space Command, which
monitors orbiting space systems to alert the U.S. and its allies to potential
attack. Loral's Rapid Execution and Combat Targeting system, which is
modernizing the Minuteman missile launch control centers, has been used
successfully in a test launch. Loral is also providing engineering support,
systems integration, and operations and maintenance for the worldwide Air Force
Satellite Control Network and, separately, for the National Test Facility at
Falcon AFB.
Loral is developing the communications element of the All-Source Analysis
System, a tactical intelligence fusion system that will receive, process and
display battlefield information to tactical commanders on a near real-time
basis. Loral is also developing the state-of-the-art electronics and
communications systems for the Command and Control Vehicle (C2V), a key
component of the U.S. Army's digitized battlefield.
Loral provides hardware support, software maintenance, sustaining
engineering and on-site operational services in support of the U.S. Air Force's
Global Positioning System. Loral is also responsible for system development,
software maintenance, and engineering support for the U.S. Air Force's fixed and
mobile Launch Detection System.
Loral produces mil-spec and ruggedized general-purpose computers and
processors used in military systems, such as the Advanced Display System (ADS),
which is the U.S. Navy's next-generation tactical workstation and the Loral UDS
AN/UYK-43(V) standard 32-bit computer for U.S. Navy surface ships. Loral's
information and graphics display systems provide interactive access to real-time
information on ground and shipboard platforms as well as aircraft, such as the
E-2C, P-3C, S-3, F-14 and other U.S. Navy aircraft.
Loral supplies antisubmarine warfare and combat control systems for
submarines and surface ships including: the AN/BSY-1 combat system for the U.S.
Navy's SSN-688 class attack submarines, portions of the AN/BSY-2 combat control
system for the Navy's SSN-21 attack submarines, the Combat Control System MK3
for the Royal Australian Navy's Type 471 SSK submarines, and elements of the
SQQ-89 surface ship ASW combat control system. Loral UDS produces the MK-92 Fire
Control System for frigates and smaller sized ships for the U.S. Navy and allied
nations, and an integrated system for navigation, ship and machinery control for
the U.S. Navy's new class of coastal minehunters and, through its Canadian
operations, is also responsible for the design, development and production of
the electronics suites for the Canadian Patrol
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Frigate program. Loral UDS is the sole-source provider and manager of
high-accuracy navigation subsystems for the Trident Ballistic Missile program.
Loral UDS is a technology leader in high data rate, covert, jam-resistant
microwave communications in support of core military and other national agency
reconnaissance and surveillance applications. Loral's EMR and instrumentation
telemetry systems include airborne transmitters, receivers, data links,
transponders and signal encoders, which are used in tracking, ranging, data
acquisition and command and control for operations of space vehicles and
missiles. Loral's instrumentation products, primarily the System 500, provide
high-speed, real-time processing in testing and analyzing data from advanced
avionics, as well as from missile and satellite sources.
Loral's reconnaissance systems utilize advanced electronic imaging,
communications and information processing technologies to provide integrated
tactical battlefield information and navigation and targeting capability in
airborne platforms for the U.S. Air Force, Navy and Marines. Loral employs
mercury cadmium telluride, platinum silicide and charge-coupled device
technologies required for the IR and EO focal plane arrays that are at the heart
of night vision and all-weather cameras. Loral has received funding for the
development of uncooled IR sensors with applications in night vision and
commercial markets. Loral, as systems prime contractor, is utilizing its sensing
and imaging products as major components of the Advanced Tactical Air
Reconnaissance System (ATARS) and the Long-Range Oblique Photography System
(LOROPS).
Loral also manufactures and sells commercial data and voice recorders, the
indestructible "black boxes" mandated by the FAA for commercial and general
aviation aircraft.
Systems Integration
Loral is a leading provider of systems integration services focused on
integrating complex hardware and software systems. Loral serves the U.S.
Department of Defense (DOD) and a broad range of federal and foreign government
organizations, including the Federal Aviation Administration, the U.S.
Department of Commerce, the U.S. Department of Justice, the Internal Revenue
Service, the U.S. Postal Service and the United Kingdom's Civil Aviation
Authority.
Among Loral's programs are the Display System Replacement (DSR), the
next-generation air traffic control system for the Federal Aviation
Administration en route centers, the Tower Control Computer Complex, the
Automated Radar Terminal System, and the Mode Select Beacon System Sensor, all
for application throughout U.S. airports. Loral is producing the United
Kingdom's New En Route Centre air traffic control system. Loral is under
contract to produce a number of systems for non-DOD government agencies,
including the Document Processing System (DPS) that will image and store tax
returns and correspondence for the Internal Revenue Service; a bar code-based
mail sorting system, the small parcel and bundle sorters and an upgrade to the
existing flats sorting machines for the U.S. Postal Service; network and
database systems for the administrative offices of the U.S. Courts; and Loral
UDS' NEXRAD weather-detection system for the National Oceanic and Atmospheric
Administration, making critical Doppler radar data continuously available
throughout the U.S.
Loral is the prime contractor for the U.S. Army's Sustaining Base
Information Services (SBIS) program, which is a comprehensive information
support system that will be used for all Army base management information and
administrative processing. This includes personnel management, payroll,
financial accounting and control, authorization documentation, supply and
services and medical records management. Loral UDS is developing the Global
Transportation Network (GTN) for the U.S. DOD to provide near real time
management and in-transit visibility of tri-service needs permitting worldwide
command and control for all modes of transportation.
Loral is producing the Medical Diagnostic Imaging System, which extends the
Company's high-volume data storage and retrieval technologies into the medical
marketplace for the DOD, Veterans Administration, university medical centers or
other private hospitals.
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Telecommunications and Space Systems
Loral and Space Systems/Loral, Inc. ("SS/L"), an unconsolidated affiliate,
both participate in various aspects of space technology and systems. Loral
provides engineering services supporting mission control systems for both manned
and unmanned space flight and develops and manufactures scientific instruments,
sensors, cameras and power systems for space systems applications. SS/L designs
and produces geosynchronous and low-earth orbit satellites and subsystems for
telecommunications, remote earth sensing and direct-to-home (DTH) broadcast
television. SS/L is the prime contractor for the space segment of the Globalstar
low-earth orbit satellite-based digital telecommunications system.
Loral designs, develops and integrates systems for the Space Shuttle's
on-board hardware and flight control software. Loral also provides systems
engineering, safety engineering, reliability and engineering support to Johnson
Space Center, and is modernizing its Mission Systems Control in support of
manned space missions, including the Space Shuttle.
In space science, Loral is developing the Atmospheric Infrared Sounder
(AIRS), a scientific instrument that will fly on NASA's Earth Observing System
(EOS) platform in the next century. At NASA's Goddard Space Flight Center, Loral
is developing the computer system to store, archive and distribute data
collected from the EOS Data and Information System (EOSDIS).
SS/L's INTELSAT VII satellites carry international telephone traffic for
the International Telecommunications Satellite consortium. Out of a series of
nine satellites, SS/L has to date successfully launched five satellites. SS/L is
the prime contractor for a series of Geostationary Operational Environmental
Satellites (GOES), which are designed to provide enhanced 24-hour monitoring and
measurement of weather events in real-time. The first GOES satellite, launched
in April 1994, became operational in the Fall of 1994. SS/L is the prime
contractor to design, construct and launch the 48 satellite constellation (plus
eight spare satellites) for the Globalstar system. SS/L is building two N-STAR
satellites for Nippon Telegraph and Telephone of Japan and was awarded a
contract by the Japanese government to build MTSAT, an advanced geostationary
satellite for air traffic control and weather observation. SS/L is also
supplying PanAmSat with a DTH satellite and is supplying two DTH satellites to
TEMPO, a subsidiary of Tele-Communications, Inc. Mabuhay, a consortium of
Philippine entities including the Philippine Long Distance Telephone Company,
awarded SS/L a contract for an advanced geostationary telecommunications
satellite.
Loral has contracts to supply video systems and provide systems engineering
and integration for the International Space Station, and SS/L has contracts to
supply subsystems and components, including power systems, for the International
Space Station.
Loral is the managing general partner of Globalstar, L.P. (Globalstar), an
international venture formed to design, construct and operate a worldwide,
low-earth orbit satellite-based digital telecommunications system in conjunction
with the following partners: Globalstar Telecommunications Limited, a public
company that acts as a general partner of Globalstar; Alcatel Espace; AirTouch
Communications (formerly PacTel); Alenia Spazio S.p.A.; DACOM Corporation;
DaimlerBenz Aerospace AG; Finmeccanica S.p.A.; Hyundai Electronics Industries
Company; QUALCOMM Incorporated; SS/L; and Vodafone Group Plc. The system is
expected to be operational in 1998 and will offer low-cost worldwide digital
wireless telecommunications services, including voice, data, paging, facsimile
and geolocation services, to telephones and data terminals in areas currently
underserved or not served by existing telecommunications systems. The system
will allow existing cellular carriers to extend and enhance their
telecommunications services to new and current users. On January 31, 1995, a
license was received from the U.S. Federal Communications Commission to
construct, launch and operate the Globalstar system.
CUSTOMERS
Substantially all of the Company's products are sold to agencies of the
United States Government, primarily the Department of Defense, to foreign
government agencies or to prime contractors or subcontractors thereof. In fiscal
1995, approximately $4.32 billion of the Company's sales was directly or
indirectly from United States and foreign government defense contracts and
approximately $991 million was directly or
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indirectly from U.S. and foreign government non-defense contracts. Total foreign
sales represented 19% of total sales in fiscal 1995.
For information concerning international programs and sales to foreign
governments, see "Foreign Sales" below.
BACKLOG
The Company's funded backlog at March 31, 1995, totalled $6.37 billion,
compared with $6.55 billion at March 31, 1994. It is expected that 52% of the
backlog at March 31, 1995, will be recorded as sales during fiscal 1996.
Approximately $5.52 billion of total backlog was directly or indirectly for U.S.
and foreign government defense contracts and approximately $724 million of total
backlog was directly or indirectly for U.S. and foreign government non-defense
contracts. Foreign customers account for $2.48 billion of the total backlog.
COMPETITION
The Company faces intense competition in all its product areas. The
Company's position depends largely upon the quality, design and pricing of its
products and services and the timeliness of deliveries. The Company must design
products that meet or exceed rigid specifications and that are subjected to
stringent testing procedures. A substantial portion of the Company's business is
obtained through the submission of competitive proposals.
GOVERNMENT CONTRACTS
The Company's government contracts are normally for production, service or
development. Such contracts are typically of the fixed-price or cost-type
variety. Development contracts historically have been less profitable than
production contracts, and the Company has at times experienced cost overruns on
them.
Fixed-price contracts may provide for a firm fixed-price or they may be
fixed-price incentive contracts. Under a firm fixed-price contract, the Company
agrees to perform for an agreed price and, accordingly, derives benefits from
cost savings, but bears the entire risk of cost overruns. Under a fixed-price
incentive contract, if actual costs incurred are less than estimated costs for
the contract, the savings are apportioned between the Government and the
Company. However, if actual costs under such a contract exceed estimated costs,
excess costs are apportioned between the Government and the Company up to a
ceiling. The Company bears all costs that exceed the ceiling. Some firm
fixed-price contracts and fixed-price incentive contracts also provide for price
adjustments in the event inflation differs from specified measurement indices,
or in the event performance exceeds specified objectives or schedules.
Cost-type contracts generally provide for reimbursement of the Company's
actual costs, to the extent such costs are allowable, and additional
compensation in the form of a fixed, incentive or award fee. Under cost-sharing
contracts, costs are apportioned between the Government and the Company
according to an agreed formula. Cost-type contracts contain cost ceilings and
the Company is not obligated to incur costs in excess of such ceilings.
All domestic government contracts and subcontracts to which the Company is
a party are subject to audit, various cost controls and standard provisions for
termination at the convenience of the Government. Multi-year Government
contracts and related orders are subject to cancellation if funds for contract
performance for any subsequent year become unavailable. Upon termination other
than for a contractor's default, the contractor is normally entitled to
reimbursement for allowable costs, but not necessarily all costs, and to an
allowance for the proportionate share of fees or earnings for the work
completed. Foreign government contracts generally contain comparable provisions
relating to termination for the convenience of the government.
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Government contractors are subject to certain business risks peculiar to
the defense industry. These risks include the ability of the Government to
unilaterally suspend the Company from receiving new government contracts pending
resolution of alleged violations of procurement laws or regulations.
In addition, all government contractors are subject to risks associated
with dependence on Government appropriations, changes in Government procurement
policies, obtaining required Government export licenses for international sales,
uncertain cost factors related to technologically scarce skills and exotic
components, the frequent need to bid on programs in advance of design completion
(which may result in unforeseen technological difficulties and/or cost
overruns), design complexity and rapid obsolescence, and the constant necessity
for design improvement.
The decline in the U.S. defense budget since the mid 1980s has resulted in
program delays, cancellations and scope reductions for defense contractors
generally. While the reductions in spending have lessened, there can be no
assurance that the U.S. defense budget for 1996 will increase, especially in the
procurement budget, or reflect a delcine versus 1995. These events may or may
not have an effect on the Company's programs; however, in the event expenditures
for products of the type manufactured by the Company are reduced, and not offset
by greater foreign sales or other new programs or products, or acquisitions,
there will be a reduction in the volume of contracts or subcontracts awarded to
the Company. Such reductions unless offset will have an adverse effect upon the
Company's earnings.
PATENTS AND LICENSES
Although the Company owns some patents and has filed applications for
additional patents, it does not believe that its operations depend upon its
patents. In addition, the Company's U.S. Government contracts generally license
it to use patents owned by others. Similar provisions in the U.S. Government
contracts awarded to other companies make it impossible for the Company to
prevent the use by other companies of its patents in most domestic work.
RESEARCH AND DEVELOPMENT
The Company employs scientific, engineering and other personnel to improve
its existing product lines and to develop new products and technologies in the
same or related fields. The largest portion of this work is performed under
specific U.S. Government contracts. At March 31, 1995, the Company employed
approximately 9,670 engineers (of whom 2,630 held advanced degrees), of which
approximately 1,095 (including 340 holding advanced degrees) devote all or part
of their effort to Company-sponsored research projects.
The amounts of research and development performed under customer-funded
contracts and Company-sponsored research projects, including bid and proposal
costs, for the three most recent fiscal years were as follows:
<TABLE>
<CAPTION>
CUSTOMER- COMPANY-
FUNDED SPONSORED TOTAL
---------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
1995......................................... $1,630,062 $228,005 $1,858,067
1994......................................... 843,964 172,604 1,016,568
1993......................................... 488,450 124,718 613,168
</TABLE>
PERSONNEL
At March 31, 1995, the Company employed approximately 28,900 persons. A
significant part of its operations is dependent upon professional, technical and
engineering personnel whose tenure is not generally secured by employment
contracts. The Company has agreements with labor organizations representing
certain hourly employees.
