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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 DECEMBER 31, 2000
COMMISSION FILE NUMBER 1-14180
LORAL SPACE & COMMUNICATIONS LTD.
C/O LORAL SPACECOM CORPORATION
600 THIRD AVENUE
NEW YORK, NEW YORK 10016
TELEPHONE: (212) 697-1105
JURISDICTION OF INCORPORATION: BERMUDA
IRS IDENTIFICATION NUMBER: 13-3867424
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
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.
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
contained in the registrant's 2001 definitive proxy statement.
At March 15, 2001, 299,061,088 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
$898 million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's 2001 definitive proxy statement (to be filed
not later than 120 days after the end of the registrant's fiscal year) are
incorporated by reference into Part III.
The financial statements required by Rule 3.09 of Regulation S-X of the
registrant's significant investee, Globalstar, L.P., are incorporated by
reference herein from the Annual Report on Form 10-K filed by Globalstar
Telecommunications Limited and Globalstar, L.P.
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PART I
ITEM 1. BUSINESS
THE COMPANY
OVERVIEW
Loral Space & Communications Ltd. together with its subsidiaries ("we",
"us", "Loral" or the "Company") is one of the world's leading satellite
communications companies with substantial activities in satellite manufacturing
and satellite-based communications services. Loral has assembled the building
blocks necessary to provide a seamless, global networking capability for the
information age. Loral is organized into three distinct operating businesses:
Fixed Satellite Services ("FSS"): Leasing transponder capacity to
customers for various applications, including broadcasting, news gathering,
Internet access and transmission, private voice and data networks, business
television, distance learning and direct-to-home television ("DTH"), through the
activities of Loral Skynet, Loral CyberStar, Inc. ("Loral CyberStar"), Loral
Skynet do Brasil Ltda. ("Skynet do Brasil"), Satelites Mexicanos, S.A. de C.V.
("Satmex") and Europe*Star Limited ("Europe*Star");
Satellite Manufacturing and Technology: Designing and manufacturing
satellites and space systems and developing satellite technology for a broad
variety of customers and applications through Space Systems/ Loral, Inc.
("SS/L"); and
Data Services: Providing managed communications networks and Internet and
intranet services through Loral CyberStar and delivering high-speed broadband
data communications and business television and infomedia services through
CyberStar, L.P. ("CyberStar LP" and together with Loral CyberStar, the "Loral
CyberStar Group").
In addition, a subsidiary of Loral acts as the managing general partner of
Globalstar, L.P. ("Globalstar"), which owns and operates a global
telecommunications network designed to serve virtually every populated area of
the world by means of a 52-satellite constellation, including four in-orbit
spares, a satellite operations control center and a ground operations control
center (the "Globalstar System"). The Globalstar System commenced operations in
the first quarter of 2000 and as of February 15, 2001, the Globalstar System
provided coverage to over 109 countries, of which more than half were in full
service, served by 25 gateways. Loral, through its interests in various joint
ventures, continues to participate and to fund its share of the operations of
Globalstar service providers in Brazil, Canada, Mexico and Russia. These
Globalstar service providers have constructed and operate gateways, are licensed
to provide services and, through their sales and marketing organizations, are
actively selling Globalstar service, in their respective territories.
Loral's strategy is to capitalize on its market position, extensive space
assets and advanced technologies to expand its business and to exploit new
opportunities as they arise. Where appropriate, Loral seeks to further this
strategy through acquisitions or joint ventures and through dispositions of
non-core assets. Towards that end, Loral regularly engages in discussions with
telecommunications service providers, equipment manufacturers and others about
possible strategic transactions and alliances, including participation in the
Loral Global Alliance and strategic relationships involving its satellite
manufacturing operations, which could involve business combinations.
Loral was incorporated on January 12, 1996 as a Bermuda exempt company and
has its registered and principal executive offices at Cedar House, 41 Cedar
Avenue, Hamilton, HM 12, Bermuda.
FIXED SATELLITE SERVICES
Following its acquisition of the Loral Skynet business from AT&T in March
1997, Loral has rapidly established itself through a series of subsequent
acquisitions and joint venture transactions as one of the world's leading
providers of fixed satellite services. These satellites, which are known as GEO
satellites, fly in geosynchronous earth orbit approximately 22,000 miles above
the equator. In this orbit, the satellites remain in a fixed position relative
to points on the earth's surface. GEO satellites provide reliable, high
bandwidth services anywhere in their coverage areas and therefore serve as the
backbone for many forms of telecommunications.
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In the United States and other developed countries, customers lease
transponder capacity primarily for distribution of network and cable television
programming, for direct-to-home, or DTH, video transmission and for live video
feeds from breaking news and sporting events. In the developing world, a
substantial portion of such capacity is dedicated to long-distance telephone
service as well as television services. GEO satellites are increasingly used
throughout the world for international Internet communications, high-speed data
services for businesses through very small aperture terminal, or VSAT, networks,
and for distance learning and educational television.
Loral Global Alliance
Through the Loral Global Alliance, Loral offers its customers an integrated
portfolio of satellite capacity that provides "one stop shopping" for local,
regional and global GEO satellite services. The alliance, which consists of
Loral Skynet, Loral CyberStar, Skynet do Brasil, Satmex and Europe*Star,
currently has ten satellites in orbit with a total of 171 C-band and 273 Ku-band
36 MHz transponder-equivalents (all references to transponders are in 36 MHZ
equivalents, unless otherwise noted) and a collective footprint covering almost
all of the world's population. As of December 31, 2000, the Loral Global
Alliance backlog (including 100% of Satmex and Europe*Star backlog) totaled $2.4
billion, utilizing approximately 315 36 MHz transponder-equivalents, and had
approximately 129 additional 36 MHz transponder-equivalents available for lease.
The Loral Global Alliance provides for cross-selling arrangements among the
alliance members' respective sales forces and for cooperative marketing and
promotional activities. We believe that such arrangements will enable the
members of the alliance to compete more effectively in sales of communications
satellite services worldwide. In addition, the alliance offers in-orbit backup
capabilities for its members in regions where members' fleets have overlapping
coverage.
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LORAL GLOBAL ALLIANCE
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SATELLITE LOCATION FREQUENCY COVERAGE
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Loral Skynet Telstar 4(1) 89(degrees)W.L. C-band, Ku-band U.S., Northern Mexico, Southern
Canada
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Telstar 5 97(degrees)W.L. C-band, Ku-band U.S., Mexico, Canada, Northern
Central America
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Telstar 6 93(degrees)W.L. C-band, Ku-band U.S., Mexico, Southern Canada,
Central America
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Telstar 7 129(degrees)W.L. C-band, Ku-band U.S., Mexico, Southern Canada,
Northern Central America
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Loral CyberStar Telstar 10/ 76.5(degrees)E.L. C-band, Ku-band Asia and portions of Europe,
Apstar IIR portions of Africa and Australia
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Telstar 11(2) 37.5(degrees)W.L. Ku-band Europe, SE Canada, U.S. East of the
Rockies and portions of Mexico
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Telstar 12(2) 15(degrees)W.L. Ku-band Eastern U.S., SE Canada, Europe,
Russia, Middle East, North Africa,
portions of South America, portions
of Central America
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Skynet do Brasil Anik 1(3) 63(degrees)W.L. C-band, Ku-band Brazil, North America and North
Atlantic
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Satmex Solidaridad 1(4) 109.2(degrees)W.L. C-band, Ku-band Mexico, portions of U.S., portions
of South America, Central America.
Out of service. See note (4) below.
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Solidaridad 2 113.0(degrees)W.L. C-band, Ku-band Mexico, portions of U.S., portions
of South America, Central America
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Satmex 5 116.8(degrees)W.L. C-band, Ku-band Mexico, Continental U.S., Southern
Canada, South America, Central
America
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Morelos 2(5) 120(degrees)W.L. C-band Alaska
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Europe*Star E*Star 1 45(degrees)E.L. Ku-band Europe, SE Asia, Middle East, South
Africa and India
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(1) We have asked the FCC to modify our authorizations for these satellites to
relocate Telstar 4 to 77(degrees) W.L. and Telstar 8 to 89(degrees) W.L.
(2) On November 15, 1999, the following satellites were renamed: the satellite
formerly known as Orion 1 is now known as Telstar 11; the satellite formerly
known as Orion 2 is now known as Telstar 12.
(3) Operating in inclined orbit and is not currently generating revenues.
Estrela do Sol, the replacement satellite for this slot, is currently under
construction at SS/L and is expected to be launched in October 2002.
(4) Satellite lost on August 28, 2000. Customers temporarily moved to other
satellites, most of which are part of the Loral Global Alliance. Replacement
satellite, Satmex 6, is scheduled to be launched in January 2003.
(5) Currently operating in inclined orbit beyond its designed life and
generating only modest revenues. Continued operations depend on obtaining
special regulatory approvals.
Loral Skynet
Loral Skynet's core business is providing satellite capacity to support
distribution of U.S. television network programming. The CBS and Fox television
networks are its major customers. All CBS and Fox stations have their antennae
pointed at Loral Skynet's satellites, creating a configuration known as a
"neighborhood" that is attractive to other users requiring similar distribution
channels. Other Loral Skynet customers include HBO, Disney, Time Warner, Boeing
and Gilat and third-party resellers, such as sports syndicators and distance
learning providers.
