<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1995
------------------------
COMMISSION FILE NUMBER 1-4238
------------------------
LORAL CORPORATION
600 Third Avenue
New York, New York 10016
Telephone: (212) 697-1105
State of incorporation: New York
IRS identification number: 13-1718360
------------------------
The registrant has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and
has been subject to such filing requirements for the past 90 days.
As of January 31, 1996, there were 173,513,131 shares of Loral Corporation
Common Stock outstanding.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
PART I -- FINANCIAL INFORMATION
LORAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------- -------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales..................................... $1,610,433 $1,334,910 $4,719,541 $4,025,035
Costs and expenses........................ 1,425,390 1,189,995 4,215,754 3,643,393
---------- ---------- ---------- ----------
Operating income.......................... 185,043 144,915 503,787 381,642
Interest and investment income............ 2,579 3,077 9,602 18,335
Interest expense.......................... 30,853 28,209 103,044 80,861
---------- ---------- ---------- ----------
Income before income taxes and equity in
net loss of affiliates.................. 156,769 119,783 410,345 319,116
Income taxes.............................. 59,572 45,517 155,931 121,264
---------- ---------- ---------- ----------
Income before equity in net loss of
affiliates.............................. 97,197 74,266 254,414 197,852
Equity in net loss of affiliates.......... 5,483 3,263 11,360 5,632
---------- ---------- ---------- ----------
Net income................................ 91,714 71,003 243,054 192,220
Retained earnings, beginning of period.... 1,006,905 740,315 882,104 643,373
Dividends................................. (13,811) (12,641) (40,350) (36,916)
---------- ---------- ---------- ----------
Retained earnings, end of period.......... $1,084,808 $ 798,677 $1,084,808 $ 798,677
========== ========== ========== ==========
Weighted average number of common shares
outstanding............................. 176,482 171,064 175,133 170,268
========== ========== ========== ==========
Earnings per share (primary).............. $ .52 $ .42 $ 1.39 $ 1.13
========== ========== ========== ==========
Cash dividends per common share........... $ .08 $ .075 $ .235 $ .22
========== ========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE> 3
LORAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(Unaudited)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1995
------------ ----------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents........................................ $ 226,723 $ 125,674
Contracts in process............................................. 1,375,837 1,147,233
Deferred income taxes............................................ 120,374 138,374
Other current assets............................................. 176,354 141,846
---------- ----------
Total current assets............................................... 1,899,288 1,553,127
---------- ----------
Property, plant and equipment...................................... 2,151,674 1,899,804
Less, accumulated depreciation and amortization.................. 864,704 758,279
---------- ----------
1,286,970 1,141,525
---------- ----------
Cost in excess of net assets acquired, less amortization........... 1,774,279 1,265,932
Investment in affiliates........................................... 237,268 250,977
Deferred income taxes.............................................. 8,568 7,568
Prepaid pension cost and other assets.............................. 623,203 591,217
---------- ----------
$5,829,576 $4,810,346
========== ==========
LIABILITIES and SHAREHOLDERS' EQUITY:
Current liabilities:
Current portion of debt.......................................... $ 960 $ 958
Accounts payable, trade.......................................... 200,697 169,743
Billings and estimated earnings in excess of cost................ 445,417 313,379
Accrued employment costs......................................... 256,267 235,260
Income taxes..................................................... 92,228 80,642
Other current liabilities........................................ 201,224 216,585
---------- ----------
Total current liabilities.......................................... 1,196,793 1,016,567
---------- ----------
Postretirement benefits............................................ 603,415 611,911
Other liabilities.................................................. 195,971 178,798
Long-term debt..................................................... 1,869,263 1,315,530
Shareholders' equity:
Preferred stock, $1.00 par value................................. -- --
Common stock, $.25 par value..................................... 43,711 21,464
Capital surplus.................................................. 879,855 828,734
Retained earnings................................................ 1,084,808 882,104
---------- ----------
2,008,374 1,732,302
Less:
Treasury stock, at cost....................................... 20,267 19,738
Equity adjustments............................................ 23,973 25,024
---------- ----------
Total shareholders' equity......................................... 1,964,134 1,687,540