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FOREIGN SALES
Loral products currently sold in the international marketplace include the
ALQ-178 Rapport, ALR-56C, ALR-56M, the NITE Hawk targeting and weapon delivery
system for the F/A-18 strike jet, EH-101 Merlin, E-2C displays, Romeo submarine
sonar, MLRS, VLA, guidance control systems for the Sidewinder missile, JAS-39
full mission simulator, MILES, TCM-620 tactical communications system and air
traffic control systems. Through SS/L, Loral is also supplying the INTELSAT VII,
Superbird and N-Star satellites for the international marketplace. Certain other
Loral programs have export potential, including ATACMS, tactical displays,
LOROPS and AIRS.
Foreign sales accounted for approximately 19% and 14% of the Company's
sales in fiscal 1995 and 1994, respectively. Foreign sales and income are
subject to changes in United States and foreign government policies,
regulations, embargoes and international hostilities. Foreign sales generally
require export licenses granted on a case-by-case basis by the United States
Department of State.
<TABLE>
<CAPTION>
1995 1994 1993
---------- -------------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Export sales:
Asia......................................... $ 234,307 $227,312 $190,125
Middle East.................................. 151,152 91,049 119,401
Europe....................................... 96,257 106,546 128,707
Other........................................ 19,716 28,289 26,733
---------- -------------- --------
501,432 453,196 464,966
Foreign operations, principally Europe......... 519,852 111,416 12,535
---------- -------------- --------
Total foreign sales............................ $1,021,284 $564,612 $477,501
========= =========== ========
</TABLE>
ITEM 2. PROPERTIES
The Company operates in a number of plants and office facilities in the
United States and abroad.
At March 31, 1995, the Company's manufacturing, engineering, research,
administrative, warehousing and sales facilities aggregated approximately 20.3
million square feet, of which 54% is owned and 46% is leased. Substantially all
the Company's facilities are located in the United States. Management believes
the Company's facilities are adequate for its current level of business.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in a number of lawsuits or claims incidental to
its business including those related to environmental issues (see Note 8 to
Consolidated Financial Statements). In the opinion of management, the ultimate
liability on these matters, if any, will not have a material adverse effect on
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
(a) MARKET PRICE AND DIVIDEND INFORMATION
The Company's Common Stock is traded on the New York Stock Exchange
("NYSE") under the symbol LOR. The following table presents the high and low
sales prices per share as reported on the NYSE Composite Tape, and the dividends
paid per share during those periods.
<TABLE>
<CAPTION>
1995 1994
----------------------------- -----------------------------
MARKET PRICE DIVIDENDS MARKET PRICE DIVIDENDS
---------------- PER ---------------- PER
HIGH LOW SHARE HIGH LOW SHARE
------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
First quarter....................... $40 3/4 $33 1/2 $ .14 $30 1/4 $25 7/16 $.125
Second quarter...................... 42 3/4 33 1/2 .15 32 3/4 29 .14
Third quarter....................... 40 7/8 37 3/8 .15 38 3/4 29 .14
Fourth quarter...................... 44 3/8 36 3/8 .15 42 3/4 35 7/8 .14
</TABLE>
(b) APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK
At May 1, 1995, there were approximately 4,500 holders of record of the
Company's common stock.
9
<PAGE> 11
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data has been derived from, and should be read in
conjunction with, the related Consolidated Financial Statements.
<TABLE>
<CAPTION>
1995 1994(A) 1993(B) 1992 1991(C)
-------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE AND RATIO AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Sales........................................ $5,484.4 $4,008.7 $3,335.4 $2,881.8 $2,126.8
Operating income............................. 564.5 401.4 296.3 292.2 215.5
Income before extraordinary item and
cumulative effect of changes in
accounting................................ 288.4 228.3 159.1 121.8 90.4
Net income (loss)............................ 288.4 228.3 (92.1) 121.8 90.4
Earnings per share (primary):
Income before extraordinary item and
cumulative effect of changes in
accounting.............................. 3.38 2.72 2.06 2.00 1.78
Net income (loss)......................... 3.38 2.72 (1.20) 2.00 1.78
BALANCE SHEET DATA:
Total assets................................. $4,810.3 $5,176.2 $3,228.1 $2,685.5 $2,532.2
Working capital.............................. 536.6 554.4 610.5 630.0 457.7
Total debt................................... 1,316.5 1,798.0 534.0 577.4 821.2
Shareholders' equity......................... 1,687.5 1,381.3 1,187.9 997.3 672.0
Book value per common share.................. 19.86 16.60 14.44 15.72 13.14
CASH FLOW DATA:
Cash dividends paid per common share......... $ .59 $ .545 $ .495 $ .47 $ .43
Depreciation and amortization................ 250.1 178.2 154.0 128.6 104.6
Capital expenditures, net.................... 85.3 96.5 89.0 74.1 86.1
RATIO OF EARNINGS TO FIXED CHARGES........... 4.58x 6.52x 4.79x 4.22x 3.30x
</TABLE>
---------------
(a) Reflects the acquisition of Federal Systems Company effective January 1,
1994.
(b) Reflects (i) the acquisition of the missile business of LTV Aerospace and
Defense Company effective August 31, 1992 and (ii) the acquisition of the
minority partners' equity interest in Loral Aerospace Holdings, Inc.
("LAH"), effective June 1, 1992, through the issuance of 12,313,810 shares
of the Company's common stock and 627.3 shares of Series S Preferred Stock
of LAH.
Effective April 1, 1992, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" ("SFAS 106") and Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Prior years'
results have not been restated to reflect these accounting changes.
Net income (loss) includes (i) a non-operating extraordinary charge (loss
on extinguishment of debt) of $28.2 million pre-tax, $17.8 million
after-tax, or $.23 per share, and (ii) a non-recurring charge of $330.5
million pre-tax, $233.4 million after-tax, or $3.03 per share, for the
cumulative effect of the accounting change for SFAS 106.
(c) Reflects the acquisition of Ford Aerospace Corporation effective October 1,
1990.
See Management's Discussion and Analysis of Results of Operations and Financial
Condition and Notes to Consolidated Financial Statements.
10
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
BUSINESS ENVIRONMENT
Loral's core business areas are electronic combat, training and simulation,
tactical weapons, C3I/reconnaissance, systems integration, and
telecommunications and space systems. The decline in the U.S. defense budget
since the mid 1980s has resulted in program delays, cancellations and scope
reductions for defense contractors generally. While the reductions in spending
have lessened, there can be no assurance that the U.S. defense budget for 1996
will increase, especially in the procurement budget, or reflect a decline versus
1995. Loral's business areas focus primarily on U.S. and allied essential
defense requirements. Management believes that to the extent a higher proportion
of available funds will be allocated to the improvement of existing weapons
systems and electronics on military platforms, rather than to new program
starts, Loral is likely to benefit from its substantial incumbency in existing
weapons systems and its experience in systems upgrades. Loral also believes its
range of programs and systems are well suited for, and provide growth
opportunities in, the international market place. In addition, Loral has a
diverse base of programs, none of which is expected to account for more than 6%
of fiscal 1996 revenues. In light of these factors, management believes Loral's
program base is better suited for the current defense spending environment than
other contractors with significant dependence on new program starts or a less
diverse program base.
In addition, the areas of Loral's expertise provide opportunities to
selectively apply the Company's proprietary technologies to non-military
applications; primary examples include systems integration programs for civilian
agencies such as the FAA, the U.S. Postal Service and the U.S. Treasury
Department and satellite based systems, particularly Globalstar, a low-earth
orbit digital telecommunications system.
RESULTS OF OPERATIONS
In fiscal 1993 and 1994, major acquisitions made by the Company
significantly affected results of operations. The acquisitions have been
accounted for as purchases and, as such, the results of operations are included
from the respective effective dates of acquisition. (See Note 2 to Consolidated
Financial Statements.)
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 ("IBM"). LFS, headquartered in Bethesda, Maryland, is a leading
systems integrator and supplier of advanced information technology products and
services to defense and non-defense government agencies worldwide. Historical
operating results of Federal Systems Company for its fiscal year ended December
31, 1993 include sales of $2.292 billion, operating income of $117.5 million,
funded backlog at December 31, 1993 of $3.215 billion and approximately 10,000
employees.
On August 31, 1992, the Company, through Loral Vought Systems Corporation
("LVS"), acquired the missile business of LTV Aerospace and Defense Company.
LVS, headquartered in Dallas, Texas, designs and manufactures missile systems
primarily for the U.S. Army. Historical operating results of the missile
business for its fiscal year ended December 31, 1991 include sales of $750.1
million, operating income of $36.2 million, funded backlog at August 31, 1992 of
$1.134 billion and approximately 4,000 employees.
On May 5, 1995, the Company acquired the Defense Systems operations of
Unisys Corporation. Unisys Defense Systems, 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 Unisys Defense Systems for its
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 acquisition will be accounted for as a
purchase and, accordingly, will impact operations commencing in fiscal 1996.
(See Note 13 to Consolidated Financial Statements.)
11
<PAGE> 13
FISCAL YEAR ENDED MARCH 31, 1995 COMPARED WITH FISCAL YEAR ENDED MARCH 31, 1994
During fiscal 1995, sales increased to $5.484 billion from $4.009 billion
in the prior year. Income increased to $288.4 million, or $3.38 per share,
compared with $228.3 million, or $2.72 per share in the prior year. The results
of operations of LFS contributed $46.4 million, or $.54 per share, to the
current year's earnings compared with $7.2 million, or $.09 per share, in the
prior year; the Company's share of the development costs of Globalstar, L.P., a
limited partnership formed in March 1994 to design, construct and operate a
worldwide satellite-based telecommunications system ("Globalstar"), reduced the
current year's earnings by $10.8 million, or $.13 per share. The Company's share
of development costs for Globalstar in fiscal 1994 was not significant.
Earnings per share for fiscal 1995 is based on 85.4 million primary
weighted average shares outstanding, compared with 83.9 million in the prior
year.
The sales increase was attributable to the sales of LFS business divisions
which, including $605.3 million of sales relating to new business awards
subsequent to the acquisition, contributed $1.810 billion to the increase. Sales
also includes higher volume of $38.5 million for ALR-56 radar warning systems,
$19.6 million for foreign F-15 flight simulators and $17.9 million for the
Atmospheric Infrared Sounder (AIRS) that will fly on NASA's Earth Observing
System platform; offset by lower volume of $62.9 million for the Multiple Launch
Rocket System (MLRS), $50.2 million for the F/A-18 Forward-Looking Infrared
(FLIR) targeting and weapon delivery system, $37.0 million for gyro-optic
assemblies for Maverick missiles, $33.9 million for the Automated Remote
Tracking Station (ARTS) and $33.7 million for the Digital Scene Matching Area
Correlation (DSMAC) guidance system. The Company has a diverse base of programs
and 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
sales change. The Company believes the increases and decreases for individual
programs noted above do not necessarily represent trends of future sales
contributions, except for the gyro-optic assemblies for Maverick missiles and
ARTS programs which have been substantially completed.
Operating income increased to $564.5 million from $401.4 million in the
prior year. Operating income of the acquired LFS business increased to $179.3
million from $21.5 million in the prior year, included from the January 1, 1994
effective date of acquisition. Operating income as a percentage of sales
increased to 10.3% in fiscal 1995 from 10.0% in fiscal 1994. However, excluding
the effect of the acquisition of LFS, operating income as a percentage of sales
increased to 12.3% in fiscal 1995 from 11.0% in fiscal 1994, due primarily to
net improved margins as a result of sales mix and operating efficiencies
particularly for the MLRS and Army Tactical Missile System (ATACMS) programs, a
higher pension credit and lower postretirement health care and life insurance
costs due to various plan amendments (See Note 9 to Consolidated Financial
Statements). Operating income for the MLRS and ATACMS programs improved by $13.8
million primarily due to program performance and cost control measures
implemented in the current and prior years.
Interest expense, net of interest and investment income, increased to $84.9
million from $39.0 million in the prior year, primarily due to the full-year
impact of debt incurred to finance the acquisition of LFS. Interest expense due
to the LFS acquisition was $100.6 million in fiscal 1995 as compared with $9.5
million in fiscal 1994. This increase includes the effect of refinancing a
portion of the acquisition debt in June 1994 and the increase in interest rates
during the year affecting the Company's commercial paper. The $45.2 million
decrease in interest expense, net of the LFS increase, is primarily due to
strong cash flow used to repay debt and a non-recurring gain, net of expenses,
of $11.5 million ($6.9 million after-tax or $.08 per share) for the exchange of
K&F debentures for cash and equity (see Note 2 to Consolidated Financial
Statements). 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 $576.6 million for the twelve
months ended March 31, 1995 and $284.3 million for the twelve months ended March
31, 1994.
On August 10, 1993, the Omnibus Budget Reconciliation Act of 1993 was
signed into law, including a provision that increased the Federal corporate
income tax rate by 1%, to 35%, effective January 1, 1993. In fiscal 1994, this
increase was partially offset by the benefit resulting from revaluing deferred
tax assets at the higher rate. As a result, the Company's effective tax rate
increased to 38.0% in fiscal 1995 from 37.3% in the prior year. (See Note 6 to
Consolidated Financial Statements.)
12
<PAGE> 14
FISCAL YEAR ENDED MARCH 31, 1994 COMPARED WITH FISCAL YEAR ENDED MARCH 31, 1993
During fiscal 1994, sales increased to $4.009 billion from $3.335 billion
in the prior year. Income increased to $228.3 million, or $2.72 per share,
compared with $159.1 million, or $2.06 per share in the prior year, before an
extraordinary item and the cumulative effect of adopting SFAS 106. The results
of the acquired LFS and LVS businesses contributed $75.5 million, or $.90 per
share to fiscal 1994 earnings compared to $17.2 million, or $.22 per share
contributed by LVS in the prior year.
Earnings per share for fiscal 1994 is based on 83.9 million primary
weighted average shares outstanding, compared with 77.0 million in the prior
year.
The sales increase was attributable to the sales of the acquired LFS and
LVS businesses which, including $167.8 million of sales relating to new business
awards subsequent to the acquisitions, contributed $796.2 million to the
increase. Sales also includes higher volume of $42.5 million for the Vertical
Launch Antisubmarine Rocket (VLA) and $39.8 million for ALR-56M radar warning
systems; offset by lower volume of $42.5 million for Simulated Area Weapons
Effect (SAWE) training system, $41.7 million for Sidewinder air-to-air missiles,
$39.9 million for ALQ-178 radar warning and electronic countermeasures systems
for foreign F-16 aircraft and $39.8 million for the AN/BSY-2 combat control
system for the U.S. Navy's SSN-21 attack submarine. The Company has a diverse
base of programs and 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 sales change.
Operating income increased to $401.4 million from $296.3 million in the
prior year. Operating income of the acquired LFS and LVS businesses increased to
$143.5 million from $37.8 million in the prior year for LVS. Operating income as
a percentage of sales increased to 10.0% in fiscal 1994 from 8.9% in fiscal
1993, due primarily to net improved margins of the acquired LVS business, the
full-year impact of lower pension costs resulting from acquired pension plans
and lower postretirement health care and life insurance costs due to various
plan amendments (see Note 9 to Consolidated Financial Statements), offset by
lower margins of the acquired LFS business. Excluding the effect of the
acquisitions of LFS and LVS, operating income, as a percentage of sales
increased to 9.6% in fiscal 1994 from 9.2% in fiscal 1993.