Loral Skynet currently has four high power GEO satellites in operation.
Telstar 4 was placed in service in November 1995 and has 24 C-band and 24
Ku-band transponders. Telstar 4 provides coverage over the continental United
States, Hawaii, Alaska, Puerto Rico, U.S. Virgin Islands and into Canada.
Telstar 5, with
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24 C-band and 24 Ku-band transponders, was built by SS/L and was placed into
service on July 1, 1997. Telstar 5 provides coverage over the continental United
States, Hawaii, Puerto Rico, the Caribbean and into Canada and portions of Latin
America.
Telstar 6, built by SS/L, was launched in February 1999 and commenced
commercial operations in March 1999. Telstar 6 is a broadcast video and data
communications satellite with 24 C-band and 24 Ku-band transponders. It provides
coverage over the continental United States, Hawaii, Puerto Rico, the Caribbean
and into Canada and Latin America.
Telstar 7, built by SS/L, was launched in September 1999 and commenced
commercial operations in November 1999. Telstar 7 is a broadcast video and data
communications satellite with 24 C-band and 24 Ku-band transponders. It provides
coverage over the continental United States, Hawaii, Puerto Rico, the Caribbean,
and into Canada and Latin America.
In addition, Loral plans to launch three satellites in 2002, one of which
will fill Skynet do Brasil's newly acquired orbital slot at 63(degrees) W.L.
covering Brazil and other parts of Latin America. The addition of these three
satellites will substantially increase Loral's capacity within the United States
and will further extend its coverage of Canada and portions of Latin America,
subject to obtaining landing rights from regulatory authorities in those
regions.
Loral CyberStar
On March 20, 1998, Loral acquired Orion Network Systems, Inc., a rapidly
growing provider of satellite-based communications services, which changed its
name to Loral CyberStar, Inc. Loral completed its integration plan for Loral
CyberStar and transferred management of Loral CyberStar's satellite capacity
leasing and satellite operations to Loral Skynet, effective January 1, 1999.
Loral CyberStar's leasing business currently provides satellite capacity
for video distribution, satellite news gathering and other satellite services
primarily to broadcasters, news organizations, telecommunications service
providers and Internet Service Providers, or ISPs. Loral Cyberstar's customers
include HBO, Disney, Cable & Wireless and United Pan Europe Communications.
Telstar 11 (formerly known as Orion 1), a high power satellite with 48
Ku-band transponders, commenced operations in January 1995, and provides
coverage in North America as far west as Phoenix and Denver and in Europe as far
east as Istanbul, Kiev and Tallinn.
Telstar 12 (formerly known as Orion 2), a high power satellite with 57
Ku-band transponders, commenced operations in January 2000 and expands Loral
CyberStar's European coverage and extends coverage to portions of the former
Soviet Union, Latin America, the Middle East and South Africa.
On May 4, 1999, the Orion 3 satellite was placed into a lower-than-expected
orbit after its launch on a Delta III rocket. According to Boeing, the Delta III
rocket apparently failed to complete its second stage burn, and, as a result,
the satellite, manufactured by Hughes Space and Communications Corporation,
achieved an orbit well below the planned final altitude and could not be used
for its intended purpose. The satellite and launch were fully insured for
approximately $266 million, which was received in 1999.
To replace Orion 3, on September 28, 1999, Loral CyberStar purchased from
APT Satellite Company Limited ("APT") all transponder capacity (except for one
C-band transponder retained by APT) and existing customer leases on the Apstar
IIR satellite for approximately $273 million. Insurance proceeds from the May 4,
1999 launch failure of the Orion 3 satellite were used to fund substantially all
of this purchase price.
Loral CyberStar has full use of 28 C-band and 24 Ku-band transponders
aboard Apstar IIR for the remaining life of the satellite. Located at 76.5
degrees E.L., Apstar IIR covers a region that includes Asia, Europe, Africa and
Australia, which represents over 75% of the world's population. Under the
purchase agreement, Loral CyberStar will also have the option to lease
replacement satellites from APT upon the end of life of Apstar IIR. In November
1999, the satellite was renamed Telstar 10/Apstar IIR.
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Satmex
Satmex, our 49% owned affiliate, is currently the dominant satellite
communications company providing fixed satellite services in Mexico, and intends
to expand its services to become a leading provider of satellite services
throughout Latin America.
Satmex provides satellite transmission capacity to broadcasting customers
for network and cable television programming, DTH service and on-site
transmission of live news reports, sporting events and other video feeds. Satmex
also provides satellite transmission capacity to telecommunications service
providers for public telephone networks in Mexico and elsewhere and to corporate
customers for their private business networks for data, voice and video
applications. Satmex has landing rights to provide broadcasting and
telecommunications transmission capacity in Mexico, the United States, Canada
and 29 nations and territories in the Latin American region. Satmex's
broadcasting customers include Televisa, MVS Multivision and Television Azteca,
and its telecommunications services and data customers include Telmex, Bell
South, Hughes Network Systems and the Mexican subsidiaries of Ford and
DaimlerChrysler.
Satmex's satellites, Solidaridad 2 and Satmex 5, have a total of 96 36-MHz
transponder-equivalents operating in the C and Ku-band, with an aggregate
footprint covering substantially all of the continental United States and the
Caribbean as well as all of Latin America, other than certain regions in Brazil.
On August 29, 2000, Satmex's Solidaridad 1 satellite ceased operation and was
considered irretrievably lost. Satmex received net insurance proceeds of $235
million relating to this loss. Satmex has contracted with SS/L to build its
replacement satellite. This satellite, known as Satmex 6, is scheduled to be
launched in January 2003 and is designed to provide broader coverage and higher
power levels than any other satellite currently in the Satmex fleet. In the
interim, most of Solidaridad 1's customers have been transferred to other
satellites in the Loral Global Alliance.
We believe that this capacity is one of the largest blocks of satellite
capacity dedicated primarily to the Latin American region. Satmex holds 20-year
concession titles to operate in these three orbital locations, each of which
will expire on October 22, 2017. The concession titles are renewable thereafter,
subject to certain conditions, for an additional 20-year term without additional
payment. In addition, Satmex operates two satellite control centers.
Europe*Star
Europe*Star, a joint venture between Loral and Alcatel, launched
Europe*Star 1, an all Ku-band satellite, in October 2000. Europe*Star 1,
marketed as part of the Loral Global Alliance, commenced commercial service in
January 2001.
Loral currently owns 47% of Europe*Star, and pursuant to the terms of the
shareholders agreement has permitted its joint venture partner, Alcatel, to fund
additional expenditures to develop Europe*Star's business and infrastructure
through approximately $175 million in loans to the venture. Loral has the right
to elect either to match the amount of such loans or permit Alcatel to elect to
convert some or all its loans into equity, diluting our equity in the venture to
as little as approximately 22%.
FSS Segment Results
Total revenues for the fixed satellite services segment, including
intercompany and affiliate sales, were $461 million, $342 million and $254
million for 2000, 1999 and 1998, respectively. The segment's intercompany sales
were $37 million in 2000, $11 million in 1999 and $5 million in 1998. Affiliate
sales for Satmex were $136 million in 2000 and 1999 (including approximately $28
million to Loral companies in 1999) and $105 million in 1998. Segment EBITDA was
$282 million, $193 million and $171 million for 2000, 1999 and 1998,
respectively. Total assets for the segment were $4.0 billion, $3.9 billion and
$3.4 billion as of December 31, 2000, 1999 and 1998, respectively.
As of December 31, 2000 and 1999, funded backlog for the segment was $2.4
billion and $1.5 billion, respectively, including intercompany backlog of $65
million in 2000 and $3 million in 1999 and affiliate backlog of $546 million for
Satmex and Europe*Star in 2000 and $364 million for Satmex in 1999.
Approximately $440 million of the segment's 2000 funded backlog is expected to
be realized in 2001.
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SATELLITE MANUFACTURING AND TECHNOLOGY
SS/L is a worldwide leader in the design, manufacture and integration of
satellites and space systems. SS/L draws on its 40-year history, during which
satellites manufactured by SS/L have achieved more than 800 years of cumulative
on-orbit experience. SS/L also provides Loral with visibility into emerging and
new satellite-based technologies and applications. SS/L manufactures satellites
that provide telecommunications, weather forecasting and broadcast services.
SS/L is the leading supplier of satellites to Intelsat, an international
consortium of member nations which is currently the world's largest operator of
commercial communications satellites. Other significant customers include
EchoStar, WildBlue, Loral Skynet, Sirius Satellite Radio (formerly known as CD
Radio), Shin Satellite and Cable & Wireless Optus of Australia.
As one of the premier providers of satellites and other space systems, SS/L
competes principally on the basis of technical excellence, a long record of
reliable performance, competitive pricing and on-orbit delivery packages. We
believe that SS/L's advanced manufacturing and testing facilities and long-term
customer relationships have enabled SS/L to compete effectively in the
commercial space systems marketplace.