---------- ----------
$5,829,576 $4,810,346
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 4
LORAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
------------------------
1995 1994
-------- -----------
<S> <C> <C>
Operating activities:
Net income.......................................................... $243,054 $ 192,220
Deferred income taxes............................................... 62,000 65,000
Depreciation and amortization....................................... 201,497 197,091
Equity in net loss of affiliates.................................... 11,360 5,632
Changes in assets and liabilities:
Contracts in process.............................................. (42,877) 15,166
Other current assets.............................................. (622) 50,564
Other assets...................................................... (9,525) (10,938)
Accounts payable and accrued liabilities.......................... 33,354 (40,715)
Income taxes...................................................... 19,809 23,827
Postretirement benefits and other liabilities..................... (16,544) (5,122)
Other............................................................. (1,556) (1,858)
-------- ----------
Net cash provided by operating activities........................... 499,950 490,867
-------- ----------
Investing activities:
Acquisition of businesses, net of cash acquired..................... (879,669) (3,750)
Advances to affiliates.............................................. (19,856) (4,757)
Investment in affiliates............................................ (13,773)
Capital expenditures, net........................................... (81,227) (79,994)
-------- ----------
(980,752) (102,274)
-------- ----------
Financing activities:
Net borrowings (payments) under revolving credit facilities and
commercial paper.................................................. 399,431 (1,026,322)
Proceeds from borrowings............................................ 150,000 650,000
Seller financing in connection with acquisition of business......... (50,357)
Dividends paid...................................................... (40,350) (36,916)
Proceeds from common stock issuance for stock options and
employee benefit plans............................................ 72,770 34,900
-------- ----------
581,851 (428,695)
-------- ----------
Net increase (decrease) in cash and cash equivalents................ 101,049 (40,102)
Cash and cash equivalents, beginning of period...................... 125,674 238,498
-------- ----------
Cash and cash equivalents, end of period............................ $226,723 $ 198,396
======== ==========
Supplemental information:
Interest paid during the period................................ $112,475 $ 72,675
======== ==========
Income taxes paid during the period, net of refunds............ $ 65,180 $ 30,216
======== ==========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 5
LORAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited condensed consolidated financial statements have
been prepared by the Company pursuant to the rules of the Securities and
Exchange Commission ("SEC") and, in the opinion of the Company, include all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of financial position, results of operations and cash flows.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such SEC rules. The
Company believes that the disclosures made are adequate to make the
information presented not misleading. The condensed consolidated statements
of income for the three and nine months ended December 31, 1995 are not
necessarily indicative of the results to be expected for the full year. It
is suggested that these financial statements be read in conjunction with the
audited financial statements and notes thereto included in the Company's
latest annual report.
2. ACQUISITIONS:
On May 5, 1995, the Company acquired substantially all the assets and
liabilities of the Defense Systems operations of Unisys Corporation ("Loral
UDS"). The previously reported effective purchase price of $803,400,000 was
adjusted to $862,609,000, net of cash acquired, as a result of receiving
additional net assets. Additionally, acquisition expenses of $6,000,000 have
been recorded. The assets and liabilities recorded in connection with the
purchase price allocation are based upon preliminary estimates of fair
values. The acquisition was financed through commercial paper borrowings.
This acquisition has been accounted for as a purchase. As such, the
condensed consolidated financial statements reflect the results of
operations of the acquired entity from the date of acquisition. Had this
acquisition occurred on April 1, 1994, the unaudited pro forma sales, net
income and earnings per share for the nine months ended December 31, 1994
would have been: $5,070,500,000; $208,900,000; and $1.23, respectively. The
unaudited pro forma results, which are based on various assumptions, are not
necessarily indicative of what would have occurred had the acquisition been
consummated as of April 1, 1994. The pro forma effect of the acquisition of
Loral UDS on the results of operations for the nine months ended December
31, 1995, is not material.
The Company has acquired other business in the nine months ended December
31, 1995. These acquisitions did not have a material effect on the
operations of the Company.