After the full-year impact of debt incurred as a result of the acquisition
of LVS and interest expense from the effective date of acquisition of LFS,
interest expense, net of interest and investment income, decreased to $39.0
million from $40.7 million in the prior year. The $1.7 million decrease in net
interest expense is primarily due to the benefits of strong Free Cash Flow and
the benefit of a series of debt reshaping steps which reduced interest expense
by approximately $8.5 million. The Company's Free Cash Flow was $284.3 million
for the twelve months ended March 31, 1994 and $221.8 million for the twelve
months ended March 31, 1993.
As a result of the early redemption of certain long-term debt issues and
the cancellation of an existing credit facility, the Company recorded in fiscal
1993 an extraordinary charge of $28.2 million pre-tax, $17.8 million after-tax,
or $.23 per share. The extraordinary charge consisted of redemption premiums and
the write-off of unamortized discounts and financing costs.
As a result of the tax rate increase in the Omnibus Budget Reconciliation
Act of 1993, the Company's effective tax rate increased to 37.3% in fiscal 1994
from 37% in the prior year. (See Note 6 to Consolidated Financial Statements.)
The minority interest charge was eliminated due to the Company's
acquisition, effective June 1, 1992, of the minority partners' interest in Loral
Aerospace Holdings, Inc. ("LAH"). (See Note 2 to Consolidated Financial
Statements.)
Effective April 1, 1992, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions" ("SFAS 106"). As a result of adopting SFAS 106 in 1993, the
Company recorded charges for the cumulative effect of the accounting change of
$330.5 million pre-tax, $233.4 million after-tax, or $3.03 per share. (See Note
9 to Consolidated Financial Statements.)
13
<PAGE> 15
FINANCIAL CONDITION AND LIQUIDITY
CASH PROVIDED AND USED
NET CASH PROVIDED BY OPERATING ACTIVITIES: Cash provided by operating
activities was $607.5 million in fiscal 1995, an increase of $247.6 million or
69% over fiscal 1994. The increase was due primarily to higher earnings
including adjustments for non-cash items in fiscal 1995, as net income increased
to $288.4 million from $228.3 million, depreciation and amortization increased
to $250.1 million from $178.2 million and deferred income taxes increased to
$107.6 million from $31.7 million. Earnings after adjustment for non-cash items
provided $655.1 million in fiscal 1995 compared with $437.0 million in fiscal
1994, offset by changes in operating assets and liabilities, which used $47.6
million in fiscal 1995 compared with $77.1 million in fiscal 1994.
The Company's current ratio improved slightly to 1.5:1 at March 31, 1995
from 1.4:1 at March 31, 1994 as the Free Cash Flow of $576.6 million was applied
primarily to reduce debt and seller financing for the LFS acquisition. Debt and
seller financing repayments in fiscal 1995 totalled $531.9 million of which
$224.3 million was classified in current liabilities at March 31, 1994. Based on
prior historical financial statements, the May 1995 acquisition of Unisys
Defense Systems is not expected to have a significant impact on the current
ratio.
NET CASH USED IN INVESTING ACTIVITIES: Cash used in investing activities
decreased to $193.1 million in fiscal 1995 from $1.528 billion in fiscal 1994,
primarily due to the acquisition cost, net of cash acquired, of $1.401 billion
for LFS in fiscal 1994. Investment in affiliates in fiscal 1995 was $103.6
million, representing additional investment in Globalstar (See Note 2 to
Consolidated Financial Statements). Capital expenditures in fiscal 1995 were
$122.7 million, compared with $103.0 million in fiscal 1994. Capital
expenditures were primarily for manufacturing and test equipment, facility
expansion and renovation. Disposition of property, plant and equipment in fiscal
1995 was $37.5 million, compared with $6.5 million in fiscal 1994, primarily as
a result of facility relocation and reduction of fixed asset levels at certain
locations.
NET CASH (USED) PROVIDED IN FINANCING ACTIVITIES: Cash used in financing
activities was $527.2 million in fiscal 1995, compared with cash provided from
financing activities of $1.290 billion in fiscal 1994. As a result of strong
Free Cash Flow during fiscal 1995, debt was reduced by $531.9 million.
Accordingly, the Company's debt (net of cash) to equity ratio decreased to .71:1
at March 31, 1995 from 1.13:1 at March 31, 1994.
The LFS purchase price was financed initially through cash on hand and
commercial paper borrowings. As originally planned, in order to fix interest
costs and lengthen maturities, in June 1994, the Company issued $250 million
7 5/8% Senior Notes due 2004 and $400 million 8 3/8% Senior Debentures due 2024,
under a shelf registration statement which was increased to $800 million in May
1994. The proceeds were used to reduce the Company's outstanding commercial
paper borrowings, including the $173.5 million, which was classified as current
portion of debt at March 31, 1994. The Company has no immediate plans to utilize
the balance available under the shelf registration statement. (See Note 5 to
Consolidated Financial Statements.)
The Unisys Defense Systems purchase price was financed through additional
commercial paper borrowings which are supported by the $1.2 billion revolving
credit facility (See Notes 5 and 13 to 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 Company expects that, based on prior historical performance and
current projections, Unisys Defense Systems will make a positive contribution to
the Company's Free Cash Flow.
FINANCIAL INSTRUMENTS
The Company uses off balance sheet derivative financial instruments,
including foreign currency forward contracts to minimize foreign currency risk.
The Company does not hold or issue derivative financial instruments for
speculative purposes.
14
<PAGE> 16
The majority of the Company's foreign currency forward contracts are
entered into at the direction of the customer pursuant to contractual
requirements. Any gain or loss on the hedges accrues for the benefit or
detriment of the customer and does not expose the Company to risk.
At March 31, 1995, the Company has open forward contracts to sell
approximately $41,500,000 of Pound Sterling to minimize the effect of currency
exposure on future cash payments from foreign operations. Gains and losses on
foreign currency forward contracts are recorded when the transactions being
hedged are realized. For the year ended March 31, 1995, gains and losses on
these contracts were not material. Other forward contracts are not material.
BACKLOG
The Company's funded backlog at March 31, 1995, totalled $6.367 billion,
compared with $6.548 billion at March 31, 1994. It is expected that 52% of the
March 31, 1995 backlog will be recorded as sales in fiscal 1996. Approximately
87% of the total backlog was directly or indirectly for U.S. and foreign
government defense contracts; approximately 11% of the total backlog was
directly or indirectly for U.S. and foreign government non-defense contracts.
Foreign customers account for about 39% of the total backlog. New orders in
fiscal 1995 totalled $5.303 billion, compared with $3.467 billion in fiscal
1994, primarily due to the results of LFS; new orders increased by 13% after
factoring in LFS for the full prior year.
RESEARCH AND DEVELOPMENT
Company-sponsored research and development, including bid and proposal
costs, increased to $228.0 million from $172.6 million the prior year. In
addition, customer-funded research and development was $1.630 billion for fiscal
1995, compared with $844.0 million for the prior year. The increase in customer-
funded research and development is due primarily to the results of LFS.
ENVIRONMENTAL MATTERS
Management is continually assessing its obligations with respect to
applicable environmental protection laws. While it is difficult to determine the
timing and ultimate cost to be incurred by the Company in order to comply with
these laws, based upon available internal and external assessments, the Company
believes that even without considering potential insurance recoveries, if any,
there are no environmental loss contingencies that, individually or in the
aggregate, are material. The Company accrues for these contingencies when it is
probable that a liability has been incurred and the amount of the loss can be
reasonably estimated. The Company has been named a Potentially Responsible Party
("PRP") at a number of sites. In several of these situations Loral acquired the
site pursuant to a purchase agreement which provided that the seller would
retain liability for environmental remediation and related costs arising from
occurrences prior to the sale. In other situations the Company is party to an
interim or final allocation plan that has been accepted by other PRPs whose size
and current financial condition make it probable that they will be able to pay
the environmental costs apportioned to them. The Company believes that it has
adequately accrued for future expenditures in connection with environmental
matters and that such expenditures will not have a material adverse effect on
its financial condition or results of operations.
INFLATION
The effect of inflation on the Company's sales and earnings is minimal.
Although a majority of the Company's sales are made under long-term contracts,
the selling prices of such contracts, established for deliveries in the future,
generally reflect estimated costs to be incurred in these future periods. In
addition, some contracts provide for price adjustments through escalation
clauses.
ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"),
which is required to be adopted by fiscal 1997. SFAS 121 establishes the
15
<PAGE> 17
accounting standards for the impairment of long-lived assets, certain intangible
assets and cost in excess of net assets acquired to be held and used and for
long-lived assets and certain intangible assets to be disposed of. The Company
is currently evaluating the impact, if any, of SFAS 121.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
16
<PAGE> 18
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
Information required for this item is set forth in the Company's 1995
definitive proxy statement which is incorporated herein by reference.
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Bernard L. Schwartz......... 69 Chairman of the Board of Directors and Chief Executive
Officer.
Frank C. Lanza.............. 63 President and Chief Operating Officer.
Michael P. DeBlasio......... 58 Senior Vice President - Finance.
Robert V. LaPenta........... 49 Senior Vice President and Controller.
Michael B. Targoff.......... 50 Senior Vice President and Secretary, since April 1992;
prior thereto, Senior Vice President, General Counsel and
Secretary.
Hugh Bennett................ 63 Group Vice President.
Felix W. Fenter............. 68 Group Vice President, since April 1993; prior thereto,
President of Loral Vought Systems since 1987.
Arthur E. Johnson........... 48 Group Vice President since November 1994; prior thereto,
President of Loral Federal Systems Company since 1992, Vice
President International Business Machines Corporation
("IBM") from 1992 to February 1994 and various positions
with IBM since 1969.
Bernard Leibowitz........... 65 Group Vice President. President of Loral Microwave-Narda.
Jimmie V. Adams............. 59 Vice President, since April 1993; prior thereto, General
Officer United States Air Force since 1984.
William F. Gates............ 73 Vice President. President of Loral Randtron Systems until
April 1992.
Joanne M. Hvala............. 44 Vice President - Corporate Communications, since May 1995;
prior thereto, Director of Corporate Advertising since
August 1994 and Manager of Corporate Communications since
1986.
Stephen L. Jackson.......... 53 Vice President - Administration.
Nicholas C. Moren........... 48 Vice President and Treasurer, since April 1991; prior
thereto, Acting Treasurer 1991, independent consultant
since January 1990 and Vice President - Treasurer of TW
Services, Inc. since 1983.
Lawrence H. Schwartz........ 57 Vice President - Technology.
Robert F. Welte............. 63 Vice President; President of Loral Electronic Systems until
September 1992.
Eric J. Zahler.............. 44 Vice President and General Counsel, since April 1992; prior
thereto, partner of Fried, Frank, Harris, Shriver &
Jacobson.
</TABLE>
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under Items 11, 12 and 13, is set forth in the
Company's 1995 definitive proxy statement which is incorporated herein by
reference.
17
<PAGE> 19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<S> <C> <C>
(a) 1. Financial Statements PAGE
-----------
Index to Consolidated Financial Statements............................... F-1
Report of Independent Auditors........................................... F-2
Consolidated Statements of Operations for the years ended March 31, 1995,
1994 and 1993............................................................ F-3
Consolidated Balance Sheets at March 31, 1995 and 1994................... F-4
Consolidated Statements of Shareholders' Equity for the years ended March
31, 1995, 1994 and 1993.................................................. F-5
Consolidated Statements of Cash Flows for the years ended March 31, 1995,
1994 and 1993............................................................ F-6
Notes to Consolidated Financial Statements............................... F-7 to F-21
</TABLE>
(a) 3. Exhibits
Unless otherwise indicated, each of the following exhibits has been
previously filed with the Securities and Exchange Commission under commission
file number 1-4238. Exhibits 10.1 through 10.22 are management contracts or
compensation plans.
<TABLE>
<CAPTION>
FILED HEREWITH (-) OR INCORPORATED BY REFERENCE TO
EXHIBIT REGISTRATION NO. OR OTHER DOCUMENT
------- --------------------------------------------------
<S> <C> <C>
3.1 Loral Corporation Restated Certificate of Form 10-Q for the quarter ended
Incorporation as in effect May 22, 1995 September 30, 1993, Exhibit 3
3.2 Loral Corporation By-Laws as in effect May 22, Form 10-K for the fiscal year ended
1995 March 31, 1994, Exhibit 3.2
4.1 Amended and Restated Revolving Credit Agreement Form 10-Q for the quarter ended
among Loral Corporation, Certain Banks, Morgan December 31, 1994, Exhibit 4.1
Guaranty Trust Company of New York, Chemical
Bank, and Bank of America Illinois, dated as of
November 23, 1994
10.1 1983 Stock Option Plan 1983 Proxy Statement
10.2 Amendment to the 1983 Stock Option Plan Form 10-K for the fiscal year ended
March 31, 1986, Exhibit 10.11
10.3 Amended 1986 Stock Option Plan Form 10-Q for the quarter ended June
30, 1988, Exhibit 10.1
10.4 Amendment to the 1983 and 1986 Stock Option Form 10-K for the fiscal year ended
Plans March 31, 1990, Exhibit 10.8
10.5 1991 Amendment to the 1986 Stock Option Plan Form 10-K for the fiscal year ended
March 31, 1991, Exhibit 10.9
10.6 Loral Corporation Incentive Compensation Plan 1994 Proxy Statement
for Senior Executives
10.7 1994 Stock Option and Incentive Stock Purchase 1994 Proxy Statement
Plan
10.8 Loral Corporation Restricted Stock Purchase Form 8-K dated May 13, 1987, Exhibit
Plan 10.28
10.9 Amendment to the Loral Corporation Restricted Form 10-Q for the quarter ended June
Stock Purchase Plan 30, 1987, Exhibit 10.2
10.10 Restated Employment Agreement between Loral Form 10-K for the fiscal year ended
Corporation and Bernard L. Schwartz, dated as March 31, 1990, Exhibit 10.11
of April 1, 1990
</TABLE>
18
<PAGE> 20
<TABLE>
<CAPTION>
FILED HEREWITH (-) OR INCORPORATED BY REFERENCE TO
EXHIBIT REGISTRATION NO. OR OTHER DOCUMENT
------- ---------------------------------------------------
<S> <C> <C>
10.11 Extension and Modification Agreement between --
Loral Corporation and Bernard L. Schwartz dated
as of June 14, 1994
10.12 Split-dollar life insurance agreement with Form 10-K for the fiscal year ended
Bernard L. Schwartz, dated as of March 15, 1990 March 31, 1991, Exhibit 10.13
10.13 Split-dollar life insurance agreement with Form 10-K for the fiscal year ended
Bernard L. Schwartz, dated as of December 10, March 31, 1991, Exhibit 10.14
1990
10.14 Employment Contract between Loral Corporation Form 10-Q for the quarter ended June
and Frank C. Lanza, dated as of April 1, 1987 30, 1987, Exhibit 10.1 and Form 10-K
for the fiscal year ended March 31,
1982, Exhibit 10.11
10.15 Amendment to Employment Contract between Loral Form 10-K for the fiscal year ended
Corporation and Frank C. Lanza, dated as of March 31, 1988, Exhibit 10.19
March 31, 1988
10.16 Amendment to Employment Contract between Loral Form 10-K for the fiscal year ended
Corporation and Frank C. Lanza, dated as of March 31, 1990, Exhibit 10.16
March 21, 1990
10.17 Amendment to Employment Contract between Loral Form 10-K for the fiscal year ended
Corporation and Frank C. Lanza, dated as of March 31, 1992, Exhibit 10.17
April 1, 1992
10.18 Modification Agreement between Loral --
Corporation and Frank C. Lanza dated as of June
14, 1994
10.19 Split-dollar life insurance agreement with Form 10-K for the fiscal year ended
Frank C. Lanza, dated as of August 5, 1985 March 31, 1991, Exhibit 10.18
10.20 Split-dollar life insurance agreement with Form 10-K for the fiscal year ended
Michael P. DeBlasio, dated as of December 10, March 31, 1991, Exhibit 10.19
1990
10.21 Split-dollar life insurance agreement with Form 10-K for the fiscal year ended
Robert V. LaPenta, dated as of December 10, March 31, 1992, Exhibit 10.20
1990
10.22 Split-dollar life insurance agreement with Form 10-K for the fiscal year ended
Michael B. Targoff Insurance Trust, dated as of March 31, 1990, Exhibit 10.20
April 30, 1990
10.23 Form of Indemnity Agreement between Loral Form 10-K for the fiscal year ended
Corporation and Officers and Directors of Loral March 31, 1987, Exhibit 10.22
Corporation
10.24 Standstill Agreement among Loral Corporation Amendment No. 1 to Form 8-K dated
and certain limited partnerships affiliated June 30, 1992, Exhibit 4.1
with Lehman Brothers Holdings Inc. dated as of
August 14, 1992
10.25 Amendment No. 1 to Standstill Agreement, dated Form 10-K for the fiscal year ended
as of November 13, 1992, among Loral March 31, 1993, Exhibit 10.27
Corporation and certain limited partnerships
affiliated with Lehman Brothers Holdings Inc.