SS/L has a history of technical innovation that includes the first
three-axis stabilized satellites, bipropellant propulsion systems for commercial
satellites that permit significant increases in the satellites' payload and
extend the satellites' on-orbit lifetime, rechargeable nickel-hydrogen batteries
with a life span of 10 years or more, the use of advanced composites to
significantly enhance satellite performance at lighter weights and the first
communications satellite with more than ten kilowatts of power. SS/L was also
the first satellite manufacturer to employ heat pipes to control heat transfer
in commercial satellites, thereby providing a more benign temperature
environment and increased reliability. SS/L also created the first multi-mission
geostationary satellite and was one of the first U.S. companies to acquire space
technology from Russia's space industry, obtaining exclusive rights outside the
former Eastern bloc to an electric propulsion subsystem that is five times more
efficient than bipropellant propulsion systems.
SS/L's geostationary satellite product portfolio continues to evolve to
best meet the current and future needs of the market. SS/L now offers a line of
three products that provide customers with a great span of power and capability:
the space-proven 1300, the advanced 1300S, and the 20.20, one of the most
powerful commercial spacecraft offered today. The power on SS/L-designed
satellites reaches from 5 kilowatts to as high as 30 kilowatts, and the number
of transponders that can be accommodated goes from as few as 1 to as many as
150.
Total revenues for the satellite manufacturing and technology segment,
including intercompany sales, were $1.0 billion for 2000, and $1.4 billion for
1999 and 1998. The segment's intercompany sales were $192 million in 2000, $255
million in 1999 and $272 million in 1998. Segment EBITDA was $36 million in 2000
after $77 million of increased costs relating to manufacturing delays and
customer contract issues, $102 million in 1999 after a $44 million charge
relating to an agreement reached with a customer regarding a satellite contract
and $118 million in 1998. Total assets for the segment were $1.2 billion, $1.6
billion and $1.7 billion as of December 31, 2000, 1999 and 1998, respectively.
As of December 31, 2000 and 1999, funded backlog for the segment was $1.7
billion and $1.3 billion, respectively, including intercompany backlog of $477
million in 2000 and $256 million in 1999. Approximately $800 million of the 2000
external funded backlog is expected to be realized in 2001. Revenues recorded
under contracts with Globalstar were $134 million, $360 million and $599 million
for 2000, 1999 and 1998, respectively. In addition, sales to two other customers
represented in excess of 10% of the Company's consolidated revenues in 2000,
1999 and 1998. For 2000, 1999 and 1998, the segment expended $26 million, $35
million and $35 million for research and development projects, respectively.
DATA SERVICES
Using the 10-satellite GEO constellation of the Loral Global Alliance and
third party capacity, orbital slots around the world, access to fiber networks
and internet backbone entry (peering) points, Loral can
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provide its customers with the ability to distribute large, complex digital
video and data files to multiple locations throughout the world rapidly and cost
effectively. The Loral CyberStar Group currently:
- delivers U.S.-based Internet content via satellite to more than 173 ISPs
in more than 36 foreign countries, which reach approximately seven
million residential customers around the world;
- distributes high-speed data over private corporate VSAT (very small
aperture terminals) networks which currently reach 183 customers, 621
sites and approximately 11,000 desktops; and
- offers business television (BTV) services by satellite to corporations
for the delivery of teleconferences, distance learning and training, and
special events.
Loral CyberStar also recently began beta trials for its streaming media
services with a select group of corporate customers. Loral believes that with
the technical advantages inherent in satellite delivery, streaming media service
will be a valuable addition to Loral CyberStar's service offering to its
customers.
In January of 2001, Loral announced that in keeping with its strategy to
redirect the Company's resources and attention to its core businesses, it has
substantially revised its plan for participation in the broadband communications
market. Loral will not deploy a proprietary direct-to-the-consumer broadband
service, as previously planned, with its attendant time-to-market, partner,
marketing and financial challenges. Rather, Loral will participate in the
broadband market by providing its customers with satellite platforms for their
broadband offerings, through Loral's expansion of its fixed satellite services
fleet and related capabilities and through its satellite design and production
capabilities. With this new strategy, Loral will build on existing expertise,
strengths and resources to address the expanding market for today's broadband
services. Loral's fixed satellite services and satellite manufacturing
businesses will be leading merchant suppliers to customers who require access to
Loral's technology or satellites in order to meet their business objectives.
Loral's manufacturing facilities, satellites and services will support current
and future customers who are operating or planning to operate within one of the
many niches in the broadband environment by providing a data delivery platform
to them, designing and building a satellite for them, managing their satellites,
leasing transponders to them or tailoring Loral's satellite services to their
business specifications.
The following companies have announced their intention to deliver broadband
services directly to consumers: Echostar, Boeing, Gilat, Hughes Network Systems,
Netsat Express, Wildblue, Direct TV, Pegasus, Skybridge and Teledesic. As many
of these providers are existing customers of either Loral's fixed satellite
services or satellite manufacturing business, Loral will be able to leverage
these existing relationships and provide them with a scaleable level of service
so as to meet their individual needs.
In addition, Loral brings resources to support its broadband offering.
Loral owns two Ku-band satellites in-orbit at 89 degrees and 93 degrees West
Longitude, both well placed for servicing the North American market. Loral is
also designing two Ka-band satellites with spot beam capacity for those same
slots. Ku-band capacity is available now for limited broadband transmission,
allowing customers immediate entry into the broadband market. Loral's Telstar 8
satellite under construction is scheduled to be launched in 2002 and will
include Ka-band capacity as part of Loral Skynet's fixed satellite services.
Satellite-based broadband delivery systems have a number of favorable
technical characteristics, including point-to-multipoint broadcasting
capability, geographic ubiquity, rapid development, high capacity and low cost.
Loral believes that these characteristics will be of increasing importance in
the near future as broadband Internet access becomes an increasingly universal
requirement and Internet content continues to become richer and more complex,
particularly in the most popular sites.
Total revenues for the data services segment were $130 million, $85 million
and $40 million for 2000, 1999 and 1998, respectively. Segment EBITDA was a loss
of $30 million, $36 million and $47 million in 2000, 1999 and 1998,
respectively. Total assets for the segment were $226 million, $114 million and
$153 million as of December 31, 2000, 1999 and 1998, respectively.
As of December 31, 2000 and 1999, funded backlog for the segment was $191
million and $236 million, respectively, which was all from external sources.
Approximately $60 million of 2000 external funded backlog is expected to be
realized in 2001.
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Investment in Globalstar
A subsidiary of Loral acts as the managing general partner of Globalstar,
which owns and operates a satellite constellation that forms the backbone of a
global telecommunications network designed to serve virtually every populated
area of the world.
Globalstar commenced commercial operations in the first quarter of 2000,
and as of February 15, 2001, was providing service through 25 gateways, covering
109 countries, including all of North and South America (excluding northwestern
Alaska and portions of Canada above 70 degrees north latitude), Europe and
Russia. As of December 31, 2000, Globalstar had approximately 31,000 commercial
subscribers on its system. For the year ended December 31, 2000, Globalstar
recorded net revenues of $3.65 million and provided 6,604,000 minutes of
billable telecommunication services. Globalstar's revenues during 2000 were well
below Globalstar management's initial expectations and have not provided
sufficient cash flows to fund Globalstar's operations or service its debt
obligations. Globalstar's revenue performance during the fourth quarter of 2000
caused Globalstar management, in conjunction with its service provider partners,
to perform a reassessment of its business plan and long term revenue
projections.
In January 2001, Globalstar suspended indefinitely principal and interest
payments on its debt and dividend payments on its redeemable preferred
partnership interests in order to conserve cash for operations so as to provide
it with additional time to expand its customer base, develop new applications
and demonstrate its viability. Loral does not intend to provide any further
funding to Globalstar, which expects to have sufficient cash, after suspension
of debt and dividend payments, to fund its operations through 2001. As of
December 31, 2000, our direct and indirect investment in connection with
Globalstar related activities included about 39% of Globalstar's common equity,
about 27% of its debt, an investment in GTL preferred stock and investments in
and advances to Globalstar service provider partnerships. Loral, through its
interests in various joint ventures, continues to participate and to fund its
share of the operations of Globalstar service providers in Brazil, Canada,
Mexico and Russia. These Globalstar service providers have constructed and
operate gateways, are licensed to provide services and, through their sales and
marketing organizations, are actively selling Globalstar service, in their
respective territories.
In the fourth quarter of 2000, Globalstar recorded a $2.9 billion
impairment charge related to the $3.2 billion carrying value of the Globalstar
System, including spare satellites, launch deposits, unsold production gateways,
user terminals and related assets. This charge resulted from the revision of
estimates of gross cash flows through 2009, the estimated end of useful life of
the Globalstar System, and the determination that these assets were impaired.
The fair value, for purposes of measuring Globalstar's impairment at December
31, 2000, was determined by discounting these cash flows. Gross cash flows were
based on revenue projections offset by estimated expenditures for operations and
capital expenditures. Revenue projections were based on Globalstar's current
market outlook, which is significantly influenced by service provider
projections. Including the $2.9 billion impairment charge, Globalstar's net loss
applicable to ordinary partnership interests in 2000 was $3.8 billion.
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REGULATION
TELECOMMUNICATIONS REGULATION
As an operator of a privately-owned global satellite system, Loral is
subject to: (i) the regulatory authority of the U.S. government; (ii) the
regulatory authority of other countries in which Loral operates; (iii) the
Intelsat consultation process; and (iv) the frequency coordination process of
the International Telecommunications Union ("ITU"). Loral's ability to provide
satellite service in a particular country or region is subject to the technical
constraints of its satellites, international coordination, local regulatory
approval and any limitation as to the scope of the approval so obtained.