Performance under acquired contracts in process of Loral UDS and prior
acquisitions contributed after-tax income of $16,416,000 and $36,091,000,
net of after-tax interest cost on debt related to the acquisitions and
incremental amortization of cost in excess of net assets acquired, of
$67,991,000 and $60,836,000 for the nine months ended December 31, 1995 and
1994, respectively. The decline in after-tax income reflects a reduction in
sales from acquired contracts in process of Loral Federal Systems, acquired
effective January 1, 1994, and Loral Vought Systems, acquired on August 31,
1992.
4
<PAGE> 6
LORAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. CONTRACTS IN PROCESS:
Billings and accumulated costs and profits on long-term contracts,
principally U.S. Government, comprise the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1995
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Billed contract receivables............................... $ 459,965 $ 380,240
Unbilled contract receivables............................. 1,667,280 1,702,967
Inventoried costs......................................... 679,917 477,955
----------- -----------
2,807,162 2,561,162
Less, unliquidated progress payments...................... (1,431,325) (1,413,929)
----------- -----------
Net contracts in process.................................. $ 1,375,837 $ 1,147,233
=========== ===========
</TABLE>
4. DEBT:
In June 1995, the Company issued $150,000,000 7 5/8% Senior Debentures due
2025 utilizing the balance of the Company's existing shelf registration
statement. These securities are not callable and are not subject to any
sinking fund provisions. The proceeds were used to reduce the Company's
outstanding commercial paper borrowings.
5. SHAREHOLDERS' EQUITY:
On September 14, 1995, the shareholders approved an increase in the number
of authorized shares of Common Stock from 150,000,000 to 300,000,000.
On September 29, 1995, the Company completed a two-for-one stock split in
the form of a 100% stock distribution to shareholders of record on September
21, 1995.
All share and per share information have been adjusted to reflect the
two-for-one stock split.
6. AFFILIATES:
In October 1995, the Company agreed to guarantee $250,000,000 of bank debt
of one of the Company's affiliates, Globalstar, L.P. ("Globalstar"). In
exchange for the guarantee, the Company will be issued warrants to purchase
up to an 8% equity interest in Globalstar on a fully diluted basis. Subject
to the approval of its shareholders, the warrants will be issued by
Globalstar Telecommunications Limited ("GTL"), a general partner of
Globalstar, and upon such approval, GTL will be issued additional warrants
representing an approximate 2% equity interest in Globalstar. If GTL
shareholder approval is not obtained, Globalstar will issue to the Company
warrants to purchase partnership interests representing up to an 8% equity
interest in Globalstar and no warrants will be issued to GTL. Globalstar has
also agreed to pay the Company a fee equal to 1.5% per annum of the
guaranteed amount outstanding under the bank financing. Such fee will be
deferred and will be paid with interest commencing 90 days after the
expiration of the bank financing. It is expected that Globalstar's other
strategic partners will assume a portion of the guarantee. On December 15,
1995, Globalstar entered into a five-year $250,000,000 credit agreement with
a group of banks.
Under the terms of the Merger Agreement (See Note 7), Lockheed Martin agreed
to assume the obligations of the Company as guarantor under the above
described Credit Agreement and receive up to 60% of such warrants. In
addition, Loral SpaceCom (See Note 7) has agreed to (i) indemnify Lockheed
Martin, under certain circumstances, for up to $100,000,000 for its
guarantee of Globalstar's obligations
5
<PAGE> 7
LORAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
under the Credit Agreement; and (ii) use its reasonable efforts to cause
Globalstar's partners to assume up to $150,000,000 of the obligations as
guarantor under the Credit Agreement. To the extent the Loral SpaceCom
indemnity is applicable, Loral SpaceCom will receive the pro-rata portion of
the warrants in respect thereof. To the extent Globalstar's partners agree
to assume the obligations as guarantor, rights to a proportionate amount of
such warrants will be transferred to them, and the Lockheed Martin guarantee
and the Loral SpaceCom indemnification will be reduced accordingly.