11 Computation of Earnings Per Share for the three --
years ended March 31, 1995
12 Computation of Ratio of Earnings to Fixed --
Charges for the five years ended March 31, 1995
21 Subsidiaries of the Registrant --
23 Consent of Coopers & Lybrand L.L.P. --
24 Powers of Attorney --
</TABLE>
19
<PAGE> 21
Note: Certain instruments with respect to issues of long-term debt have not
been filed as Exhibits to this report since the authorized principal amount of
any one of such issues does not exceed 10% of the total assets of the Registrant
and its subsidiaries on a consolidated basis as of March 31, 1995. Such
indebtedness is described in general terms in Note 5 to Consolidated Financial
Statements included herein. The Registrant agrees to furnish to the Commission a
copy of each instrument upon its request.
(b) Reports on Form 8-K
None
20
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: BERNARD L. SCHWARTZ
---------------------------------
Bernard L. Schwartz
(Chairman of the Board and
Chief Executive Officer)
Date: May 22, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------------------------------------- -------------------------------------- -------------
<C> <S> <C>
BERNARD L. SCHWARTZ Chairman of the Board, Chief Executive May 22, 1995
---------------------------------------- Officer and Director
Bernard L. Schwartz
FRANK C. LANZA Director and President May 22, 1995
----------------------------------------
Frank C. Lanza
Director
----------------------------------------
Howard Gittis
* Director May 22, 1995
----------------------------------------
Robert B. Hodes
* Director May 22, 1995
----------------------------------------
Gershon Kekst
Director
----------------------------------------
Charles Lazarus
* Director May 22, 1995
----------------------------------------
Malvin A. Ruderman
* Director May 22, 1995
----------------------------------------
E. Donald Shapiro
* Director May 22, 1995
----------------------------------------
Allen M. Shinn
* Director May 22, 1995
----------------------------------------
Thomas J. Stanton Jr.
* Director May 22, 1995
----------------------------------------
Daniel Yankelovich
MICHAEL P. DEBLASIO Principal Financial Officer May 22, 1995
----------------------------------------
Michael P. DeBlasio
ROBERT V. LAPENTA Principal Accounting Officer May 22, 1995
----------------------------------------
Robert V. LaPenta
*By MICHAEL B. TARGOFF Attorney-in-Fact May 22, 1995
--------------------------------
Michael B. Targoff
</TABLE>
21
<PAGE> 23
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
Report of Independent Auditors................................................ F-2
Consolidated Statements of Operations......................................... F-3
Consolidated Balance Sheets................................................... F-4
Consolidated Statements of Shareholders' Equity............................... F-5
Consolidated Statements of Cash Flows......................................... F-6
Notes to Consolidated Financial Statements.................................... F-7 to F-21
</TABLE>
F-1
<PAGE> 24
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors of
Loral Corporation:
We have audited the consolidated financial statements of Loral Corporation
and Subsidiaries (the "Company") listed under Item 14(a)1 of this Form 10-K.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Loral
Corporation and Subsidiaries as of March 31, 1995 and 1994, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1995 in conformity with generally accepted accounting
principles.
As discussed in Notes 6 and 9 to the consolidated financial statements, in
1993 the Company changed its methods of accounting for income taxes and
postretirement benefits other than pensions.
COOPERS & LYBRAND L.L.P.
1301 Avenue of the Americas
New York, New York 10019
May 11, 1995
F-2
<PAGE> 25
LORAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
----------------------------------------
1995 1994 1993
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Sales (Note 1)......................................... $5,484,401 $4,008,733 $3,335,403
Costs and expenses (Notes 1, 2 and 3).................. 4,919,890 3,607,367 3,039,149
---------- ---------- ----------
Operating income....................................... 564,511 401,366 296,254
Interest and investment income......................... 20,998 8,275 12,422
Interest expense (Note 5).............................. 105,861 47,269 53,133
---------- ---------- ----------
Income before income taxes, minority interest and
equity in net income (loss) of affiliates............ 479,648 362,372 255,543
Income taxes (Note 6).................................. 182,266 135,278 94,551
---------- ---------- ----------
Income before minority interest and equity in net
income (loss) of affiliates.......................... 297,382 227,094 160,992
Minority interest (Note 2)............................. (2,586)
Equity in net income (loss) of affiliates (Note 2)..... (8,988) 1,174 663
---------- ---------- ----------
Income before extraordinary item and cumulative effect
of changes in accounting............................. 288,394 228,268 159,069
Extraordinary item-loss on extinguishment of debt, net
of income taxes of $10,440 (Note 5).................. (17,776)
Cumulative effect of changes in accounting, net of
income taxes of $97,122 (Notes 6 and 9).............. (233,377)
---------- ---------- ----------
Net income (loss)...................................... $ 288,394 $ 228,268 $ (92,084)
========= ========= =========
Earnings per share (Note 1)
Primary:
Income before extraordinary item and cumulative
effect of changes in accounting................... $3.38 $2.72 $2.06
Extraordinary item................................... (.23)
Cumulative effect of changes in accounting........... (3.03)
----- ----- -----
Net income (loss).................................... $3.38 $2.72 $(1.20)
===== ===== =====
Fully diluted:
Income before extraordinary item and cumulative
effect of changes in accounting................... $3.38 $2.72 $2.02
Extraordinary item................................... (.23)
Cumulative effect of changes in accounting........... (2.99)
----- ----- -----
Net income (loss).................................... $3.38 $2.72 $(1.20)
===== ===== =====
Weighted average shares outstanding (primary).......... 85,374 83,851 77,026
====== ====== ======
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 26
LORAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
---------------------------
1995 1994
---------- ----------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents (Note 1)........................................ $ 125,674 $ 238,498
Contracts in process (Notes 1 and 3)...................................... 1,147,233 1,328,338
Deferred income taxes (Note 6)............................................ 138,374 104,063
Other current assets...................................................... 141,846 173,714
---------- ----------
Total current assets............................................... 1,553,127 1,844,613
---------- ----------
Property, plant and equipment (Notes 1 and 4)............................... 1,899,804 1,926,978
Less, accumulated depreciation and amortization........................... 758,279 620,554
---------- ----------
1,141,525 1,306,424
---------- ----------
Cost in excess of net assets acquired, less amortization (Notes 1 and 2).... 1,265,932 1,342,872
Investment in affiliates (Notes 1 and 2).................................... 250,977 163,479
Deferred income taxes (Note 6).............................................. 7,568 37,873
Prepaid pension cost and other assets (Note 9).............................. 591,217 480,907
---------- ----------
$4,810,346 $5,176,168
========== ==========
LIABILITIES and SHAREHOLDERS' EQUITY:
Current liabilities:
Current portion of debt (Note 5).......................................... $ 958 $ 173,928
Accounts payable, trade................................................... 169,743 248,657
Billings and estimated earnings in excess of cost......................... 313,379 350,648
Accrued employment costs.................................................. 235,260 201,238
Income taxes (Note 6)..................................................... 80,642 77,815
Other current liabilities................................................. 216,585 237,881
---------- ----------
Total current liabilities.......................................... 1,016,567 1,290,167
---------- ----------
Postretirement benefits (Note 9)............................................ 611,911 639,266
Other liabilities........................................................... 178,798 241,368
Long-term debt (Note 5)..................................................... 1,315,530 1,624,061
Commitments and contingencies (Notes 2, 8 and 12)
Shareholders' equity (Note 7):
Preferred stock, $1.00 par value; authorized and unissued 2,000,000
shares.................................................................. -- --
Common stock, $.25 par value; authorized 150,000,000 shares, issued
85,858,000 and 84,225,000 shares........................................ 21,464 21,056
Capital surplus........................................................... 828,734 773,676
Retained earnings......................................................... 882,104 643,373
---------- ----------
1,732,302 1,438,105
Less:
Treasury stock, at cost (881,000 and 888,000 shares)...................... 19,738 19,681
Equity adjustments........................................................ 25,024 37,118
---------- ----------
Total shareholders' equity......................................... 1,687,540 1,381,306
---------- ----------
$4,810,346 $5,176,168
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 27
LORAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
COMMON STOCK
----------------
SHARES CAPITAL RETAINED TREASURY EQUITY
ISSUED AMOUNT SURPLUS EARNINGS STOCK ADJUSTMENTS
------ ------- -------- -------- -------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Balance March 31, 1992........................ 31,911 $ 7,978 $419,397 $589,733 $ (756) $ (19,014)
Shares issued:
Exercise of stock options and related tax
benefits, net of shares tendered.......... 1,472 368 39,749 (16,403)
Employee benefit plans...................... 456 114 14,807 248
Restricted Stock Purchase Plan.............. 150 38 5,108 (5,108)
Conversion of subordinated debentures....... 1,575 394 69,890
Acquisition of minority interest............ 6,150 1,537 193,405 237
Purchase of treasury stock.................... (3,103)
Grant of restricted options, net.............. 5,562 (5,562)
Amortization of restricted options............ 10,772
Shares earned under Restricted Stock
Purchase Plan............................... 7,827
Adjustment of unearned restricted stock to
market value at year-end.................... 5,290 (5,290)
Net loss...................................... (92,084)
Dividends $.495 per share..................... (37,361)
Foreign currency translation adjustment....... 80
------ ------- -------- -------- -------- -----------
Balance March 31, 1993........................ 41,714 10,429 753,208 460,288 (19,777) (16,295)
Shares issued:
Exercise of stock options and related tax
benefits, net of shares tendered.......... 380 95 9,359 (62)
Employee benefit plans...................... 289 72 11,167 159
Two-for-one stock split....................... 41,842 10,460 (10,460)
Forfeiture of Restricted Stock
Purchase Plan shares........................ (369) (1) 369
Grant of restricted options, net.............. 8,466 (8,466)
Amortization of restricted options............ 3,246
Shares earned under Restricted Stock
Purchase Plan............................... 3,919
Adjustment of unearned restricted stock to
market value at year-end.................... 2,305 (2,305)
Net income.................................... 228,268
Dividends $.545 per share..................... (45,183)
Additional minimum pension liability.......... (16,049)
Foreign currency translation adjustment....... (1,537)
------ ------- -------- -------- -------- -----------
Balance March 31, 1994........................ 84,225 21,056 773,676 643,373 (19,681) (37,118)
Shares issued:
Exercise of stock options and related tax
benefits, net of shares tendered.......... 529 132 11,804 (322)
Employee benefit plans...................... 1,104 276 42,157 265
Grant of restricted options, net.............. 353 (353)
Amortization of restricted options............ 3,351
Shares earned under Restricted Stock
Purchase Plan............................... 5,655
Adjustment of unearned restricted stock to
market value at year-end.................... 744 (744)
Net income.................................... 288,394
Dividends $.59 per share...................... (49,663)
Adjustment to additional minimum
pension liability........................... 5,085
Foreign currency translation adjustment....... (900)
------ ------- -------- -------- -------- -----------
Balance March 31, 1995........................ 85,858 $21,464 $828,734 $882,104 $(19,738) $ (25,024)
====== ======== ========= ========= ========= ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 28
LORAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
-----------------------------------------
1995 1994 1993
----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating activities:
Net income (loss).................................... $ 288,394 $ 228,268 $ (92,084)
Extraordinary item................................... 17,776
Cumulative effect of changes in accounting........... 233,377
Depreciation and amortization........................ 250,122 178,184 154,005
Deferred income taxes................................ 107,601 31,727 14,818
Minority interest.................................... 2,586
Equity in net (income) loss of affiliates............ 8,988 (1,174) (663)
Changes in operating assets and liabilities:
Contracts in process............................... 30,966 31,850 (29,963)
Other current assets............................... 32,418 (55,338) (40,673)
Prepaid pension cost and other assets.............. (40,956) (22,767) (38,444)
Accounts payable and accrued liabilities........... (59,703) (21,247) 1,539
Income taxes....................................... 8,769 17,375 27,063
Postretirement benefits and other liabilities...... (23,279) (26,366) 23,392
Other.............................................. 4,185 (562) (914)
----------- ----------- ---------
Net cash from operating activities................... 607,505 359,950 271,815
----------- ----------- ---------
Investing activities:
Acquisition of businesses, net of cash acquired...... (3,750) (1,426,103) (252,976)
Proceeds from note receivable........................ 20,935
Investment in other assets........................... (15,265)
Investment in affiliates............................. (103,569) (25,288) (9,500)
Proceeds from sale of stock of affiliate............. 12,197
Repayments from (advances to) affiliates............. (550) (1,375) 1,305
Capital expenditures................................. (122,733) (102,952) (97,268)
Disposition of property, plant and equipment......... 37,482 6,492 8,309
----------- ----------- ---------
(193,120) (1,528,291) (353,198)
----------- ----------- ---------
Financing activities:
Net (payments) borrowings under revolving credit
facilities and commercial paper.................... (1,131,737) 808,018 115,531
Proceeds from borrowings............................. 651,273 503,534 120,803
Payments of debt..................................... (1,037) (47,578) (211,201)
Dividends paid....................................... (49,663) (45,183) (37,361)
Proceeds from issuance of common stock............... 54,312 20,789 38,921
Purchase of treasury stock........................... (3,103)
Seller financing in connection with acquisition of
business........................................... (50,357) 50,357
Other................................................ (16,418)
----------- ----------- ---------
(527,209) 1,289,937 7,172
----------- ----------- ---------
Net (decrease) increase in cash and cash
equivalents........................................ (112,824) 121,596 (74,211)
Cash and cash equivalents, beginning of year......... 238,498 116,902 191,113
----------- ----------- ---------
Cash and cash equivalents, end of year............... $ 125,674 $ 238,498 $ 116,902
========== ========== =========
Supplemental information:
Interest paid during the year........................ $ 93,385 $ 46,342 $ 48,729
========== ========== =========
Income taxes paid during the year, net of refunds.... $ 62,563 $ 73,729 $ 42,549
========== ========== =========
</TABLE>
See Notes 1 and 2 for additional information.