U.S. REGULATION
The ownership and operation of Loral's satellite systems in the U.S. is
regulated by the Federal Communications Commission (the "FCC"). Loral is subject
to the FCC's jurisdiction primarily for: (i) the licensing of satellites and
earth stations; (ii) avoidance of interference with other radio stations; and
(iii) compliance with FCC rules governing U.S.-licensed satellite systems.
Violations of the FCC's rules can result in various sanctions including fines,
loss of authorizations, or the denial of new authorizations or renewal
authorizations. Loral is not regulated as a common carrier and, therefore, is
not subject to rate regulation or the obligation not to discriminate among
customers. Loral must pay FCC filing fees in connection with its space station
and earth station applications; must pay annual regulatory fees that are
intended to defray the FCC's regulatory expenses; must file annual status
reports with the FCC; and, to the extent Loral is deemed to be providing
interstate/international telecommunications, must contribute to funds used to
support universal service.
Authorization to Launch and Operate Satellites
The FCC grants authorizations to satellite operators that meet its legal,
technical and financial qualification requirements. The FCC often receives
applications from multiple operators to operate a satellite at a given orbital
slot. There can be no assurance that in the process of resolving such mutually
exclusive applications, Loral's application will be granted. Under the FCC's
financial qualification rules, an applicant must demonstrate that it has
sufficient funds to construct, launch, and operate each requested satellite for
one year. Most satellite authorizations also include specific construction and
launch milestones which Loral must meet. Licenses are usually issued for an
initial ten-year term and FCC policy provides licensees with an "expectancy"
with respect to the replacement of their authorized satellites. At the end of a
ten-year license term, a satellite that has not been replaced, or that has been
relocated to another orbital location following its replacement, may be allowed
to continue operations for a limited period of time pursuant to a grant of
special temporary authority from the FCC. Such operations, however, are subject
to certain restrictions.
Loral has final FCC authorization for the following satellites which
operate in the C-band, the Ku-band, or both bands: Telstar 4 at 89(degrees)
W.L., Telstar 5 at 97(degrees) W.L., Telstar 6 at 93(degrees) W.L., Telstar 7 at
129(degrees) W.L., Telstar 8 at 77(degrees) W.L., Telstar 9 at 69(degrees) W.L.,
Telstar 11 at 37.5(degrees) W.L., Telstar 12 at 15(degrees) W.L. and Orion A at
47(degrees) W.L. R/L DBS Company, L.L.C., a joint venture in which Loral owns a
50% interest, also has 11 odd numbered DBS channels 1-21 at 61.5(degrees) W.L.
Certain of these authorizations are subject to pending petitions for
reconsiderations submitted by third parties. The final FCC authorizations for
certain of these satellites also do not cover certain design changes or
milestone extension requests that are the subject of pending modification
applications. Certain of these modification applications have been opposed by
other satellite operators. There can be no assurance that such design changes or
milestone extensions will be granted by the FCC. The failure to obtain a
milestone extension could result in the loss of the related FCC authorization.
If Loral is unable to obtain FCC approval to implement its requested technical
modifications for any particular authorization, it will be obligated to operate
the related satellite in accordance with the original authorization.
In addition, Loral has final authorization to operate at the following
orbital slots: Ka-band at 89(degrees) W.L., 81(degrees) W.L., 93(degrees) W.L.,
115(degrees) W.L., 78(degrees) E.L., 105.5(degrees) E.L., 67(degrees) W.L. and
126.5(degrees) E.L. and hybrid Ka/Ku-band at 47(degrees) W.L. Loral has requests
for technical modifications and requests for milestones extensions pending
before the FCC. There can be no assurance that the FCC will grant such
modifications or milestone extensions.
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Loral also has conditional authorizations and applications pending before
the FCC for other orbital locations. Under the FCC's rules, an applicant may
commence satellite construction prior to receiving an authorization to launch
and operate, although it must notify the FCC that it intends to commence
construction. Any construction engaged in is at the applicant's own risk. While
Loral therefore may proceed with the construction of planned satellites without
prior FCC approval, it must accept the risk that the FCC may not grant the
application, may not assign the satellite to its proposed orbital location, or
otherwise may act in a manner that limits or eliminates some or all of the value
of the construction previously done on the satellite.
Scope of Services Authorized
In 1996, the FCC largely eliminated the regulatory distinction between U.S.
domestic satellites and U.S.-licensed international satellites. As a result,
each of Loral's satellites may be used, to the extent technically feasible, to
provide both U.S. domestic and international services.
Coordination Requirements
The FCC requires applicants to demonstrate that their proposed satellites
would be compatible with the operations of adjacent satellites. The FCC requires
adjacent satellite operators to coordinate with one another to minimize
frequency conflicts. The FCC reserves the right to require that an FCC licensed
satellite be relocated to a different orbital location if it determines that
such a change is in the public interest. The FCC might exercise this authority
in instances where operators are unable to coordinate with each other.
REGULATION BY NON-U.S. NATIONAL TELECOMMUNICATIONS AUTHORITIES
Foreign laws and regulatory practices governing the provision of satellite
services to licensed entities and directly to end users vary substantially from
country to country. Some countries may require Loral to confirm that it has
successfully completed technical consultation with Intelsat before providing
services on a given satellite. In addition, Loral may be subject to
communications and/or broadcasting laws with respect to its provision of
international satellite services, which vary from country to country.
Many countries have liberalized their regulations to permit entities to
seek licenses to provide voice, data or video services. This trend should
accelerate with the commitments by many World Trade Organization ("WTO")
members, in the context of the WTO Agreement on Basic Telecommunications
Services, to open their satellite markets to competition. Other countries,
however, have maintained strict monopoly regimes. In such markets, the provision
of service from Loral and other U.S.-licensed satellites may be more
complicated.
In addition to the orbital slots licensed by the FCC, Loral has been
assigned orbital slots by certain other countries. For example, Loral has been
authorized to use numerous Ku- and Ka-orbital slots by the Papua New Guinea
government. In March 1999, the Brazilian telecommunications authority announced
that Loral had won Brazil's auction for its 63(degrees) W.L. Ku-band orbital
slot. Loral operates capacity on the Telstar 10/ Apstar IIR C/Ku-band satellite
licensed by China and located at 76.5(degrees) E.L. Satmex, of which Loral owns
49%, is licensed by Mexico to operate the C/Ku-band satellites at 109.2(degrees)
W.L., 113.0(degrees) W.L., and 116.8(degrees) W.L. Europe*Star, of which Loral
owns 47%, is licensed by Germany to operate Ku-band satellites at 45(degrees)
E.L. and 47.5(degrees) E.L.
Intelsat Consultation
In connection with its international satellite services, Loral must
currently complete a consultation process with Intelsat under Article XIV of the
Intelsat Agreement to ensure technical compatibility of Loral's facilities and
their operation with the spectrum and orbital locations of existing or planned
Intelsat satellites. This process, however, may be eliminated as a result of the
privatization of Intelsat.
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The ITU Frequency Coordination Process
All satellite systems are subject to ITU frequency coordination
requirements and must obtain appropriate authority to provide service in a given
territory. The result of the required international coordination process may
limit the extent to which all or some portion of a particular authorized orbital
slot may be used for commercial operations, with a corresponding impact on the
useable capacity of a satellite at that location. In addition, the result of the
process by which satellite systems must seek authorization to provide service in
a given territory may limit the extent to which such service may be provided
from a given orbital location.
All of the registrations for Loral's satellites are or will be subject to
the ITU coordination process. Only national governments file required
coordination documents at the ITU. These documents are used by Loral and other
satellite operators as a basis for coordination of satellite systems. There may
be more than one ITU filing submitted for any particular orbital slot, or an
orbital slot adjacent thereto, thus requiring coordination between or among the
affected operators. The results of this coordination process may impose
technical constraints on Loral's ability to operate its satellites at a given
orbital location, if at all. Loral cannot guarantee successful frequency
coordination for its satellites.
APPLICATIONS AND ITU FILINGS
Loral has ITU filings at 3.5(degrees) E.L., 8(degrees) E.L., 1(degrees)
E.L., 11(degrees) E.L., 30(degrees) E.L., 81(degrees) E.L., 105.5(degrees) E.L.,
135(degrees) E.L., 58(degrees) W.L., 95(degrees) W.L., 115(degrees) W.L. and
135(degrees) W.L. for use of the V-band frequency. Loral also has ITU filings at
98(degrees) E.L., 122(degrees) E.L., 130(degrees) E.L., 167.45(degrees) E.L.,
121(degrees) W.L. and 175(degrees) W.L. for use of the C- and Ku-band
frequencies. Europe*Star has ITU filings at 43(degrees) E.L. and 47.5(degrees)
E.L. for use of the Ku-band frequency.
Loral has applications pending at 77(degrees) W.L. for use of the Extended
C/Ku-band frequencies, at 81(degrees) W.L. for use of the Ku-band and extended
Ku-band frequencies and at 135(degrees) W.L., 115(degrees) W.L., 95(degrees)
W.L. and at 58(degrees) W.L. for use of the V-band frequency. Loral has
applications pending at 126(degrees) E.L. for use of the Ku/Extended Ku/C and
Extended C-band frequencies, and at 95(degrees) W.L. and 15(degrees) W.L. for
use of the Ka-band frequency.