7. SUBSEQUENT EVENT:
On January 7, 1996, Loral Corporation and Lockheed Martin Corporation
("Lockheed Martin") entered into a definitive Agreement and Plan of Merger
(the "Merger Agreement") among Loral Corporation, Lockheed Martin and LAC
Acquisition Corporation ("LAC"), a wholly-owned subsidiary of Lockheed
Martin, providing for the transactions that will result in the defense
electronics and systems integration businesses of Loral Corporation becoming
a subsidiary of Lockheed Martin. Concurrently with the execution of the
Merger Agreement, Loral Corporation, certain wholly-owned subsidiaries of
Loral Corporation and Lockheed Martin, entered into the Restructuring,
Financing and Distribution Agreement (the "Distribution Agreement"), which
provides, among other things, for (i) the transfer of Loral Corporation's
space and communications businesses, including its direct and indirect
interests in Globalstar, Space Systems/Loral, Inc. and other affiliated
businesses, as well as certain other assets, to Loral Space & Communications
Ltd., a Bermuda company ("Loral SpaceCom"), (ii) the distribution of all of
the shares of Loral SpaceCom common stock to holders of Loral Corporation
common stock and persons entitled to acquire shares of Loral Corporation
common stock on a one-for-one basis (the "Spin-Off") each as of a record
date (the "Spin-Off Record Date") to be declared by the Board of Directors
of Loral Corporation and to be a date on or immediately prior to the
consummation of the tender offer, and (iii) the contribution by Lockheed
Martin of $712,400,000 to Loral SpaceCom, of which $344,000,000 represents
payment for preferred stock, convertible into a 20% equity interest in Loral
SpaceCom, to be retained by Lockheed Martin following the Spin-Off and the
Merger.
Under the terms of the Merger Agreement, LAC commenced a cash tender offer
on January 12, 1996 for all outstanding shares of common stock, par value
$.25 per share, of Loral Corporation at a price of $38.00 per share.
Consummation of the tender offer is subject to, among other things, at least
two-thirds of the shares of Loral Corporation common stock, determined on a
fully-diluted basis, being validly tendered and not withdrawn prior to the
expiration of the tender offer, applicable regulatory approvals and the
occurrence of the Spin-Off Record Date.
6
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On January 7, 1996, Loral Corporation and Lockheed Martin Corporation
("Lockheed Martin") entered into a definitive Agreement and Plan of Merger (the
"Merger Agreement") among Loral Corporation, Lockheed Martin and LAC Acquisition
Corporation ("LAC"), a wholly-owned subsidiary of Lockheed Martin, providing for
the transactions that will result in the defense electronics and systems
integration businesses of Loral Corporation becoming a subsidiary of Lockheed
Martin. Concurrently with the execution of the Merger Agreement, Loral
Corporation, certain wholly-owned subsidiaries of Loral Corporation and Lockheed
Martin, entered into the Restructuring, Financing and Distribution Agreement
(the "Distribution Agreement"), which provides, among other things, for (i) the
transfer of Loral Corporation's space and communications businesses including
its direct and indirect interests in Globalstar, Space Systems/Loral, Inc. and
other affiliated businesses , as well as certain other assets, to Loral Space &
Communications Ltd., a Bermuda company ("Loral SpaceCom"), (ii) the distribution
of all of the shares of Loral SpaceCom common stock to holders of Loral
Corporation common stock and persons entitled to acquire shares of Loral
Corporation common stock on a one-for-one basis (the "Spin-Off") each as of a
record date (the "Spin-Off Record Date") to be declared by the Board of
Directors of Loral Corporation and to be a date on or immediately prior to the
consummation of the tender offer, and (iii) the contribution by Lockheed Martin
of $712.4 million to Loral SpaceCom, of which $344 million represents payment
for preferred stock, convertible into a 20% equity interest in Loral SpaceCom,
to be retained by Lockheed Martin following the Spin-Off and the Merger. (See
Note 7 to Condensed Consolidated Financial Statements.)