See notes to consolidated financial statements.
F-6
<PAGE> 29
LORAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Loral
Corporation and its subsidiaries ("Loral" or the "Company"). The Company's
investments in its affiliates are carried on the equity method of accounting.
All significant intercompany balances and transactions have been eliminated.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with a maturity of
three months or less at time of purchase.
STATEMENTS OF CASH FLOWS
Changes in operating assets and liabilities are net of the impact of
acquisitions and final purchase price allocations. Investing activities do not
include certain marketable securities transactions in 1993 which were not
settled in cash.
CONTRACTS IN PROCESS
Sales on long-term production-type contracts are recorded as units are
shipped; profits applicable to such shipments are recorded pro rata, based upon
estimated total profit at completion of the contract. Sales and profits on cost
reimbursable contracts are recognized as costs are incurred. Sales and estimated
profits under other long-term contracts are recognized under the percentage of
completion method of accounting using the cost-to-cost method. Amounts
representing contract change orders or claims are included in sales only when
they can be reliably estimated and realization is probable.
Costs accumulated under long-term contracts include applicable amounts of
selling, general and administrative expenses. Losses on contracts are
immediately recognized in full when determinable. Revisions in profit estimates
are reflected in the period in which the facts which require the revision become
known.
In accordance with industry practice, contracts in process contain amounts
relating to contracts and programs with long production cycles, a portion of
which may not be realized within one year.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is provided
primarily on the straight-line method over the estimated useful lives of the
related assets. Leasehold improvements are amortized over the shorter of the
lease term or the estimated useful life of the improvements.
COST IN EXCESS OF NET ASSETS ACQUIRED
The excess of the cost of purchased businesses over the fair value of the
net assets acquired is being amortized using a straight-line method generally
over a 40-year period. Accumulated amortization amounted to $107,857,000 and
$70,207,000 at March 31, 1995 and 1994, respectively.
The carrying amount of Cost in Excess of Net Assets Acquired is evaluated
on a recurring basis. Current and future profitability as well as current and
future undiscounted cash flows, excluding financing costs, of the acquired
businesses are primary indicators of recoverability. For the three years ended
March 31, 1995, there were no adjustments to the carrying amount of the cost in
excess of net assets acquired resulting from these evaluations.
F-7
<PAGE> 30
LORAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign operations are translated into U.S.
dollars at current rates and income and expenses are translated at average rates
during the period. The effects of the translation adjustments are included as a
component of Equity Adjustments in Shareholders' Equity.
EARNINGS PER SHARE
Primary earnings per share are computed based upon the weighted average
number of common stock and common stock equivalents (stock options) outstanding.
Fully diluted earnings per share also reflect additional dilution related to
stock options due to the use of the market price at the end of the period, when
higher than the average price for the period. In 1993, fully diluted earnings
per share assume the conversion of certain convertible debentures, giving effect
to the resultant reduction in interest costs, net of the tax effect thereon,
through the redemption date. In 1993, the impact of the extraordinary item and
cumulative effect of changes in accounting on the fully diluted calculation is
anti-dilutive, resulting in the net fully diluted amount equalling the net
primary amount.
ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"),
which is required to be adopted by fiscal 1997. SFAS 121 establishes the
accounting standards for the impairment of long-lived assets, certain intangible
assets and cost in excess of net assets acquired to be held and used and for
long-lived assets and certain intangible assets to be disposed of. The Company
is currently evaluating the impact, if any, of SFAS 121.
RECLASSIFICATIONS
Certain reclassifications have been made to conform prior-year amounts to
the current-year presentation.
2. ACQUISITIONS AND INVESTMENT IN AFFILIATES
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 $1,511,500,000 in
cash, including acquisition costs. The assets and liabilities recorded in
connection with the purchase price allocation were $1,857,655,000 and
$346,155,000, respectively. The acquisition was financed through cash on hand
and commercial paper borrowings.
On August 31, 1992, the Company, through its newly formed wholly owned
subsidiary Loral Vought Systems Corporation ("LVS"), acquired substantially all
the assets and liabilities of the missile business of LTV Aerospace and Defense
Company for $254,250,000 in cash, including acquisition costs. The assets and
liabilities recorded in connection with the purchase price allocation were
$564,502,000 and $310,252,000, respectively. The acquisition was financed
through cash on hand and borrowings under existing credit facilities.
In October 1990, Loral Aerospace Holdings, Inc. ("LAH"), a company owned by
the Company and certain partnerships affiliated with Lehman Brothers Holdings
Inc. (the "Lehman Partnerships"), acquired substantially all the businesses of
Ford Aerospace Corporation ("FAC"). The FAC businesses were acquired by separate
subsidiaries of LAH; Loral Aerospace Corp. ("Loral Aerospace") purchased all the
businesses other than FAC's Space Systems Division, which was purchased by Space
Systems/Loral, Inc. ("SS/L").
F-8
<PAGE> 31
LORAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Effective June 1, 1992, the Company acquired the minority equity interest
in LAH held by the Lehman Partnerships through the issuance of 12,313,810 shares
of Loral Common Stock and 627.3 shares of LAH Series S Preferred Stock. Each
share of Series S Preferred Stock represents a beneficial interest in one share
of common stock of SS/L. As a result of the issuance of the Series S Preferred
Stock, the Lehman Partnerships have no economic interest in LAH other than with
respect to the SS/L operations. This transaction increased Shareholders' Equity
by $195,179,000, eliminated Minority Interest, decreased the investment in SS/L
by $86,907,000 and increased Cost in Excess of Net Assets Acquired by
$159,960,000. In addition, the Lehman Partnerships purchased an additional
104.55 shares of LAH Series S Preferred Stock from LAH in December 1992 for
$12,197,500 in cash. If the Lehman Partnerships continue to hold Series S
Preferred Stock after January 1, 1998, or after a change in control of Loral,
they will have the right to request that the Company purchase their Series S
Preferred Stock at an appraised fair market value. In such event, the Company
may elect to purchase such Series S Preferred Stock at appraised fair market
value, or if the Company elects not to purchase the stock, the Lehman
Partnerships may require the combined interests of the Company and the Lehman
Partnerships in SS/L to be sold to a third party.
In 1995, the Company acquired a business for $3,750,000 in cash and in
1994, the Company acquired two other businesses for $27,422,000 in cash. These
acquisitions did not have a material effect on the operations of the Company.
The acquisitions of LFS, LVS and the Lehman Partnerships' equity interest
in LAH have been accounted for as purchases. As such, Loral's consolidated
financial statements reflect the results of operations of the acquired entities
and the elimination of the minority interest from the respective effective dates
of acquisition.
Performance under acquired contracts in process, the accounting for which
is described in Note 3, contributed after-tax income of $62,328,000,
$49,061,000, and $43,283,000, net of after-tax interest cost on debt related to
the acquisitions and incremental amortization of cost in excess of net assets
acquired aggregating $85,922,000, $29,125,000 and $18,653,000 for 1995, 1994,
and 1993, respectively.
Had the acquisition of LFS occurred on April 1, 1993, the unaudited
proforma sales, income before extraordinary item and cumulative effect of
changes in accounting and related earnings per share data for the year ended
March 31, 1994 would have been: $5,853,700,000; $228,000,000; and $2.72. 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.
INVESTMENT IN AFFILIATES
The Company's investment in affiliates is summarized as follows:
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Space Systems/Loral............................................ $140,007 $138,191
Globalstar, L.P................................................ 110,970 25,288
-------- --------
$250,977 $163,479
======== ========
</TABLE>
SPACE SYSTEMS/LORAL
SS/L, a company owned by Loral and four international aerospace and
communications companies, is a leading producer of communications and weather
satellites. The Company, through its wholly owned subsidiaries LAH and Loral
Aerospace, owns 51% of the common stock of SS/L. However, due to the LAH Series
S Preferred Stock held by the Lehman Partnerships, the Company has an effective
32.7% economic
F-9
<PAGE> 32
LORAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
interest in SS/L. Further, LAH and Loral Aerospace have agreed not to cause SS/L
to take certain actions without the concurrence of three, or in some cases all,
of the SS/L directors appointed by the four other equity investors. Accordingly,
the Company accounts for its investment in SS/L under the equity method.
GLOBALSTAR, L.P.
At March 31, 1995, the Company has a 32.3% interest in Globalstar, L.P.
("Globalstar"), a limited partnership formed to design, construct and operate a
worldwide satellite-based digital telecommunications system (the "Globalstar
System"). To date, Globalstar has received $479,500,000 in equity from Loral and
Globalstar's other partners including Globalstar Telecommunications Limited
("GTL"), a public company that acts as a general partner of Globalstar. Loral
has contributed $126,816,000 to Globalstar, including $32,316,000 for 1,674,400
shares of common stock of GTL and as a result, owns 15,188,400 partnership
interests of the total 47,000,000 Globalstar partnership interests outstanding.
At March 31, 1995, the market value of Loral's GTL shares was $26,372,000.
Loral's investment in Globalstar of $110,970,000 includes $2,041,000 of
capitalized costs, principally interest, and is net of Loral's share of
Globalstar's pre-tax losses of $17,887,000. Loral is the managing general
partner of Globalstar and is entitled to receive a management fee, upon
commencement of commercial operations, determined in accordance with the
partnership agreement.
Currently, the cost of the Globalstar System is expected to be
approximately $2,000,000,000. Globalstar intends to fund the remaining capital
requirement principally through debt issuances, vendor financing, prepaid
service connection fees and sale of limited partnership interests. On January
31, 1995, Globalstar received a license from the U.S. Federal Communications
Commission to construct, launch and operate the Globalstar System.
Globalstar has awarded SS/L the prime contract to design, construct and
launch the satellite constellation. SS/L has awarded and expects to award
subcontracts to third parties, including other investors in Globalstar, for
substantial portions of its obligations under the contract. Through SS/L, the
Company has an additional 1.4% indirect interest in Globalstar.
K&F INDUSTRIES, INC.
In September 1994, the Company exchanged the $30,000,000 14.75% pay-in-kind
Subordinated Convertible Debenture due 2004 (the "Debenture") issued in 1989 by
K&F Industries, Inc. ("K&F") in connection with the purchase by K&F of certain
divisions of the Company. The Debenture was exchanged for $11,514,000 in cash,
net of expenses, representing a non-recurring gain recorded as interest income,
and a 22.5% voting equity interest in K&F. The Chairman of Loral is a principal
shareholder of K&F and after the exchange owns approximately 27% of K&F. In
addition, certain executive officers of Loral own rights to purchase
approximately 4% of K&F's capital stock. In accordance with Securities and
Exchange Commission Staff Accounting Bulletin No. 81, the Company had not
recognized the value of the Debenture and has not ascribed any value to its
22.5% equity interest in K&F.
F-10
<PAGE> 33
LORAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. CONTRACTS IN PROCESS
Billings and accumulated costs and profits on long-term contracts,
principally with the U.S. Government, comprise the following:
<TABLE>
<CAPTION>
MARCH 31,
---------------------------
1995 1994
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Billed contract receivables....................................... $ 380,240 $ 423,894
Unbilled contract receivables..................................... 1,702,967 1,901,156
Inventoried costs................................................. 477,955 557,259
----------- -----------
2,561,162 2,882,309
Less, unliquidated progress payments.............................. (1,413,929) (1,553,971)
----------- -----------
Net contracts in process.......................................... $ 1,147,233 $ 1,328,338
========== ==========
</TABLE>
Unbilled contract receivables represent accumulated costs and profits
earned but not yet billed to customers at year-end. The Company believes that
substantially all such amounts will be billed and collected within one year.
The following data has been used in the determination of costs and
expenses:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Selling, general and administrative costs included in
inventoried costs........................................ $ 51,468 $ 64,212 $ 82,676
Selling, general and administrative costs incurred......... 566,544 465,473 391,079
Independent research and development, including bid and
proposal costs, included in S,G&A incurred............... 228,005 172,604 124,718
</TABLE>
In connection with the determination of the fair value of assets acquired
(Note 2) and pursuant to the provisions of Accounting Principles Board Opinion
No. 16, the Company has valued acquired contracts in process at contract price,
minus the estimated cost to complete and an allowance for the Company's normal
profit on its effort to complete such contracts.
4. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1995 1994
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................ $ 106,879 $ 116,347
Buildings and improvements.................................. 569,724 560,163
Machinery, equipment, furniture and fixtures................ 1,095,149 1,125,261
Leasehold improvements...................................... 128,052 125,207
----------- -----------
$ 1,899,804 $ 1,926,978
========= =========
</TABLE>
Depreciation and amortization expense in 1995, 1994 and 1993 was
$192,473,000, $141,853,000, and $113,447,000, respectively.
F-11
<PAGE> 34
LORAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. DEBT
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1995 1994
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Commercial paper (6.22% and 3.76% at March 31, 1995 and
1994, respectively)....................................... $ 241,811 $ 1,373,548
7 5/8% Senior Notes due 2004................................ 250,000
9 1/8% Senior Debentures due 2022........................... 100,000 100,000
8 3/8% Senior Debentures due 2023........................... 100,000 100,000
7% Senior Debentures due 2023............................... 200,000 200,000
8 3/8% Senior Debentures due 2024........................... 400,000
Other....................................................... 24,677 24,441
----------- -----------
1,316,488 1,797,989
Less current maturities..................................... 958 173,928
----------- -----------
Total long-term debt........................................ $ 1,315,530 $ 1,624,061
========= =========
</TABLE>
The aggregate maturities of long-term debt, excluding commercial paper
borrowings classified as long-term, for the years 1996 through 2000 are as
follows: $958,000, $10,868,000, $1,214,000, $985,000 and $941,000.
At March 31, 1995, the Company has a $1,200,000,000 revolving credit
facility with a group of banks expiring in November 1999. This facility supports
the Company's commercial paper borrowings and is available for other corporate
purposes. The amount available for borrowings is reduced by the outstanding
commercial paper. Borrowings are unsecured and bear interest, at the Company's
option, at various rates based on the base rate, or on margins over the CD rate
or EuroDollar rate. The Company pays a commitment fee on the unused portion. The
margins and the commitment fee are subject to adjustment. Borrowings are
prepayable at any time and are due at expiration. The facility is subject to
financial covenants requiring the Company to maintain certain levels of net
worth and an interest coverage ratio, as well as a limitation on indebtedness
and dividends.
Commercial paper outstanding at March 31, 1995 is classified as long-term
since the Company intends to refinance these borrowings on a long-term basis
either through continued commercial paper borrowings or utilization of the
available credit facilities.