EXPORT REGULATION
Exports from the United States of commercial communication satellites, and
certain related items, technical data and services, are subject to United States
export control laws and regulations. These export control laws and regulations
affect the export of satellites and certain related items, technical data and
services to foreign launch providers, insurers, customers, potential customers
and business partners, as well as to foreign Loral employees, foreign regulatory
bodies, foreign national telecommunications authorities and to foreign persons
generally. Commercial communications satellites and certain related items,
technical data and services have been added to the United States Munitions List
and export jurisdiction over these satellites and certain related items,
technical data and services has been transferred to the U.S. Department of State
and made subject to the Arms Export Control Act and the International Traffic in
Arms Regulations. Other items, technical data and services exported by Loral
remain subject to the export jurisdiction of the U.S. Department of Commerce,
pursuant to the Export Administration Act and the Export Administration
Regulations.
U.S. Government licenses or other approvals generally must be applied for
by Loral and obtained before such exports are made. There can be no assurance
that such licenses or approvals will be granted. Also, licenses or approvals may
be granted with limitations, provisos or other requirements imposed by the U.S.
Government as a condition of approval, which may affect the scope of permissible
activity under the license or approval. U.S. Government approval may be required
before such satellites and related items, technical data and services are
re-exported or transferred from one foreign person to another foreign person.
There can be no assurance that such approvals will be granted. Also, such
approvals may be granted subject to limitations, provisos or other requirements
imposed by the U.S. Government as a condition of approval, which may affect the
scope of permissible activity under the license or approval.
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PATENTS AND PROPRIETARY RIGHTS
SS/L relies, in part, on patents, trade secrets and know-how to develop and
maintain its competitive position. It holds 184 patents in the United States and
296 patents abroad and has applications for 91 patents pending in the United
States and 329 patents pending abroad. SS/L patents include those relating to
communications, station keeping, power control systems, antennae, filters and
oscillators, phase arrays and thermal control as well as assembly and
inspections technology. The SS/L patents that are currently in force expire
between 2001 and 2018.
Loral CyberStar and CyberStar LP have three and four patents in the United
States, respectively. In addition, Loral CyberStar, Loral SpaceCom Corporation
and CyberStar LP have two, four and 12 patents pending in the United States,
respectively, and one, 11 and 13 patents pending abroad, respectively.
There can be no assurance that any of the pending patent applications by
the Company will be issued. Moreover, because the U.S. patent application
process is confidential, there can be no assurance that third parties, including
competitors, do not have patents pending that could result in issued patents
which the Company would infringe. In such an event, the Company could be
required to pay royalties to obtain a license, which could increase costs.
FOREIGN OPERATIONS
Sales to foreign customers, primarily in Europe and Asia, represented 23%,
14% and 16% of the Company's consolidated revenues for 2000, 1999 and 1998,
respectively. As of December 31, 2000, 1999 and 1998, the Company had
substantially all of its long-lived assets located in the United States with the
exception of the in-orbit satellites. See "Certain Factors that May Affect
Future Results -- We face risks in conducting business internationally" for a
discussion of the risks related to operating internationally.
EMPLOYEES
As of December 31, 2000, the Company had approximately 3,700 full-time
employees (including approximately 225 employees for Satmex), some of whom are
subject to collective bargaining agreements. We consider our employee relations
to be satisfactory.
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CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
This annual report on Form 10-K contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. In addition,
from time to time, we or our representatives have made or may make forward-
looking statements, orally or in writing. They can be identified by the use of
forward-looking words such as "believes", "expects", "plans", "may", "will",
"would", "could", "should", "anticipates", "estimates", "project", "intend", or
"outlook" or their negatives or other variations of these words or other
comparable words, or by discussions of strategy that involve risks and
uncertainties. Such forward-looking statements may be included in, but are not
limited to, various filings made by us with the Securities and Exchange
Commission, press releases or oral statements made by or with the approval of an
authorized executive officer. We warn you that forward-looking statements are
only predictions. Actual events or results may differ materially as a result of
risks that we face, including those presented below. We undertake no obligation
to update any forward-looking statements. The following are representative of
factors that could affect the outcome of the forward-looking statements.
WE HAVE SUBSTANTIAL DEBT AND GUARANTEE OBLIGATIONS.
We and our subsidiaries and operating affiliates have a significant amount
of outstanding debt and guarantee obligations. As of December 31, 2000:
- Our consolidated total debt was $2.5 billion.
- Our unconsolidated affiliate, Globalstar, had $1.45 billion principal
amount of senior notes outstanding. In addition, it had $500 million
outstanding under its credit facility, $250 million of three-year notes
and $788 million of vendor financing; a significant portion of this debt
is owed to us. Globalstar has suspended indefinitely principal and
interest payments on its debt, including on debt owed to us.
- Satmex, our 49%-owned Mexico affiliate, had total debt of $572 million.
In addition, Servicios Corporativos Satelitales, S.A. de C.V., the parent
company of Satmex, in which we have a 65% interest, has an obligation to
the government of Mexico with an initial face amount of $125 million
which accretes at 6.03% over a seven-year period, expiring in December
2004. We have agreed to maintain our stock ownership interests in the
parent company of Servicios in a trust to collateralize this obligation.
We intend to use our cash and available credit ($459 million at December
31, 2000) to help fund the growth and operation of our businesses. If any of our
subsidiaries or affiliates finds itself faced with default, we may be faced with
a choice between providing additional support to that company or accepting the
loss of some or all of our investment. We do not intend to provide any further
funding to Globalstar, which expects to have sufficient cash, after suspension
of debt, interest and dividend payments, to fund its operations through 2001.
DUE TO POOR SUBSCRIBER TAKE-UP RATES, GLOBALSTAR IS UNABLE TO PAY ITS DEBT
OBLIGATIONS AS THEY BECOME DUE, AND WILL REQUIRE ADDITIONAL FINANCING TO
CONTINUE ITS OPERATIONS. DURING 2000, WE HAVE RECORDED AFTER-TAX CHARGES OF
APPROXIMATELY $1.4 BILLION FOR GLOBALSTAR RELATED ACTIVITIES.
In January 2001, Globalstar suspended indefinitely principal and interest
payments on its debt and dividend payments on its redeemable preferred
partnership interests in order to conserve cash for operations. Globalstar is
currently in default under its $500 million credit facility due to Loral, its
vendor financing facility with QUALCOMM, and its 11 3/8% senior notes due
February 15, 2004. Globalstar expects that events of default will occur with
regard to Globalstar's other three senior note indentures when interest payments
become due in May and June of 2001. The aforementioned debt that is currently in
default is now subject to immediate acceleration by its holders. Globalstar has
retained The Blackstone Group as its financial adviser to assist in evaluating
its business plan and develop initiatives, including restructuring its debt,
identifying funding opportunities and pursuing other strategic alternatives.
As of December 31, 2000, our direct and indirect investment in connection
with Globalstar related activities included about 39% of Globalstar's common
equity, about 27% of its debt, an investment in GTL preferred stock and
investments in and advances to Globalstar service provider partnerships. During
2000, we
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recorded after-tax charges of approximately $1.4 billion related to our
investment in and advances in connection with Globalstar related activities,
which included our after-tax share of Globalstar's impairment charges of
approximately $882 million and after-tax impairment charges of $112 million,
resulting from the write-down of investments in and advances to Globalstar
service provider partnerships to their estimated fair value. After these
charges, our investment in Globalstar related activities was approximately $62
million as of December 31, 2000. In addition, Loral intends to continue to fund
its share of the operations of those Globalstar service provider ventures in
which it participates as an equity owner. If Globalstar is unable to effectuate
a successful restructuring, Loral's remaining investment in Globalstar and any
additional investment in Globalstar service providers would be impaired.
Globalstar is currently developing a new business plan that will offer a
basis for a restructuring proposal that it will provide to its creditors. If it
is unable to effectuate an out-of-court restructuring, Globalstar may file for
bankruptcy protection. Moreover, its creditors may seek to initiate involuntary
bankruptcy proceedings against Globalstar. Our equity interests in Globalstar
may be eliminated entirely in any such bankruptcy proceeding, as it might in an
out-of-court restructuring. The Globalstar debt obligations we hold are senior
unsecured obligations that rank equally in right of payments with all other
Globalstar debt obligations. In other situations in the past, challenges have
been initiated seeking subordination or recharacterization of debt held by an
affiliate of an issuer. While we know of no reason why such a claim would
prevail with respect to the debt we hold in Globalstar, there can be no
assurance that such claims will not be made in any restructuring or bankruptcy
proceeding involving Globalstar. Moreover, there can be no assurance that
actions will not be initiated in a Globalstar bankruptcy proceeding to
characterize payments previously made by Globalstar to us as preferential
payments subject to repayment. We may also find ourselves subject to other
claims brought by Globalstar creditors and securities holders, who may seek to
impose liabilities on us as a result of our relationship with Globalstar. For
example, we have been named as a defendant in various lawsuits brought by
shareholders of Globalstar Telecommunications Limited ("GTL") alleging
controlling person liability in respect of certain statements made by GTL and
its representatives. While these proceedings are in their very early stages,
management believes that these matters will not have a material adverse effect
on the consolidated financial position or results of operations of Loral.