On May 5, 1995, the Company acquired the Defense Systems operations of
Unisys Corporation. Unisys Defense Systems ("Loral UDS"), headquartered in
McLean, Virginia, is a leading systems integrator and software developer for
defense and non-defense government agencies worldwide, as well as a supplier of
electronic countermeasures, navigation and communication subsystems for surface
ships and submarines. Historical operating results of Loral UDS for the fiscal
year ended December 31, 1994 include sales of $1.431 billion, net income of
$77.5 million, funded backlog at December 31, 1994 of $1.098 billion and
approximately 8,600 employees. The results of operations of Loral UDS are
included from the effective date of acquisition. (See Note 2 to Condensed
Consolidated Financial Statements.)
On September 29, 1995, the Company completed a two-for-one stock split in
the form of a 100% distribution. All share and per share information have been
adjusted to reflect the two-for-one stock split. (See Note 5 to Condensed
Consolidated Financial Statements.)
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
DECEMBER 31, 1995 AND DECEMBER 31, 1994
Sales for the quarter ended December 31, 1995 increased to $1.610 billion
from $1.335 billion in the prior year. Net income for the quarter ended December
31, 1995 increased to $91.7 million, or $.52 per share, compared with $71.0
million, or $.42 per share, in the prior year. The results of operations of
Loral UDS contributed $3.3 million, or $.02 per share, to the current quarter's
earnings; the Company's share of development costs of Globalstar, a limited
partnership formed in March 1994 to design, construct, and operate a worldwide
satellite-based telecommunications system, reduced the current quarter's
earnings by $6.6 million, or $.04 per share, compared to $2.4 million, or $.01
per share, in the prior year.
Earnings per share for the quarter ended December 31, 1995 are based on
176.5 million primary weighted average shares outstanding, compared with 171.1
million in the prior year.
The sales increase was attributable primarily to the sales of the acquired
Loral UDS which amounted to $263.7 million. Sales also include higher volume of
$29.9 million for various U.S. Postal Service automation systems and $21.8
million for the Multiple Launch Rocket System (MLRS); offset by lower volume of
$14.8 million for the U.S. Navy's Light Airborne Multipurpose System (LAMPS) MK
III ASW helicopter and $13.8 million for ALR-56 radar warning systems. The
Company has a diverse base of programs, none of which is expected to account for
more than 7% of fiscal 1996 revenues. The change in sales from period to
7
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION -- (CONTINUED)
period also includes increases and decreases on a variety of other programs
which individually are not significant to the overall sales change.
Operating income increased to $185.0 million from $144.9 million in the
prior year. The operating income increase includes $20.2 million attributable to
the results of the acquired Loral UDS business. Operating income as a percentage
of sales increased to 11.5% in the quarter ended December 31, 1995 from 10.9% in
the prior year. Excluding the effect of the acquired Loral UDS business,
operating income as a percentage of sales increased to 12.2% from 10.9% as a
result of improved margins due to operating efficiencies particularly at the
Loral Federal Systems business acquired effective January 1994; offset by higher
pension cost in the current period as a result of the prior year's asset
performance.
Interest expense, net of interest and investment income, increased to $28.3
million from $25.1 million in the prior year. This increase was primarily due to
the $14.9 million impact of debt incurred to finance the acquisition of Loral
UDS. Excluding the impact of the Loral UDS acquisition, interest expense, net
decreased by $11.7 million primarily as a result of strong Free Cash Flow and a
slight decrease in the weighted average interest rate of debt. The Company's
Free Cash Flow (net cash from operating activities, less capital expenditures,
plus proceeds of stock purchases by employee benefit plans and exercises of
stock options) was $622.3 million for the twelve months ended December 31, 1995,
of which $186.9 million was generated in the quarter ended December 31, 1995.
The Company's weighted average interest rate of debt was 7.41% for the quarter
ended December 31, 1995 compared with 7.50% for the quarter ended December 31,
1994.
The Company's effective tax rate was 38% in the quarters ended December 31,
1995 and 1994.