In May 1994, the Company increased its existing shelf registration
statement to issue up to $800,000,000 of debt and equity securities. In June
1994, the Company issued $250,000,000 7 5/8% Senior Notes due 2004 and
$400,000,000 8 3/8% Senior Debentures due 2024. The proceeds were used to reduce
outstanding commercial paper. The Company has no immediate plans to utilize the
remaining balance of $150,000,000 available under the shelf registration
statement.
All of the Company's Senior Notes and Senior Debentures are not redeemable
prior to maturity and are not subject to any sinking fund requirements.
In fiscal 1993, the Company recorded an extraordinary charge of $28,216,000
pre-tax, $17,776,000 after-tax, or $.23 per share for the early redemption of
certain long-term debt issues and the cancellation of an existing credit
facility. The extraordinary charge consisted of redemption premiums and the
write-off of unamortized discounts and financing costs. In addition, in fiscal
1993, the Company issued 3,149,710 shares of Loral Common Stock in connection
with the conversion of $69,694,000 principal amount of certain convertible
debentures.
F-12
<PAGE> 35
LORAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES
In 1993, the Company adopted Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" ("SFAS 109"), which changed the method of
accounting for income taxes from the deferred method to the liability method.
Under the liability method, deferred tax assets and liabilities are recognized
based on the temporary differences between the carrying amounts of assets and
liabilities for financial statement purposes and income tax purposes using
currently enacted tax rates. The adoption of SFAS 109 did not result in a
material cumulative effect of a change in accounting principle or have a
material effect on the financial position or results of operations for the year
ended March 31, 1993.
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Currently payable:
Federal........................................... $ 49,266 $ 85,341 $65,029
State and local................................... 14,607 14,182 11,835
Foreign........................................... 10,792 4,028 2,869
-------- -------- -------
74,665 103,551 79,733
-------- -------- -------
Deferred:
Federal........................................... 97,654 24,970 13,103
State and local................................... 9,947 6,757 1,715
-------- -------- -------
107,601 31,727 14,818
-------- -------- -------
Total provision for income taxes.................... $182,266 $135,278 $94,551
======== ======== =======
</TABLE>
The provision for income taxes excludes: current tax benefits related to
the exercise of stock options, credited directly to Shareholders' Equity, of
$4,503,000, $3,643,000 and $10,237,000 for 1995, 1994 and 1993, respectively; a
current tax benefit of $5,942,000 and a deferred tax benefit of $1,141,000
related to the Company's share of Globalstar's losses, a deferred tax credit of
$3,251,000 and a deferred tax benefit of $10,261,000, related to the additional
minimum pension liability recorded directly to Shareholders' Equity for 1995 and
1994, respectively; and, in 1993, the tax benefit of $10,440,000, related to the
extraordinary item and the deferred tax benefit of $97,122,000, related to the
cumulative effect of the change in accounting for SFAS 106.
The effective income tax rate differs from the statutory Federal income tax
rate for the following reasons:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory Federal income tax rate.............................. 35.0% 35.0% 34.0%
Research and development and other tax credits................. (.6) (1.1) (.4)
State and local income taxes, net of Federal income tax benefit
and state and local income tax credits....................... 3.3 3.8 3.5
Foreign sales corporation tax benefit.......................... (.6) (.7) (.8)
Other, net..................................................... .9 .3 .7
---- ---- ----
Effective income tax rate...................................... 38.0% 37.3% 37.0%
==== ==== ====
</TABLE>
F-13
<PAGE> 36
LORAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The significant components of the deferred income tax assets and
liabilities are:
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Postretirement benefits other than pensions.................. $185,169 $191,678
Inventoried costs............................................ 128,059 100,927
Intangible assets............................................ 33,149 1,616
Compensation and benefits.................................... 18,406 14,545
Installment sales............................................ 9,100
Other, net................................................... 22,397 32,640
-------- --------
387,180 350,506
-------- --------
Deferred tax liabilities:
Pension costs................................................ 175,146 126,771
Property, plant and equipment................................ 49,815 64,912
Income recognition on long-term contracts.................... 16,277 16,887
-------- --------
241,238 208,570
-------- --------
Net deferred income tax asset.................................. $145,942 $141,936
======== ========
</TABLE>
The net deferred income tax asset is classified as follows:
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Current deferred income tax asset.............................. $138,374 $104,063
======== ========
Long-term deferred income tax asset............................ $ 7,568 $ 37,873
======== ========
</TABLE>
7. SHAREHOLDERS' EQUITY
PREFERRED STOCK
The Company has 2,000,000 authorized and unissued shares of $1.00 par value
preferred stock. The designation of terms, conditions and amounts of such
preferred stock may be set by the Company's Board of Directors.
STOCK PLANS
Under the Company's 1994 Stock Option Plan, options are granted at fair
market value at date of grant. Under the Company's various other stock option
plans, for which 105,000 shares are available for future grant, options may be
granted at prices determined by the Compensation and Stock Option Committee (the
"Committee"). The Committee determines the exercise and expiration dates of the
options, which may not be later than 10 years from the date of grant. Unearned
compensation for options granted at less than their market value at date of
grant is included as a component of Equity Adjustments in Shareholders' Equity
and is amortized over the period that the options vest.
Options outstanding have been granted at prices ranging from $4.50 to
$39.00 per share.
F-14
<PAGE> 37
LORAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of the option transactions follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Options outstanding, beginning of year.................... 5,065 3,764 5,500
Options granted........................................... 684 1,895 1,340
Options exercised......................................... (529) (508) (2,944)
Exercise price............................................ ($5.00 ($4.50 ($2.85
to $25.81) to $19.56) to $20.19)
Options cancelled......................................... (145) (86) (132)
--------- --------- ---------
Options outstanding, end of year.......................... 5,075 5,065 3,764
======== ======== ========
Options exercisable, end of year.......................... 2,129 1,781 1,390
======== ======== ========
</TABLE>
In July 1994, the shareholders approved an increase of 5,500,000 shares of
common stock available for future grants. There were 4,980,302 shares, 51,026
shares and 1,859,140 shares of common stock available for future option grants
at March 31, 1995, 1994, and 1993, respectively.
Under the Company's Restricted Stock Purchase Plan, established in 1988,
2,000,000 shares of the Company's common stock were issued under the Plan, upon
payment by the employee of the par value per share. The total number of shares
earned under the Plan each year equals 3% of the Company's pre-tax profit
divided by the grant value (currently $105 per share) of restricted shares
outstanding. Any shares not earned at the earlier of completion of the seventh
year after grant or termination of employment will be essentially forfeited by
being repurchased by the Company at par value. Under the Plan, 133,463 shares,
104,846 shares and 341,714 shares were earned for the years ended March 31,
1995, 1994 and 1993, respectively. At March 31, 1995, 14,275 shares of common
stock are still to be earned. Unearned compensation related to these shares,
included as a component of Equity Adjustments in Shareholders' Equity, is
amortized as the shares are earned.
Of the shares available for future grants at March 31, 1995, up to
1,500,000 shares will be available for the Company's 1994 Incentive Stock
Purchase Plan (the "Incentive Plan"). Under the Incentive Plan, the Committee
may permit participants to defer up to 100% of their annual bonus into a
Restricted Stock Purchase Account (the "Restricted Account"). The Restricted
Account will be used to purchase Loral Common Stock equal to 150% of the
deferred bonus, subject to limits the Committee may establish from time to time.
The shares in the Restricted Account vest 25% per year commencing upon the
second anniversary of the grant date. The Committee may establish specified
performance conditions that, if attained, will result in accelerated vesting.
All non-vested shares are forfeited upon termination of employment and the
remaining balance of the Restricted Account equal to the lesser of the original
cost or the market value of the shares is returned to the participant. No shares
were issued under the Incentive Plan in 1995.
EQUITY ADJUSTMENTS
The components of the Equity Adjustments included in Shareholders' Equity
are:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Unearned compensation -- stock options...................... $10,651 $13,644 $ 8,424
Unearned compensation -- Restricted Stock Purchase Plan..... 605 5,521 7,504
Cumulative translation adjustment........................... 2,804 1,904 367
Additional minimum pension liability........................ 10,964 16,049
------- ------- -------
$25,024 $37,118 $16,295
======= ======= =======
</TABLE>
F-15
<PAGE> 38
LORAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES
The Company leases certain facilities and equipment under agreements
expiring at various dates through 2080. At March 31, 1995, future minimum
payments for noncancellable operating and capital leases with initial or
remaining terms in excess of one year are as follows:
<TABLE>
<CAPTION>
OPERATING LEASES CAPITAL LEASES TOTAL
------------------------- -------------- --------
REAL ESTATE EQUIPMENT
----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1996................................. $ 44,363 $11,788 $ 1,243 $ 57,394
1997................................. 31,275 9,084 11,394 51,753
1998................................. 18,866 7,070 1,243 27,179
1999................................. 12,535 5,756 1,243 19,534
2000................................. 4,098 5,198 1,243 10,539
Thereafter........................... 78,741 8,385 87,126
----------- --------- -------------- --------
$ 189,878 $38,896 $ 24,751 $253,525
======== ======== ========== ========
</TABLE>
Real estate lease commitments have been reduced by minimum sublease rentals
of $60,939,000 due in the future under noncancellable subleases. The present
value of the minimum lease payments for capital leases is $17,168,000, net of
imputed interest of $7,583,000.
Leases covering major items of real estate and equipment contain renewal
and or purchase options which may be exercised by the Company. Rent expense, net
of sublease income of $11,429,000, $7,285,000 and $4,499,000, was $84,884,000,
$60,891,000 and $47,175,000, in 1995, 1994 and 1993, respectively.
At March 31, 1995, outstanding letters of credit were approximately
$262,000,000.
In April 1995, the Federal Aviation Administration ("FAA") awarded the
Company a contract modification valued at $955,000,000 to upgrade the nation's
air traffic control system, thereby eliminating the uncertainty concerning the
status of the program. This contract modification was issued following the
conclusion of the FAA's comprehensive review, begun in December 1993, of the
Company's air traffic control program.
Management is continually assessing its obligations with respect to
applicable environmental protection laws. While it is difficult to determine the
timing and ultimate cost to be incurred by the Company in order to comply with
these laws, based upon available internal and external assessments, the Company
believes that even without considering potential insurance recoveries, if any,
there are no environmental loss contingencies that, individually or in the
aggregate, are material. The Company accrues for these contingencies when it is
probable that a liability has been incurred and the amount of the loss can be
reasonably estimated. The Company has been named a Potentially Responsible Party
("PRP") at a number of sites. In several of these situations Loral acquired the
site pursuant to a purchase agreement which provided that the seller would
retain liability for environmental remediation and related costs arising from
occurrences prior to the sale. In other situations the Company is party to an
interim or final allocation plan that has been accepted by other PRPs whose size
and current financial condition make it probable that they will be able to pay
the environmental costs apportioned to them. The Company believes that it has
adequately accrued for future expenditures in connection with environmental
matters and that such expenditures will not have a material adverse effect on
its financial position or results of operations.
There are a number of lawsuits or claims pending against the Company and
incidental to its business. However, in the opinion of management, the ultimate
liability on these matters, if any, will not have a material adverse effect on
the financial position or results of operations of the Company.
F-16
<PAGE> 39
LORAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. PENSIONS AND OTHER EMPLOYEE BENEFITS
PENSIONS
The Company maintains a number of pension plans, both contributory and
noncontributory, covering certain employees. Eligibility for participation in
these plans varies and benefits are generally based on members' compensation and
years of service. The Company's funding policy is generally to contribute in
accordance with cost accounting standards that affect government contractors,
subject to the Internal Revenue Code and regulations thereon. Plan assets are
invested primarily in U.S. government and agency obligations and listed stocks
and bonds. The pension credit of $18,608,000 in 1995 is net of $14,992,000
pension cost for LFS.
Pension credit includes the following components:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost-benefits earned during the period.......... $ 58,699 $ 29,530 $ 25,387
Interest cost on projected benefit obligation........... 164,266 158,681 123,560
Actual return on plan assets............................ (4,814) (271,974) (123,292)
Net amortization and deferral........................... (236,759) 64,221 (38,886)
--------- --------- ---------
Total pension credit.................................... $ (18,608) $ (19,542) $ (13,231)
========= ========= =========
</TABLE>
The following presents the plans' funded status and amounts recognized in
the balance sheet:
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------------------------------------------
1995 1994
------------------------------- -------------------------------
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS
------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits.............................. $ 1,797,076 $ 162,120 $ 1,844,260 $ 235,480
============ ============ ============ ============
Accumulated benefits......................... $ 1,807,500 $ 162,810 $ 1,871,754 $ 236,467
Effect of projected future salary
increases.................................. 95,632 13,406 151,071 13,184
------------- ------------- ------------- -------------
Projected benefits........................... 1,903,132 176,216 2,022,825 249,651
Plan assets at fair value...................... 2,263,576 152,734 2,361,527 211,489
------------- ------------- ------------- -------------
Plan assets in excess of (less than) projected
benefit obligation........................... 360,444 (23,482) 338,702 (38,162)
Unrecognized net loss.......................... 130,075 31,382 12,879 39,495
Unrecognized prior service cost................ 814 9,389 (1,714) 12,484
Unrecognized net asset existing at
transition................................... (1,882) (1) (2,241) (1)
Additional minimum liability................... (27,364) (38,794)
------------- ------------- ------------- -------------
Prepaid (accrued) pension cost................. $ 489,451 $ (10,076) $ 347,626 $ (24,978)
============ ============ ============ ============
</TABLE>
The principal actuarial assumptions were:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- ----
<S> <C> <C> <C>
Discount rate....................................................... 8.5% 7.75% 9.0%
Rate of increase in compensation levels............................. 4.75% 4.75% 6.0%
Expected long-term rate of return on plan assets.................... 9.5% 9.5% 9.5%
</TABLE>
F-17
<PAGE> 40
LORAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
In addition to providing pension benefits, the Company provides certain
health care and life insurance benefits for retired employees and dependents at
certain locations. Participants are eligible for these benefits when they retire
from active service and meet the eligibility requirements for the Company's
pension plans. These benefits are funded primarily on a pay-as-you-go basis with
the retiree generally paying a portion of the cost through contributions,
deductibles and coinsurance provisions.
Effective April 1, 1992, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions" ("SFAS 106"). SFAS 106 requires employers to recognize the
cost of postretirement health and welfare obligations in their financial
statements over the years of employee service. These costs were previously
expensed on a pay-as-you-go basis. The Company elected to immediately recognize
the accumulated postretirement obligation upon adoption of SFAS 106. A
non-recurring charge of $330,499,000 pre-tax, $233,377,000 after-tax, or $3.03
per share, was recorded as the cumulative effect of the accounting change in
1993.
In March 1993 and March 1994, the Company adopted various plan amendments
resulting in unrecognized prior service gains, which are being amortized
commencing in the quarter following adoption.