THE ABILITY OF OUR SUBSIDIARIES TO PAY DIVIDENDS TO US OR OTHERWISE SUPPORT OUR
OBLIGATIONS IS LIMITED BY THE TERMS OF THEIR DEBT INSTRUMENTS.
Loral SpaceCom Corporation's ("Loral SpaceCom") credit facility allows
dividend payments to us if cumulative dividend payments do not exceed 50% of its
cumulative consolidated net income and the ratio of its funded debt to EBITDA is
less than 3.0 to 1.0. For the year ended December 31, 2000, Loral SpaceCom had
no capacity under this covenant to pay us any dividends. The credit facility
further provides that Loral SpaceCom may pay dividends to us of up to $70
million subject to there being at least $700 million in shareholders' equity. In
December 2000, Loral SpaceCom used up this capacity in full when it paid a $70
million dividend to its parent.
Loral Satellite Inc.'s credit agreement also imposes restrictions on its
ability to pay dividends to its parent, which is a wholly-owned subsidiary of
the Company. Such restrictions include, for instance, that dividends can be paid
only after Loral Satellite shall have made loans to Loral in an aggregate
principal outstanding amount of $100 million or more.
Under the terms of its indentures, Loral CyberStar is currently prevented
from paying dividends and is unlikely to pay any dividends in the foreseeable
future.
IF OUR BUSINESS PLAN DOES NOT SUCCEED, OUR OPERATIONS MIGHT NOT GENERATE ENOUGH
CASH TO PAY OUR OBLIGATIONS.
For the year ended December 31, 2000, we had a deficiency of earnings to
cover fixed charges of $153 million. In addition to our debt service
requirements, our businesses are capital intensive and need substantial
investment before returns can be realized. For example, we will incur
significant expenditures to construct and launch new satellites for our fixed
satellite services business. Loral CyberStar also anticipates that it will have
additional cash requirements over the next three years to pay for certain
investments including purchase of VSATs, other capital expenditures, senior note
interest payments and other operating needs, which it will need to secure from
us or externally. We are subject to substantial financial risks from possible
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delays or reductions in revenue, unforeseen capital needs or unforeseen
expenses. Our ability to meet our obligations and execute our business plan
could depend upon our ability, and that of our operating subsidiaries and
affiliates, to raise cash in the capital markets. We are uncertain whether this
source of cash will be available in the future on favorable terms if at all.
LAUNCH FAILURES HAVE DELAYED SOME OF OUR OPERATIONS IN THE PAST AND MAY DO SO
AGAIN IN THE FUTURE.
We depend on third parties, in the United States and abroad, to launch our
satellites. Satellite launches are risky, and launch attempts have ended in
failure. We ordinarily insure against launch failures, but at considerable cost.
The cost and the availability of insurance vary depending on market conditions
and the launch vehicle used. Our insurance typically does not cover business
interruption, and so launch failures result in uninsured economic losses.
Replacement of a lost satellite typically requires up to 24 months from the time
a contract is executed until the launch date of the replacement satellite.
AFTER LAUNCH, OUR SATELLITES REMAIN VULNERABLE TO IN-ORBIT FAILURE, WHICH MAY
RESULT IN UNINSURED LOSSES.
Failure of satellite components in space may result in damage to or loss of
a satellite before the end of its expected life. Satellites are carefully built
and tested and have some redundant systems to save the satellite in case of
failure. However, in-orbit failure may result from various causes, some random,
including:
- component failure;
- loss of power or fuel;
- inability to maintain positioning of the satellite;
- solar and other astronomical events; and
- space debris.
Repair of satellites in space is not feasible. Many factors affect the
useful lives of our satellites including:
- fuel consumption;
- the quality of construction;
- degradation of solar panels; and
- the durability of components.
Although some failures may be covered in part by insurance, they may result
in uninsured losses as well. For example, when Loral Skynet experienced the
total loss of two satellites in 1994 and 1997 while under AT&T's ownership, it
suffered a substantial drop in its profits due to the loss of revenues.
SOME OF THE SATELLITES WE CURRENTLY HAVE IN-ORBIT HAVE EXPERIENCED OPERATIONAL
PROBLEMS.
- In November 1995, a component on Telstar 11 malfunctioned, resulting in a
two-hour service interruption. Full service was restored using a back-up
component; if that backup component fails, Telstar 11 would lose a
significant amount of usable capacity.
- On August 29, 2000 Satmex's Solidaridad 1 satellite ceased operation and
was considered irretrievably lost. The loss was caused by the failure of
the back-up control processor on board the satellite. Solidaridad 1,
which was built by Hughes Space & Communications and launched in 1994,
experienced a failure of its primary control processor in April 1999, and
the satellite had been operating on its back-up processor since that
time. Satmex received net insurance proceeds of $235 million relating to
this loss. Satmex has contracted with SS/L to build its replacement
satellite. This satellite, known as Satmex 6, is scheduled to be launched
in 2003, and is designed to provide broader coverage and higher power
levels than any other satellite currently in the Satmex fleet.
While we have in the past, consistent with industry practice, typically
obtained in-orbit insurance for our satellites, we cannot guarantee that upon a
policy's expiration, we will be able to renew the insurance on terms acceptable
to us, especially on satellites that have, or that are part of a family of
satellites that have, experienced problems in the past. For example, the
existing insurance policy for Solidaridad 2 expires in November 2002 and a
renewal policy may not insure against in-orbit failure arising from the loss of
the satellite's control processor, the same component that failed on Solidaridad
1 and other Hughes satellites. An
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uninsured loss of a satellite will have a material adverse effect on our results
of operations and financial condition.
A loss of transponders on a satellite can also hurt us. Loral Skynet has in
the past entered into prepaid leases and sales contracts relating to
transponders on its satellites. Under the terms of these agreements, Loral
Skynet continues to operate the satellites which carry the transponders and
provides a warranty for a period of 10 to 14 years, in the case of sales
contracts, and the lease term, in the case of the prepaid leases. Depending on
the contract, Loral Skynet may be required under its prepaid leases and sales
contracts to replace transponders which do not meet operating specifications.
All customers are entitled to a refund equal to the reimbursement value if there
is no replacement. In the case of the sales contracts, the reimbursement value
is based on the original purchase price plus an interest factor from the time
the payment was received to acceptance of the transponder by the customer,
reduced on a straight-line basis over the warranty period. In the case of
prepaid leases, the reimbursement value is equal to the unamortized portion of
the lease prepayment made by the customer.
Eleven of the satellites built by SS/L and launched since 1997, four of
which are owned and operated by our subsidiaries or affiliates, have experienced
minor losses of power from their solar arrays. SS/L is currently investigating
the cause of these failures. Although, to date, neither we nor any of the
customers using the affected satellites have experienced any degradation in
performance, there can be no assurance that one or more of the affected
satellites will not experience additional power loss that could result in
performance degradation, including loss of transponder capacity. In the event of
additional power loss, the extent of the performance degradation, if any, will
depend on numerous factors, including the amount of the additional power loss,
the level of redundancy built into the affected satellite's design, when in the
life of the affected satellite the loss occurred and the number and type of use
being made of transponders then in service. Until the cause of the failures can
be identified or other adequate remedial measures can be taken, launches of
satellites under construction and construction of new satellites may be delayed.
Delays in the production or launch of satellites could have a material adverse
effect on the operation of SS/L's business and the complete or partial loss of
satellites could result in a loss of orbital incentive payments and, in the case
of satellites owned by our subsidiaries and affiliates, a loss of revenue and
customers. This investigation is in its very early stages and not all relevant
information is now known. Based upon information currently available, including
design redundancies to accommodate small power losses and that no pattern has
been identified as to the timing or specific location within the solar arrays of
the failures, we believe that this matter will not have a material adverse
effect on our consolidated financial position or results of operations.
WE DEPEND ON SPACE SYSTEMS/LORAL FOR A LARGE PORTION OF REVENUE AND OPERATING
INCOME.
SS/L generates a significant part of our revenue and operating income.
SS/L, in turn, has historically derived a large part of its revenue and
operating income from a few customers. For example, for the year ended December
31, 2000, three of SS/L's customers, one of which was Globalstar, accounted for
about 13%, 12% and 11%, respectively, of Loral's consolidated revenues. As a
result, our revenue and operating results would be hurt if completed or canceled
contracts are not promptly replaced with new orders. Some of SS/L's customers
are start-up companies, and there can be no assurance that these companies will
be able to fulfill their payment obligations under their contracts with SS/L.
SS/L's accounting for long-term contracts sometimes requires adjustments to
profit and loss based on revised estimates during the performance of the
contract. These adjustments may have a material effect on our results of
operations in the period in which they are made. The estimates giving rise to
these risks, which are inherent in long-term, fixed-price contracts, include the
forecasting of costs and schedules, contract revenues related to contract
performance, including revenues from orbital incentives, and the potential for
component obsolescence due to procurements long before assembly.