FINANCIAL CONDITION
The Loral UDS purchase price was financed through additional commercial
paper borrowings which are supported by the Company's $1.2 billion revolving
credit facility. In June 1995, to take advantage of a decline in interest rates
and to fix interest costs and lengthen maturities, the Company issued $150
million 7 5/8% Senior Debentures due 2025 utilizing the balance of the Company's
existing shelf registration statement. The proceeds were used to reduce the
Company's outstanding commercial paper borrowings. (See Note 4 to Condensed
Consolidated Financial Statements.)
The majority of the Company's foreign currency hedges are entered into at
the direction of the customer pursuant to contractual requirements. Any gain or
loss on the hedges accrues to the benefit or detriment of the customer and does
not expose the Company to risk. The remaining foreign currency hedges are not
material.
The Company's current ratio increased to 1.6:1 at December 31, 1995,
compared with 1.5:1 at March 31, 1995. The debt (net of cash) to equity ratio
grew to .84:1 at December 31, 1995 from .71:1 at March 31, 1995 due primarily to
the acquisition of Loral UDS.
In October 1995, the Company agreed to guarantee $250 million of bank debt
of one of the Company's affiliates, Globalstar, L.P. ("Globalstar"). In exchange
for the guarantee, the Company will be issued warrants to purchase up to an 8%
equity interest in Globalstar on a fully diluted basis. Subject to the approval
of its shareholders, the warrants will be issued by Globalstar
Telecommunications Limited ("GTL"), a general partner of Globalstar, and upon
such approval, GTL will be issued additional warrants representing an
approximate 2% equity interest in Globalstar. If GTL shareholder approval is not
obtained, Globalstar will issue to the Company warrants to purchase partnership
interests representing up to an 8% equity interest in Globalstar and no warrants
will be issued to GTL. Globalstar has also agreed to pay the Company a fee equal
to 1.5% per annum of the guaranteed amount outstanding under the bank financing.
Such fee will be deferred and will be paid with interest commencing 90 days
after the expiration of the bank financing. It is expected that Globalstar's
other strategic partners will assume a portion of the guarantee. On December 15,
1995, Globalstar entered into a five-year $250 million credit agreement with a
group of banks.
8
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION -- (CONTINUED)
Under the terms of the Merger Agreement, Lockheed Martin agreed to assume
the obligations of the Company as guarantor under the above described Credit
Agreement and receive up to 60% of such warrants. In addition, Loral SpaceCom
has agreed to (i) indemnify Lockheed Martin, under certain circumstances, for up
to $100 million for its guarantee of Globalstar's obligations under the Credit
Agreement; and (ii) use its reasonable efforts to cause Globalstar's partners to
assume up to $150 million of the obligations as guarantor under the Credit
Agreement. To the extent the Loral SpaceCom indemnity is applicable, Loral
SpaceCom will receive the pro-rata portion of the warrants in respect thereof.
To the extent Globalstar's partners agree to assume the obligations as
guarantor, rights to a proportionate amount of such warrants will be transferred
to them, and the Lockheed Martin guarantee and the Loral SpaceCom
indemnification will be reduced accordingly. (See Notes 6 and 7 to Condensed
Consolidated Financial Statements.)
COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED
DECEMBER 31, 1995 AND DECEMBER 31, 1994
Sales for the nine months ended December 31, 1995 increased to $4.720
billion from $4.025 billion in the prior year. Net income for the nine months
ended December 31, 1995 increased to $243.1 million, or $1.39 per share,
compared with $192.2 million, or $1.13 per share, in the prior year. Included in
the prior year is a non-recurring after-tax gain of $6.9 million, or $.04 per
share, for the exchange of K&F debentures for cash and equity. The results of
operations of Loral UDS contributed $9.9 million, or $.06 per share, to the
current period's earnings; the Company's share of development costs of
Globalstar, a limited partnership formed in March 1994 to design, construct, and
operate a worldwide satellite-based telecommunications system, reduced the
current period's earnings by $14.5 million, or $.08 per share, compared to $6.9
million, or $.04 per share, in the prior year.