Postretirement health care and life insurance costs include the following
components:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost -- benefits earned during the period... $ 8,263 $ 6,778 $11,364
Interest cost on accumulated postretirement benefit
obligation........................................ 31,340 42,117 45,989
Net amortization.................................... (21,712) (14,068)
-------- -------- -------
Total postretirement health care and life insurance
costs............................................. $ 17,891 $ 34,827 $57,353
======== ======== =======
</TABLE>
The following table presents the amounts recognized in the balance sheet
at:
<TABLE>
<CAPTION>
MARCH 31,
----------------------
1995 1994
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................... $293,506 $ 363,886
Fully eligible plan participants............................ 31,311 29,689
Other active plan participants.............................. 58,011 95,372
-------- ---------
Total accumulated postretirement benefit obligation........... 382,828 488,947
Unrecognized prior service gain related to plan amendments.... 231,019 252,200
Unrecognized net loss......................................... (12,012) (126,859)
-------- ---------
Accrued postretirement health care and life insurance costs... $601,835 $ 614,288
======== =========
</TABLE>
Actuarial assumptions used in determining the accumulated postretirement
benefit obligation include a discount rate of 8.5% and 7.75% for 1995 and 1994,
respectively, and an assumed health care cost trend rate of 11.7% decreasing
gradually to an ultimate rate of 6% by the year 2003. Changing the assumed
health care cost trend rate by 1% in each year would change the accumulated
postretirement benefit obligation at March 31, 1995 by approximately $36,000,000
and the aggregate service and interest cost components for 1995 by approximately
$4,800,000.
F-18
<PAGE> 41
LORAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
EMPLOYEE SAVINGS PLANS
Under its various employee savings plans, the Company matches the
contributions of participating employees up to a designated level. The extent of
the match, vesting terms and the form of the matching contribution vary among
the plans. Under these plans, the matching contributions, in cash, Loral common
stock or both, for 1995, 1994 and 1993 were $26,701,000, $22,929,000 and
$18,625,000, respectively.
POSTEMPLOYMENT BENEFITS
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 on an accrual
basis. The adoption of SFAS 112 did not have a material impact on the financial
position or results of operations of the Company.
10. FINANCIAL INSTRUMENTS
The Company's financial instruments recorded on the balance sheet include
cash and cash equivalents and debt. Due to their short maturity, the fair value
of cash and cash equivalents approximates carrying value. The fair value of the
Company's debt, based on quoted market prices or current rates for similar
instruments with the same maturities, was approximately $1,262,841,000 and
$1,777,667,000 at March 31, 1995 and 1994, respectively.
The Company uses off balance sheet derivative financial instruments,
including foreign currency forward contracts and interest rate hedge
transactions, to minimize foreign currency and interest rate risk. The Company
does not hold or issue derivative financial instruments for speculative
purposes.
FOREIGN CURRENCY HEDGES
The majority of the Company's foreign currency forward contracts are
entered into at the direction of the customer pursuant to contractual
requirements. Any gain or loss on the hedges accrues for the benefit or
detriment of the customer and does not expose the Company to risk.
At March 31, 1995, the Company has open forward contracts to sell
approximately $41,500,000 of Pound Sterling to minimize the effect of currency
exposure on future cash payments from foreign operations. At March 31, 1995, the
fair value of the forward contracts is not material. Gains and losses on foreign
currency forward contracts are recorded when the transactions being hedged are
realized. For the year ended March 31, 1995, gains and losses on these contracts
were not material. Other forward contracts are not material.
INTEREST RATE HEDGES
At March 31, 1994, to fix the effective interest rates on the anticipated
refinancing of its outstanding commercial paper, the Company entered into
interest rate hedges by selling U.S. Treasury forward contracts with a notional
value of $500,000,000. The hedges were closed in June 1994 upon the issuance of
the $250,000,000 7 5/8% Senior Notes due 2004 and the $400,000,000 8 3/8% Senior
Debentures due 2024. The net realized gain of $17,073,000 was deferred and is
being amortized on a pro rata basis over the term of the Senior Notes and Senior
Debentures.
F-19
<PAGE> 42
LORAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SALES TO PRINCIPAL CUSTOMERS
The Company operates primarily in one industry segment, government
electronic systems. Sales to principal customers are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. Government Agencies....................... $3,548,585 $2,578,004 $2,077,009
Foreign (principally foreign governments)...... 1,021,284 564,612 477,501
Other (principally U.S. Government end use).... 914,532 866,117 780,893
---------- ---------- ----------
$5,484,401 $4,008,733 $3,335,403
========= ========= =========
</TABLE>
Foreign sales comprise the following:
<TABLE>
<CAPTION>
1995 1994 1993
---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Export sales:
Asia.......................................... $ 234,307 $227,312 $190,125
Middle East................................... 151,152 91,049 119,401
Europe........................................ 96,257 106,546 128,707
Other......................................... 19,716 28,289 26,733
---------- -------- --------
501,432 453,196 464,966
Foreign operations, principally Europe.......... 519,852 111,416 12,535
---------- -------- --------
Total foreign sales............................. $1,021,284 $564,612 $477,501
========= ======== ========
</TABLE>
12. RELATED PARTY TRANSACTIONS
The Company has a number of transactions with its affiliates. The Company
believes that the arrangements are as favorable to the Company as could be
obtained from unaffiliated parties.
The Company charges SS/L a fee for management services under an agreement
between SS/L and its shareholders; the management fee was $3,169,000, $2,981,000
and $2,576,000 in 1995, 1994 and 1993, respectively. The Company and LAH
allocate certain overhead costs and expenses to SS/L and SS/L charges LAH
certain overhead costs; the net allocated expenses charged to SS/L were
$11,907,000, $9,446,000 and $10,448,000 in 1995, 1994 and 1993, respectively. In
addition, the Company sells products to SS/L; net sales to SS/L were
$26,031,000, $15,769,000 and $11,574,000 in 1995, 1994 and 1993, respectively.
Included in Other Current Assets are receivables from SS/L of $6,569,000 and
$8,207,000 at March 31, 1995 and 1994, respectively. LAH and SS/L have a tax
sharing agreement whereby certain tax liabilities and benefits are shared
equitably. LAH has guaranteed performance of SS/L under certain commercial
contracts. To date, SS/L has performed satisfactorily under these contracts, and
management believes that they will be successfully completed.
Two of the Company's divisions have entered into contracts, totaling
$28,744,000, to construct a portion of the Globalstar System. Sales to
Globalstar for the year ended March 31, 1995 were $7,429,000. Included in Other
Current Assets are receivables from Globalstar of $2,248,000 at March 31, 1995.
The Company and K&F have agreements covering various real property
occupancy arrangements and agreements under which the Company and K&F provide
certain services, such as benefits administration, treasury, accounting and
legal services to each other. The charges for these services, as agreed to by
the Company and K&F, are based upon the actual cost incurred in providing the
services without a profit. These
F-20
<PAGE> 43
LORAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
transactions between the Company and K&F were not significant. Sales to K&F were
$4,181,000, $6,785,000 and $4,796,000 in 1995, 1994 and 1993, respectively.
13. SUBSEQUENT EVENT
On May 5, 1995, the Company acquired substantially all the assets and
liabilities of the Defense Systems operations of Unisys Corporation. The
$862,000,000 purchase price approximates $803,400,000 after agreed-upon
contractual adjustments related to a program termination and certain Unisys
financing arrangements and net of cash acquired. This amount is subject to
further adjustment based on the final net asset values. The purchase price was
financed by commercial paper borrowings.
14. QUARTERLY FINANCIAL INFORMATION (Unaudited)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
1995:
Sales................................ $1,344,825 $1,345,300 $1,334,910 $1,459,366 $5,484,401
Operating income..................... 113,639 123,088 144,915 182,869 564,511
Net income........................... 54,964 66,253 71,003 96,174 288,394
Earnings per share (primary)......... .65 .78 .83 1.12 3.38
Dividends per share.................. .14 .15 .15 .15 .59
Market price
High............................... 40 3/4 42 3/4 40 7/8 44 3/8
Low................................ 33 1/2 33 1/2 37 3/8 36 3/8
1994: p
Sales................................ $ 849,451 $ 836,633 $ 902,003 $1,420,646 $4,008,733
Operating income..................... 70,182 78,396 97,952 154,836 401,366
Net income........................... 40,351 46,717 56,945 84,255 228,268
Earnings per share (primary)......... .48 .56 .68 1.00 2.72
Dividends per share.................. .125 .14 .14 .14 .545
Market Price
High............................... 30 1/4 32 3/4 38 3/4 42 3/4
Low................................ 257/16 29 29 35 7/8
</TABLE>
F-21
<PAGE> 44
LORAL CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
<TABLE>
<CAPTION>
FILED HEREWITH (-) OR INCORPORATED BY
REFERENCE TO
EXHIBIT REGISTRATION NO. OR OTHER DOCUMENT
------- -------------------------------------
<S> <C> <C>
3.1 Loral Corporation Restated Certificate of Form 10-Q for the quarter ended
Incorporation as in effect May 22, 1995 September 30, 1993, Exhibit 3
3.2 Loral Corporation By-Laws as in effect May 22, Form 10-K for the fiscal year ended
1995 March 31, 1994, Exhibit 3.2
4.1 Amended and Restated Revolving Credit Agreement Form 10-Q for the quarter ended
among Loral Corporation, Certain Banks, Morgan December 31, 1994, Exhibit 4.1
Guaranty Trust Company of New York, Chemical
Bank and Bank of America Illinois, dated as of
November 23, 1994
10.1 1983 Stock Option Plan 1983 Proxy Statement
10.2 Amendment to the 1983 Stock Option Plan Form 10-K for the fiscal year ended
March 31, 1986, Exhibit 10.11
10.3 Amended 1986 Stock Option Plan Form 10-Q for the quarter ended June
30, 1988, Exhibit 10.1
10.4 Amendment to the 1983 and 1986 Stock Option Form 10-K for the fiscal year ended
Plans March 31, 1990, Exhibit 10.8
10.5 1991 Amendment to the 1986 Stock Option Plan Form 10-K for the fiscal year ended
March 31, 1991, Exhibit 10.9
10.6 Loral Corporation Incentive Compensation Plan 1994 Proxy Statement
for Senior Executives
10.7 1994 Stock Option and Incentive Stock Purchase 1994 Proxy Statement
Plan
10.8 Loral Corporation Restricted Stock Purchase Form 8-K dated May 13, 1987, Exhibit
Plan 10.28
10.9 Amendment to the Loral Corporation Restricted Form 10-Q for the quarter ended June
Stock Purchase Plan 30, 1987, Exhibit 10.2
10.10 Restated Employment Agreement between Loral Form 10-K for the fiscal year ended
Corporation and Bernard L. Schwartz, dated as March 31, 1990, Exhibit 10.11
of April 1, 1990
10.11 Extension and Modification Agreement between --
Loral Corporation and Bernard L. Schwartz,
dated as of June 14, 1944
10.12 Split-dollar life insurance agreement with Form 10-K for the fiscal year ended
Bernard L. Schwartz, dated as of March 15, 1990 March 31, 1991, Exhibit 10.13
10.13 Split-dollar life insurance agreement with Form 10-K for the fiscal year ended
Bernard L. Schwartz, dated as of December 10, March 31, 1991, Exhibit 10.14
1990
10.14 Employment Contract between Loral Corporation Form 10-Q for the quarter ended June
and Frank C. Lanza, dated as of April 1, 1987 30, 1987, Exhibit 10.1 and Form 10-K
for the fiscal year ended March 31,
1982, Exhibit 10.11
10.15 Amendment to Employment Contract between Loral Form 10-K for the fiscal year ended
Corporation and Frank C. Lanza, dated as of March 31, 1988, Exhibit 10.19
March 31, 1988
</TABLE>
<PAGE> 45
LORAL CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX (CONTINUED)
<TABLE>
<CAPTION>
FILED HEREWITH (-) OR INCORPORATED BY
REFERENCE TO
EXHIBIT REGISTRATION NO. OR OTHER DOCUMENT
------- -------------------------------------
<S> <C> <C>
10.16 Amendment to Employment Contract between Loral Form 10-K for the fiscal year ended
Corporation and Frank C. Lanza, dated as of March 31, 1990, Exhibit 10.16
March 21, 1990
10.17 Amendment to Employment Contract between Loral Form 10-K for the fiscal year ended
Corporation and Frank C. Lanza, dated as of March 31, 1992, Exhibit 10.17
April 1, 1992
10.18 Modification Agreement between Loral --
Corporation and Frank C. Lanza, dated as of
June 14, 1994
10.19 Split-dollar life insurance agreement with Form 10-K for the fiscal year ended
Frank C. Lanza, dated as of August 5, 1985 March 31, 1991, Exhibit 10.18
10.20 Split-dollar life insurance agreement with Form 10-K for the fiscal year ended
Michael P. DeBlasio, dated as of December 10, March 31, 1991, Exhibit 10.19
1990
10.21 Split-dollar life insurance agreement with Form 10-K for the fiscal year ended
Robert V. LaPenta, dated as of December 10, March 31, 1992, Exhibit 10.20
1990
10.22 Split-dollar life insurance agreement with Form 10-K for the fiscal year ended
Michael B. Targoff Insurance Trust, dated as of March 31, 1990, Exhibit 10.20
April 30, 1990
10.23 Form of Indemnity Agreement between Loral Form 10-K for the fiscal year ended
Corporation and Officers and Directors of Loral March 31, 1987, Exhibit 10.22
Corporation
10.24 Standstill Agreement among Loral Corporation Amendment No. 1 to Form 8-K dated
and certain limited partnerships affiliated June 30, 1992, Exhibit 4.1
with Lehman Brothers Holdings Inc. dated as of
August 14, 1992
10.25 Amendment No. 1 to Standstill Agreement, dated Form 10-K for the fiscal year ended
as of November 13, 1992, among Loral March 31, 1993, Exhibit 10.27
Corporation and certain limited partnerships
affiliated with Lehman Brothers Holdings Inc.
11 Computation of Earnings Per Share for the three --
years ended March 31, 1995
12 Computation of Ratio of Earnings to Fixed --
Charges for the five years ended March 31, 1995
21 Subsidiaries of the Registrant --
23 Consent of Coopers & Lybrand L.L.P. --
24 Powers of Attorney --
27 Financial Data Schedule --
</TABLE>
Note: Certain instruments with respect to issues of long-term debt have not
been filed as Exhibits to this report since the authorized principal amount of
any one of such issues does not exceed 10% of the total assets of the Registrant
and its subsidiaries on a consolidated basis as of March 31, 1995. Such
indebtedness is described in general terms in Note 5 to Consolidated Financial
Statements included herein. The Registrant agrees to furnish to the Commission a
copy of each instrument upon its request.
<PAGE> 1
EXHIBIT 10.11
EXTENSION AND MODIFICATION AGREEMENT
AGREEMENT dated as of June 14, 1994, between LORAL CORPORATION, a New York
corporation with its principal office located at 600 Third Avenue, New York, New
York (hereinafter called "Loral"), and BERNARD L. SCHWARTZ, residing at 944
Fifth Avenue, New York, New York (hereinafter called "Schwartz").
WHEREAS, Loral and Schwartz are parties to a Restated Employment Agreement
dated as of April 1, 1990 which expires on March 31, 1995 (the "Agreement");
WHEREAS, the parties wish to provide for continuation of employment of Mr.
Schwartz by Loral for the five year term commencing April 1, 1995 and expiring
March 31, 2000, pursuant to the terms of the Agreement as modified herein;
NOW, THEREFORE, the parties hereto agree as follows:
(1) Paragraph #2 of the Agreement is hereby amended such that the term
of the agreement shall expire on March 31, 2000.