SS/L's major contracts fall into two categories: firm fixed-price contracts
and cost-plus-award-fee contracts. Under firm fixed-price contracts, work
performed and products shipped are paid for at a fixed price without adjustment
for actual costs incurred in connection with the contract. While cost savings
under these fixed-price contracts would result in gains to SS/L, cost increases
would result in losses borne solely by SS/L. The majority of SS/L's contracts
are fixed-price contracts. Under such contracts, SS/L may receive progress
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payments, or it may receive partial payments upon the occurrence of certain
program milestones. Under a cost-plus-award-fee contract, the contractor
recovers its actual allowable costs incurred and receives a fee consisting of a
base amount that is fixed at the inception of the contract (the base amount may
be zero) and an award amount that is based on the customer's subjective
evaluation of the contractor's performance based on criteria stated in the
contract.
Many of SS/L's contracts and subcontracts may be terminated at will by the
customer or the prime contractor. In the event of a termination at will, SS/L is
normally entitled to recover the purchase price for delivered items,
reimbursement for allowable costs for work in process and an allowance for
profit or an adjustment for loss, depending on whether completion of performance
would have resulted in a profit or loss. Such terminations may occur in the
future.
SS/L MAY FORFEIT PAYMENTS FROM CUSTOMERS DUE TO SATELLITE FAILURES OR LOSSES
AFTER LAUNCH OR BE LIABLE FOR PENALTY PAYMENTS UNDER CERTAIN CIRCUMSTANCES, AND
THESE LOSSES MAY BE UNINSURED.
Some of SS/L's satellite manufacturing contracts provide that some of the
total price is payable as "incentive" payments earned over the life of the
satellite. SS/L has in the past generally not insured for such losses and in
fact may be prohibited from insuring these incentive payments under certain
circumstances. Some of SS/L's contracts call for in-orbit delivery, transferring
the launch risk to SS/L. SS/L generally insures against that exposure.
SS/L records as revenue the present value of incentive payments as the
costs associated with these incentive payments are incurred. SS/L generally
receives the present value of these incentive payments if there is a launch
failure or a failure is caused by customer error. SS/L forfeits these payments,
however, if the loss is caused by satellite failure or as a result of its own
error.
In addition, some of SS/L's contracts provide that SS/L may be liable to a
customer for penalty payments under certain circumstances, including upon late
delivery. These payments are not insured by SS/L.
SS/L IS CURRENTLY IN ARBITRATION PROCEEDINGS WITH PANAMSAT CORPORATION OVER A
SATELLITE REFLECTOR DISPUTE.
In late 1998, following the launch of an SS/L-built satellite sold to
PanAmSat, a manufacturing error was discovered that affected the geographical
coverage of the Ku-band transponders on the satellite. On January 6, 2000,
PanAmSat filed an arbitration proceeding in connection with this error claiming
damages of $225 million for lost profits and increased sales and marketing
costs. SS/L believes it has meritorious defenses to the claim and that its
liability is limited to a loss of a portion of the applicable orbital
incentives, the estimated impact of which is included in Loral's consolidated
financial statements. PanAmSat has received a recovery from its insurance
carrier that should reduce any damage claim. Loral and PanAmSat have reached an
agreement in principle, subject to documentation, and in light of reserves
provided, this matter will not have a material adverse effect on the
consolidated financial position or results of operations of Loral.
WE ARE SUBJECT TO EXPORT CONTROLS, WHICH MAY RESULT IN DELAYS, UNFORESEEN
ADDITIONAL COSTS AND UNCERTAINTIES IN CERTAIN MARKETS.
Like other exporters of space-related products and services, SS/L needs
licenses from the U.S. government when it sells a satellite to a foreign
customer or launches abroad. Foreign launches have been politically sensitive
because of the relationship between launch technology and missile technology.
U.S. government policy has limited, and is likely in the future to limit,
launches from the former Soviet Union and China. For example, the U.S.
government delayed a Globalstar launch from Kazakhstan by several months when it
stopped granting case-by-case approval of launches from that location pending an
intergovernmental agreement covering technology security matters. Changes in
governmental policies, political leadership or legislation in the United States,
Russia, Kazakhstan or China could adversely affect our ability to launch from
these countries or increase the costs of doing so.
The launch of ChinaSat-8 has been delayed pending SS/L's obtaining the
approvals required for the launch. On December 23, 1998, the Office of Defense
Trade Controls, or ODTC, of the U.S. Department of State temporarily suspended a
previously approved technical assistance agreement under which SS/L had been
preparing for the launch of the ChinaSat-8 satellite. According to ODTC, the
purpose of the temporary
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suspension was to permit that agency to review the agreement for conformity with
then newly-enacted legislation (Section 74 of the Arms Export Control Act) with
respect to the export of missile equipment and technology. In addition, SS/L was
required to re-apply for new export licenses from the State Department to permit
the launch of ChinaSat-8 on a Long March launch vehicle, when the old export
licenses issued by the Commerce Department, the agency that previously had
jurisdiction over satellite licensing, expired in March 2000. On January 4,
2001, the ODTC, while not rejecting these license applications, notified SS/L
that they were being returned without action. SS/L and the State Department are
now in discussions regarding SS/L's obtaining the approvals required for the
launch of ChinaSat-8.
In December 1999, SS/L reached an agreement with ChinaSat to extend the
date for delivery of the ChinaSat-8 satellite to July 31, 2000. In return for
this extension and other modifications to the contract, SS/L provided to
ChinaSat two 36 MHz and one 54 MHz transponders on Telstar 10/Apstar IIR for
ChinaSat's use for the life of those transponders. As a result, SS/L recorded a
charge to earnings of $35 million in 1999. If ChinaSat were to terminate its
contract with SS/L as a result of these delays, SS/L may have to refund $134
million in advances received from ChinaSat and may incur penalties of up to $11
million and believes it would incur costs of approximately $38 million to
refurbish and retrofit the satellite so that it could be sold to another
customer, which resale cannot be guaranteed. To the extent that SS/L is able to
recover some or all of its $52 million deposit payment on the Chinese launch
vehicle, this recovery would offset a portion of such payments. There can be no
assurance, however, that SS/L will be able to either obtain a refund from the
launch provider or to find a replacement customer for the Chinese launch
vehicle.
SS/L IS THE TARGET OF A GRAND JURY INVESTIGATION WHICH MAY ADVERSELY AFFECT
SS/L'S ABILITY TO EXPORT ITS PRODUCTS.
SS/L could be accused of criminal violations of the export control laws
arising out of the participation of its employees in a committee formed to
review the findings of the Chinese regarding the 1996 crash of a Long March
rocket in China. Under the applicable regulations, SS/L could be barred from
export privileges without being convicted of any crime if it is merely indicted
for these alleged violations, and loss of export privileges would harm SS/L's
business. Whether or not SS/L is indicted or convicted, SS/L will remain subject
to the State Department's general statutory authority to prohibit exports of
satellites and related services if it finds that SS/L has violated the Arms
Export Control Act. Further, the State Department can suspend export privileges
whenever it determines that grounds for debarment exist and that suspension "is
reasonably necessary to protect world peace or the security or foreign policy of
the United States." If SS/L were to be indicted and convicted of a criminal
violation of the Arms Export Control Act, it:
- would be subject to a fine of $1 million per violation;
- could be debarred from certain export privileges; and
- could be debarred from participation in government contracts.
Since some of SS/L's satellites are built for foreign customers and/or are
launched on foreign rockets, a debarment would seriously harm SS/L's business,
which in turn would hurt Loral.
THE WORLD MARKET SHARE OF U.S. SATELLITE MANUFACTURERS HAS DECLINED, FOLLOWING
RECENT CHANGES IN U.S. EXPORT CONTROL POLICIES.
In March 1999, jurisdiction for satellite licensing was transferred from
the Commerce Department to the State Department and the State Department has
issued regulations relating to the export of and disclosure of technical
information related to, satellites and related equipment. It has been SS/L's
experience that obtaining licenses and technical assistance agreements under
these new regulations takes more time and is considerably more burdensome than
in the past. Delays in obtaining the necessary licenses and technical assistance
agreements may delay SS/L's performance on existing contracts, and, as a result,
SS/L may incur penalties or lose incentive payments under these contracts. In
addition, such delays may have an adverse effect on SS/L's ability to compete
against unregulated foreign satellite manufacturers for new satellite contracts.
In the period 1992 through 1999, satellites ordered from the leading U.S.
satellite manufacturers, including SS/L, accounted for 79% of all commercial
satellite bookings. In 2000, following changes in federal export control
regulations, policies and procedures, this percentage dropped to 47%. For
bookings by non-U.S. customers in those periods, the corresponding percentages
were 21% and 53%, respectfully.
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If these policies do not change, our competitors abroad may continue to
gain both workflow and additional capabilities and expertise. In such event, it
would become increasingly difficult for the U.S. satellite manufacturing
industry to recapture this lost market share.
SS/L COMPETES WITH LARGE MANUFACTURERS THAT HAVE SIGNIFICANT RESOURCES.
In the manufacture of our satellites, we compete with very large
well-capitalized companies, including several of the world's largest, such as
The Boeing Company, Lockheed Martin, Alcatel Space Industries and Astrium. These
companies have considerable financial resources which they may use to gain
advantages in marketing and in technological innovation. SS/L's success depends
on its ability to innovate on a cost-effective and timely basis.