Earnings per share for the nine months ended December 31, 1995 are based on
175.1 million primary weighted average shares outstanding, compared with 170.3
million in the prior year.
The sales increase was attributable primarily to the sales of the acquired
Loral UDS business which amounted to $661.5 million. Sales also include higher
volume of $73.0 million for the Patriot Advanced Capability (PAC-3) missile,
formerly known as Extended Range Interceptor (ERINT), $62.9 million for the
United Kingdom's EH-101 Merlin ASW helicopter and $46.5 million for various U.S.
Postal Service automation systems; offset by lower volume of $42.4 million for
the U.S. Navy's Light Airborne Multipurpose System (LAMPS) MK III ASW
helicopter, $38.6 million for the Multiple Launch Rocket System (MLRS), $37.5
million for the ALR-56 radar warning systems and $30.0 million for the Army
Tactical Missile System (ATACMS). The Company has a diverse base of programs,
none of which is expected to account for more than 7% of fiscal 1996 revenues.
The change in sales from period to period also includes increases and decreases
on a variety of other programs which individually are not significant to the
overall sales change.
Operating income increased to $503.8 million from $381.6 million in the
prior year. The operating income increase includes $58.3 million attributable to
the results of the acquired Loral UDS business. Operating income as a percentage
of sales increased to 10.7% for the nine months ended December 31, 1995 from
9.5% in the prior year. Excluding the effect of the acquired Loral UDS business,
operating income as a percentage of sales increased to 11.0% in the nine months
ended December 31, 1995 from 9.5% in the prior year as a result of improved
margins due to operating efficiencies particularly at the Loral Federal Systems
business acquired effective January 1994; offset by higher pension cost in the
current period as a result of the prior year's asset performance.
Interest expense, net of interest and investment income, increased to $93.4
million from $62.5 million in the prior year. This increase was primarily due to
the $42.2 million impact of debt incurred to finance the acquisition of Loral
UDS and the prior year non-recurring gain, net of expenses, of $11.5 million for
the exchange of K&F debentures for cash and equity. Excluding the impact of the
Loral UDS acquisition and the K&F transaction, interest expense, net decreased
by $22.8 million primarily as a result of strong Free Cash
9
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION -- (CONTINUED)
Flow, offset by an increase in the weighted average interest rate of debt. The
Company's Free Cash Flow (net cash from operating activities, less capital
expenditures, plus proceeds of stock purchases by employee benefit plans and
exercises of stock options) was $622.3 million for the twelve months ended
December 31, 1995, of which $491.5 million was generated in the nine months
ended December 31, 1995. The Company's weighted average interest rate of debt
was 7.41% for the nine months ended December 31, 1995 compared with 6.63% for
the nine months ended December 31, 1994.
The Company's effective tax rate was 38% in the nine months ended December
31, 1995 and 1994.
10
<PAGE> 12
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed as part of this report:
Exhibit 11.1 Computation of Earnings per Common Share for the three
months ended December 31, 1995 and 1994
Exhibit 11.2 Computation of Earnings per Common Share for the nine
months ended
December 31, 1995 and 1994
Exhibit 12 Computation of Ratio of Earnings to Fixed Charges for
the nine months ended December 31, 1995 and 1994
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LORAL CORPORATION
--------------------------------------
Registrant
Date: February 13, 1996 MICHAEL P. DEBLASIO
--------------------------------------
Michael P. DeBlasio
Senior Vice President -- Finance
(Principal Financial Officer)
and
Registrant's Authorized Officer
11
<PAGE> 13
EXHIBIT INDEX
Exhibit 11.1 Computation of Earnings per Common Share for the three
months ended December 31, 1995 and 1994
Exhibit 11.2 Computation of Earnings per Common Share for the nine
months ended December 31, 1995 and 1994
Exhibit 12 Computation of Ratio of Earnings to Fixed Charges for
the nine months ended December 31, 1995 and 1994
Exhibit 27 Financial Data Schedule
<PAGE> 1
EXHIBIT 11.1
LORAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
-------------------
1995 1994
------- -------
<S> <C> <C>
Primary:
Net income applicable to common shares................................. $91,714 $71,003
======= =======