(2) The Incentive Compensation provisions of paragraph 4(a) of the
Agreement shall be modified for the fiscal year ended March 31, 1995 and
for the full term of the extended agreement such that the 8 1/4% threshold
growth in shareholders' equity, as defined in the Agreement, before
incentive compensation is paid is increased to 9 1/4%.
(3) A new paragraph 4(d) is inserted as follows:
4(d) The provisions of paragraph 4 of the Agreement
notwithstanding incentive compensation paid to Mr. Schwartz for
any fiscal year shall not exceed $9 million for fiscal '95 and,
in respect of any year of the term thereafter, $9 million
adjusted annually in accordance with the provisions of paragraph
3(b) of the Agreement (the "$9 million cap").
(4) In all other respects, the provisions of the Agreement are carried
forward unaltered.
(5) In the event stockholders of Loral Corporation fail to approve the
1994 Annual Bonus Plan, this Agreement, other than paragraphs (2) and (3),
will remain in effect, and the parties shall be obligated to negotiate, in
good faith, alternative incentive compensation provisions. If a mutually
satisfactory agreement for alternative incentive compensation is not
reached, Mr. Schwartz may terminate this Agreement upon ten (10) days
notice.
IN WITNESS THEREOF, the parties have executed this Agreement as of the date
first hereinabove written.
LORAL CORPORATION
By: /s/ MICHAEL B. TARGOFF
--------------------------------------
Michael B. Targoff
/s/ BERNARD L. SCHWARTZ
--------------------------------------
Bernard L. Schwartz
<PAGE> 1
EXHIBIT 10.18
MODIFICATION AGREEMENT
AGREEMENT dated as of June 14, 1994, between LORAL CORPORATION, a New York
corporation with its principal office located at 600 Third Avenue, New York, New
York (hereinafter called "Loral"), and FRANK C. LANZA, residing at 37 Murray
Hill Road, Scarsdale, New York (hereinafter called "Lanza").
WHEREAS, Loral and Lanza are parties to an Employment Agreement dated as of
April 1, 1982 which has been extended from time to time and currently expires on
March 31, 1997 (the "Agreement");
WHEREAS, the parties wish to provide for certain changes in the Agreement
as to provide for deductibility under the Internal Revenue Code for incentive
compensation payments made under the Agreement and to Lanza under the proposed
1994 Stock Option and Incentive Stock Purchase Plan;
NOW, THEREFORE, the parties hereto agree as follows:
(1) The Incentive Compensation provisions of paragraph 3(b) of the
Agreement shall be modified commencing with the fiscal year ended March 31,
1995 such that the 8 1/4% threshold growth in shareholders' equity, as
defined in the Agreement, before incentive compensation is paid is
increased to 9 1/4%.
(2) The maximum bonus limitation of two times base salary contained in
paragraph 3(b) is deleted.
(3) A new paragraph 3(e) is inserted as follows:
3(e) The provisions of paragraph 3(b) of the Agreement
notwithstanding, incentive compensation paid to Mr. Lanza for any
fiscal year shall not exceed $9 million.
(4) In all other respects, the provisions of the Agreement are carried
forward unaltered.
(5) In the event stockholders of Loral Corporation fail to approve the
1994 Annual Bonus Plan, this Agreement, other than paragraphs (1) and (3),
will remain in effect, and the parties shall be obligated to negotiate, in
good faith, alternative incentive compensation provisions. If a mutually
satisfactory agreement for alternative incentive compensation is not
reached, Mr. Lanza may terminate this Agreement upon ten (10) days notice.
IN WITNESS THEREOF, the parties have executed this Agreement as of the date
first hereinabove written.
LORAL CORPORATION
By: /s/ MICHAEL B. TARGOFF
--------------------------------------
Michael B. Targoff
/s/ FRANK C. LANZA
--------------------------------------
Frank C. Lanza
<PAGE> 1
EXHIBIT 11
LORAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
-----------------------------------
1995 1994 1993
-------- -------- ---------
<S> <C> <C> <C>
Primary:
Income before extraordinary item and cumulative effect
of changes in accounting............................. $288,394 $228,268 $ 159,069
Extraordinary item...................................... (17,776)
Cumulative effect of changes in accounting.............. (233,377)
-------- -------- ---------
Net income (loss) applicable to common shares........... $288,394 $228,268 $ (92,084)
======== ======== =========
Shares:
Weighted average common shares outstanding.............. 83,916 82,590 75,944
Common equivalent shares applicable to stock options.... 1,458 1,261 1,082
-------- -------- ---------
Average number of shares outstanding and common
equivalent shares.................................... 85,374 83,851 77,026
======== ======== =========
Primary earnings per common share and common equivalent
share:
Income before extraordinary item and cumulative
effect of changes in accounting.................... $ 3.38 $ 2.72 $ 2.06
Extraordinary item................................... (.23)
Cumulative effect of changes in accounting........... (3.03)
-------- -------- ---------
$ 3.38 $ 2.72 $ (1.20)
======== ======== =========
Fully Diluted:
Income before extraordinary item and cumulative effect
of changes in accounting............................. $288,394 $228,268 $ 159,069
Adjustment to interest expense, net of the tax effect
thereon attributable to convertible debt................ 3,376
-------- -------- ---------
Adjusted income before extraordinary item and cumulative
effect of changes in accounting......................... 288,394 228,268 162,445
Extraordinary item...................................... (17,776)
Cumulative effect of changes in accounting.............. (233,377)
-------- -------- ---------
Adjusted net income (loss).............................. $288,394 $228,268 $ (88,708)
======== ======== =========
Shares:
Average number of common shares as adjusted for primary
computation.......................................... 85,374 83,851 77,026
Incremental increase to shares under stock options where
the quarter's ending market price is higher than the
average market price during the quarter.............. 37 94 86
Shares issuable for convertible debt.................... 3,410
-------- -------- ---------
Average number of shares outstanding on a fully diluted
basis................................................ 85,411 83,945 80,522
======== ======== =========
Earnings per common share assuming full dilution:
Income before extraordinary item and cumulative
effect of changes in accounting.................... $ 3.38 $ 2.72 $ 2.02
Extraordinary item................................... (.23)
Cumulative effect of changes in accounting........... (2.99)
-------- -------- ---------
$ 3.38 $ 2.72 $ (1.20)*
======== ======== =========
</TABLE>
---------------
* The impact of the extraordinary item and cumulative effect of changes in
accounting on the fully diluted calculation is anti-dilutive, resulting in the
net fully diluted amount equalling the net primary amount.
<PAGE> 1
EXHIBIT 12
LORAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS, EXCEPT RATIOS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
--------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Earnings:
Income from continuing operations
before taxes, minority interest and
equity in net income (loss) of
affiliates......................... $479,648 $362,372 $255,543 $240,990 $165,801
Add:
Interest expense................... 105,699 46,957 50,656 57,771 56,429
Amortization of debt expense....... 162 312 2,477 4,066 2,503
Amortization of capitalized
interest......................... 1,292 1,407 1,020 1,035 547
Interest component of rent
expense.......................... 25,465 18,267 14,153 13,284 10,858
-------- -------- -------- -------- --------
Earnings........................... $612,266 $429,315 $323,849 $317,146 $236,138
======== ======== ======== ======== ========
Fixed charges:
Interest expense...................... $105,699 $ 46,957 $ 50,656 $ 57,771 $ 56,429
Amortization of debt expense.......... 162 312 2,477 4,066 2,503
Capitalized interest.................. 2,222 268 271 29 1,784
Interest component of rent expense.... 25,465 18,267 14,153 13,284 10,858
-------- -------- -------- -------- --------
Fixed charges......................... $133,548 $ 65,804 $ 67,557 $ 75,150 $ 71,574
======== ======== ======== ======== ========
Ratio of earnings to fixed charges...... 4.58x 6.52x 4.79x 4.22x 3.30x
======== ======== ======== ======== ========
</TABLE>
<PAGE> 1
EXHIBIT 21
LORAL CORPORATION AND SUBSIDIARIES
As of March 31, 1995, active subsidiaries, all 100% owned directly or
indirectly (except as noted below), consist of the following:
<TABLE>
<CAPTION>
STATE OR COUNTRY
OF INCORPORATION
-----------------------
<S> <C>
Conic Corporation............................................................. Delaware
MC Acquisition Corporation.................................................. Pennsylvania
Frequency Sources, Inc........................................................ Delaware
FSI Investment Corporation.................................................. Massachusetts
Loral Infrared & Imaging Systems, Inc....................................... Delaware
LC Acquiring Corp............................................................. Delaware
Loral Defense Systems Corp.................................................. Delaware
Loral Librascope Corporation................................................ Delaware
Loral Fairchild Corp........................................................ Delaware
Loral Federal Systems Company............................................... Delaware
Loral Aerospace Systems Integration Corporation........................... Delaware
Loral Federal Services Corporation........................................ Delaware
Loral International Air Traffic Corporation............................... Delaware
LORAL/ROLM Mil-Spec Corp.................................................... Delaware
Loracon Sales Corporation..................................................... Delaware
Loral Aerospace Holdings, Inc................................................. Delaware
Loral Aerospace Corp........................................................ Delaware
Logistic Services Corporation............................................. Delaware
Loral Aerospace International, Inc........................................ Delaware
Servicios Tecnicos Loral de Mexico, S.A. de C.V. (8).................... United Mexican States
WITG, Inc.(5)........................................................... Delaware
Loral General Partner, Inc................................................ Delaware
Loral Globalstar Limited................................................ Cayman Islands
Loral Medical Imaging Systems, Inc........................................ Delaware
Space Systems/Loral, Inc.(2)................................................ Delaware
International Space Technology, Inc.(3)................................... Delaware
Cosmotech(3)............................................................ Russian Federation
SS/L Export Corporation(2)................................................ U.S Virgin Islands
Loral American Beryllium Corporation.......................................... Delaware
Be MI AG(1)................................................................. Switzerland
Loral Electro-Optical Systems, Inc............................................ Delaware
Electro-Opticas Superior S.A. de C.V........................................ United Mexican States
Loral Europe Limited.......................................................... United Kingdom
Loral Hycor, Inc.............................................................. Delaware
Hycor International, Inc.................................................... Massachusetts
Loral International, Inc...................................................... Delaware
L/E Systems Corporation(4).................................................. Delaware
Loral International Belgian Services Limited................................ Delaware
Loral International GmbH.................................................... Republic of Germany
Loral International Systems Limited......................................... Delaware
Mikrodalga Elektronik Sistemler Sanayi Ve Tacaret Anonim Sirketi(7)......... Turkey
Loral Properties Inc. ........................................................ Delaware
Loral Sales Office Corp. ..................................................... Delaware
Loral Sonar Systems Corp. .................................................... Delaware
Loral Travel Services, Inc.................................................... Delaware
Loral Vought Systems Corporation.............................................. Delaware
Loral Vought Services, Inc.................................................. Delaware
MLRS International Corporation(6)........................................... Delaware
The Narda Microwave Corporation............................................... New York
The Narda International Corp................................................ New York
Randtron Systems, Inc......................................................... Delaware
Loral Export Corporation.................................................... U.S. Virgin Islands
Loral Securities, Inc....................................................... Delaware
Valley Association Corporation(4)............................................. Ohio
</TABLE>
---------------
(1) Only 33.3% owned directly or indirectly
(2) Only 51% owned directly or indirectly
(3) Only 25.2% owned directly or indirectly
(4) Only 50% owned directly or indirectly
(5) Only 25% owned directly or indirectly
(6) Only 77.48% owned directly or indirectly
(7) Only 50.67% owned directly or indirectly
(8) Only 99.98% owned directly or indirectly
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the registration statements
of Loral Corporation and Subsidiaries on Form S-8 (File Nos. 2-78421, 2-91193,
33-7589, 33-14516, 33-23757, 33-37829, 33-55661 and 33-55675) and Form S-3 (File
Nos. 33-50407 and 33-53741) of our report dated May 11, 1995, which includes an
explanatory paragraph regarding changes in methods of accounting for income
taxes and postretirement benefits other than pensions as discussed in Notes 6
and 9 to the consolidated financial statements, on our audits of the
consolidated financial statements of Loral Corporation and Subsidiaries as of
March 31, 1995 and 1994, and for the years ended March 31, 1995, 1994 and 1993,
which report is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
1301 Avenue of the Americas
New York, NY 10019
May 22, 1995
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
The undersigned, as a Director of Loral Corporation, a New York corporation
(the "Company"), and/or, as applicable, as an officer of the Company; does
hereby constitute and appoint Michael B. Targoff and/or Eric J. Zahler to be his
agent and attorney-in-fact; with the power to act fully hereunder and with full
power of substitution to act in the name and on behalf of the undersigned; to
sign in the name and on behalf of the undersigned, as Director of the Company or
as Officer of the Company, and file with the Securities and Exchange Commission,
an Annual Report on Form 10-K for fiscal year 1995; to execute and deliver any
agreements, instruments, certificates or other documents which he shall deem
necessary or proper in connection with the filing of such Report and amendments
or supplements and generally to act for and in the name of the undersigned with
respect to such filing as fully as could be undersigned if then personally
present and acting.
IN WITNESS WHEREOF, the undersigned has executed the Power of Attorney on
the date set opposite his respective name.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <C> <S>
/s/ ROBERT B. HODES Director March 13, 1995
---------------------------------------------
Robert B. Hodes
/s/ GERSHON KEKST Director March 13, 1995
---------------------------------------------
Gershon Kekst
/s/ MALVIN A. RUDERMAN Director March 13, 1995
---------------------------------------------
Malvin A. Ruderman
/s/ E. DONALD SHAPIRO Director March 13, 1995
---------------------------------------------
E. Donald Shapiro
/s/ ALLEN M. SHINN Director March 13, 1995
---------------------------------------------
Allen M. Shinn
/s/ THOMAS J. STANTON, JR. Director March 13, 1995
---------------------------------------------
Thomas J. Stanton, Jr.
/s/ DANIEL YANKELOVICH Director March 13, 1995
---------------------------------------------
Daniel Yankelovich
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LORAL CORPORATION FOR THE YEAR ENDED MARCH 31, 1995, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 125,674
<SECURITIES> 0
<RECEIVABLES> 839,833
<ALLOWANCES> 0
<INVENTORY> 307,400
<CURRENT-ASSETS> 1,553,127
<PP&E> 1,899,804
<DEPRECIATION> 758,279
<TOTAL-ASSETS> 4,810,346
<CURRENT-LIABILITIES> 1,016,567
<BONDS> 1,315,530
<COMMON> 21,464
0
0
<OTHER-SE> 1,666,076
<TOTAL-LIABILITY-AND-EQUITY> 4,810,346
<SALES> 5,484,401
<TOTAL-REVENUES> 5,505,399
<CGS> 4,919,890
<TOTAL-COSTS> 4,919,890
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 105,861
<INCOME-PRETAX> 479,648
<INCOME-TAX> 182,266
<INCOME-CONTINUING> 288,394
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 288,394
<EPS-PRIMARY> 3.38
<EPS-DILUTED> 3.38
</TABLE>