Shares:
Weighted average common shares outstanding.......................... 172,458 168,088
Common equivalent shares applicable to stock options................ 4,024 2,976
------- -------
Average number of shares outstanding and common equivalent shares... 176,482 171,064
======= =======
Primary earnings per common share and common equivalent share............ $ .52 $ .42
======= =======
Fully Diluted:
Net income applicable to common shares................................. $91,714 $71,003
======= =======
Shares:
Average number of common shares as adjusted for primary
computation........................................................ 176,482 171,064
Incremental increase to shares under stock options where the
quarter's ending market price is higher than the average market
price during the quarter........................................... 307
------- -------
Average number of shares outstanding on a fully diluted basis....... 176,789 171,064
======= =======
Earnings per common share assuming full dilution......................... $ .52 $ .42
======= =======
</TABLE>
12
<PAGE> 1
EXHIBIT 11.2
LORAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
---------------------
1995 1994
-------- --------
<S> <C> <C>
Primary:
Net income applicable to common shares............................... $243,054 $192,220
======== ========
Shares:
Weighted average common shares outstanding........................ 171,491 167,360
Common equivalent shares applicable to stock options.............. 3,642 2,908
-------- --------
Average number of shares outstanding and common equivalent
shares........................................................... 175,133 170,268
======== ========
Primary earnings per common share and common equivalent share.......... $ 1.39 $ 1.13
======== ========
Fully Diluted:
Net income applicable to common shares............................... $243,054 $192,220
======== ========
Shares:
Average number of common shares as adjusted for primary
computation...................................................... 175,133 170,268
Incremental increase to shares under stock options where the
quarter's ending market price is higher than the average market
price during the quarter......................................... 230 44
-------- --------
Average number of shares outstanding on a fully diluted basis..... 175,363 170,312
======== ========
Earnings per common share assuming full dilution....................... $ 1.39 $ 1.13
======== ========
</TABLE>
13
<PAGE> 1
EXHIBIT 12
LORAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS, EXCEPT RATIOS)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
---------------------
1995 1994
-------- --------
<S> <C> <C>
Earnings:
Income before income taxes and equity in net loss of affiliates...... $410,345 $319,116
Add:
Interest expense.................................................. 102,713 80,210
Amortization of debt expense...................................... 331 651
Amortization of capitalized interest.............................. 746 858
Interest component of rent expense................................ 19,114 19,350
-------- --------
Earnings............................................................. $533,249 $420,185
======== ========
Fixed charges:
Interest expense..................................................... $102,713 $ 80,210
Amortization of debt expense......................................... 331 651
Capitalized interest................................................. 6,042 188
Interest component of rent expense................................... 19,114 19,350
-------- --------
Fixed charges........................................................ $128,200 $100,399
======== ========
Ratio of earnings to fixed charges..................................... 4.16x 4.19x
======== ========
</TABLE>
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LORAL CORPORATION FOR THE SIX MONTHS ENDED DECEMBER 31,
1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> DEC-31-1995
<CASH> 226,723
<SECURITIES> 0
<RECEIVABLES> 995,920
<ALLOWANCES> 0
<INVENTORY> 379,917
<CURRENT-ASSETS> 1,899,288
<PP&E> 2,151,674
<DEPRECIATION> 864,704
<TOTAL-ASSETS> 5,829,576
<CURRENT-LIABILITIES> 1,196,793
<BONDS> 1,869,263
0
0
<COMMON> 43,711
<OTHER-SE> 1,920,423
<TOTAL-LIABILITY-AND-EQUITY> 5,829,576
<SALES> 4,719,541
<TOTAL-REVENUES> 4,729,143
<CGS> 4,215,754
<TOTAL-COSTS> 4,215,754
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 103,044
<INCOME-PRETAX> 410,345
<INCOME-TAX> 155,931
<INCOME-CONTINUING> 243,054
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 243,054
<EPS-PRIMARY> 1.39
<EPS-DILUTED> 1.39
</TABLE>