WE COMPETE FOR MARKET SHARE AND CUSTOMERS; TECHNOLOGICAL DEVELOPMENTS FROM
COMPETITORS OR OTHERS MAY REDUCE DEMAND FOR OUR SERVICES.
We face heavy competition in fixed satellite services from companies such
as PanAmSat Corporation, GE Americom, SES Astra and quasi-governmental
organizations such as Intelsat and Eutelsat. Competition in this market may
lower prices, which may adversely affect our results.
Our data business also faces competition from providers of land-based data
communications services, such as cable operators, digital subscriber line, or
DSL, providers, wireless local loop providers and traditional telephone service
providers. We cannot assure you that the Loral CyberStar Group will attract
enough customers either to compete effectively or to implement fully its
business plan.
As land-based telecommunications services expand, demand for some
satellite-based services may be reduced. New technology could render
satellite-based services less competitive by satisfying consumer demand in other
ways or through the use of incompatible standards.
We also compete for local regulatory approval in places in which both we
and a competitor may want to operate. We also compete for scarce frequency
assignments and fixed orbital positions.
OUR BUSINESS IS REGULATED, CAUSING UNCERTAINTY AND ADDITIONAL COSTS.
Our business is regulated by authorities in multiple jurisdictions,
including the Federal Communications Commission, the International
Telecommunications Union, or ITU, and the European Union. As a result, some of
the activities which are important to our strategy are beyond our control. The
following are some strategically important activities which are regulated:
- the expansion of Loral Skynet's operations beyond the domestic U.S.
market;
- the international service offered by the Loral CyberStar Group;
- the manufacture, export and launch of satellites;
- the expansion of Satmex's Latin American business; and
- the implementation of Europe*Star's business plan.
Regulatory authorities in the various jurisdictions in which we operate can
modify, withdraw or impose charges or conditions upon the licenses which we
need, and so increase our costs. The regulatory process also requires
potentially costly negotiations with third parties operating or intending to
operate satellites at or near orbital locations where we place our satellites so
that the frequencies of those other satellites do not interfere with our own.
For example, as part of our coordination effort on Telstar 12, we agreed to
provide four 54 MHz transponders on Telstar 12 to Eutelsat for the life of the
satellite and have retained risk of loss with respect to those transponders. We
also granted Eutelsat the right to acquire, at cost, four transponders on the
next replacement satellite for Telstar 12. Moreover, as part of this
international coordination process, we continue to conduct discussions with
various administrations regarding Telstar 12's operations at 15 degrees W.L. If
these discussions are not successful, Telstar 12's useable capacity may be
reduced. We cannot guarantee successful frequency coordination for our
satellites.
Failure to successfully coordinate our satellites' frequencies or to
resolve other required regulatory approvals could hurt our consolidated
financial position and results of operations.
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WE FACE RISKS IN CONDUCTING BUSINESS INTERNATIONALLY.
Some of our business is conducted outside the United States. For the year
ended December 31, 2000, approximately 23% of our revenue was generated outside
of the United States. We could be harmed financially and operationally by
changes in foreign regulations and telecommunications standards, tariffs or
taxes and other trade barriers. Although almost all of our contracts with
foreign customers require payment in U.S. dollars, customers in developing
countries could have difficulty in obtaining the U.S. dollars they owe us,
including as a result of exchange controls. Exchange rate fluctuations may
adversely affect the ability of our customers to pay us in U.S. dollars. If we
ever need to pursue legal remedies against our foreign business partners or
customers, we may have to sue abroad, where it could be hard for us to enforce
our rights.
WE SHARE CONTROL OF OUR AFFILIATES WITH THIRD PARTIES.
Third parties have significant ownership, voting and other rights in many
of our subsidiaries and affiliates. As a result, we do not always have full
control over management of these entities. The rights of these third parties and
fiduciary duties under applicable law could result in others acting or omitting
to act in ways which are not in our best interest. To the extent that these
entities are or become customers of SS/L, these conflicts could become acute.
For example:
- Primary control of Satmex is vested in Mexican nationals, as required by
Mexican law, subject to certain supermajority rights which we retain.
- The Europe*Star joint venture is under control by Alcatel, subject to our
supermajority rights.
- Future joint ventures between Alcatel and us within the Loral Global
Alliance will be controlled by the initiating party, subject to
supermajority rights in favor of the non-initiating party.
- Alcatel is an investor in CyberStar LP and has supermajority rights in
it.
- Although we are the managing general partner and largest equity owner of
Globalstar, our control is limited by important supermajority rights of
Globalstar's limited partners.
WE RELY ON KEY PERSONNEL.
We need highly qualified personnel. Except for Mr. Bernard L. Schwartz, our
Chairman and Chief Executive Officer, none of our officers has an employment
contract nor do we maintain "key man" life insurance. The departure of any of
our key executives could have an adverse effect on our business.
ITEM 2. PROPERTIES
The Company leases approximately 47,000 square feet for its corporate
offices in New York. The Company also maintains office space, manufacturing and
telemetry, tracking and control facilities primarily in the United States.
Fixed Satellite Services
Loral Skynet owns two telemetry, tracking and control stations covering
approximately 65,000 square feet on 212 acres in Hawley, Pennsylvania and Three
Peaks, California and leases approximately 68,000 square feet of office space in
Bedminster, New Jersey and Richmond, California.
Data Services
Loral CyberStar owns seven acres of land in Mt. Jackson, Virginia and
leases approximately 86,000 square feet for office space worldwide.
CyberStar LP leases approximately 38,000 square feet of office space
worldwide.
Satellite Manufacturing and Technology
SS/L's research, production and testing facilities are carried on in
SS/L-owned facilities covering approximately 562,000 square feet on 28 acres in
Palo Alto, California. In addition, SS/L leases approximately 727,000 square
feet of space on 45 acres from various third parties primarily in Palo Alto,
California, Menlo Park, California and Mountain View, California.
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Management believes that the facilities are sufficient for its current
operations.
ITEM 3. LEGAL PROCEEDINGS
Export Control Matters. Various agencies and departments of the U.S.
government regulate Loral's ability to pursue business outside the United
States. Exports of space-related products, services and technical information
require U.S. government licenses. There can be no assurance that Loral or SS/L
will be able to obtain necessary licenses or approvals, and the inability to do
so, or the failure to comply with the terms thereof when granted, could have a
material adverse effect on their respective businesses.
On February 15, 1996, a Chinese Long March rocket carrying an Intelsat
satellite built by SS/L crashed seconds after launch. Thereafter, at the request
of insurance companies concerned about underwriting future Long March launches,
the manufacturer of the Long March, China Great Wall Industries Corporation
("CGWIC"), asked SS/L employees and personnel from other interested companies to
serve on a committee formed to consider whether studies of the crash made by the
Chinese had correctly identified the cause of the failure. In meetings with
CGWIC, the committee reviewed CGWIC's launch failure analysis, which consisted
of a preliminary explanation for the crash (a failed solder joint) and CGWIC's
plan for further studies it planned to make.
In May 1996, an SS/L employee transmitted a copy of the committee's
preliminary report to the members of the committee and, contrary to the
intentions of SS/L's management, to CGWIC before consulting with the U.S. State
Department. Upon becoming apprised of the facts, SS/L immediately informed the
State Department, and thereafter submitted a detailed voluntary written
disclosure to the State Department that included copies of the written materials
provided to CGWIC and descriptions of the committee's meetings with the Chinese
and of the events surrounding disclosure of the preliminary report. For the next
18 months, the Company had no notice of any adverse action being taken or
contemplated in connection with the matter.
SS/L was informed in 1998 that it was a target of a grand jury
investigation being conducted by the U.S. Attorney for the District of Columbia
as to whether an unlawful transfer of technology occurred in connection with the
committee's work. The Company and several of its employees have received
subpoenas from that grand jury. SS/L is not in a position to predict the outcome
of this investigation. If SS/L were to be indicted and convicted of a criminal
violation of the Arms Export Control Act, it would be subject to a fine of $1
million for each violation, and could be debarred from certain export privileges
and, possibly, from participation in government contracts. Since many of SS/L's
satellites are built for foreign customers and/or launched on foreign rockets,
such a debarment would have a material adverse effect on SS/L's business, which
would in turn affect the Company. Indictment for such violations would subject
SS/L to discretionary debarment from further export licenses. Under the
applicable regulations, SS/L could be debarred from export privileges without
being convicted of any crime if it is indicted for these alleged violations, and
loss of export privileges would harm SS/L's business. Whether or not SS/L is
indicted or convicted, SS/L will remain subject to the State Department's
general statutory authority to prohibit exports of satellites and related
services if it finds a violation of the Arms Export Control Act that puts SS/L's
reliability in question, and it can suspend export privileges whenever it
determines that grounds for debarment exist and that such suspension "is
reasonably necessary to protect world peace or the security or foreign policy of
the United States."
As far as SS/L can determine, no sensitive information or technology was
conveyed to the Chinese, and no secret or classified information was discussed
with or reported to them. SS/L believes that its employees acted openly and in
good faith and that none engaged in intentional misconduct. Accordingly, the
Company does not believe that SS/L has committed a criminal violation of the
export control laws. The Company does not expect the grand jury investigation or
its outcome to result in a material adverse effect upon its business. However,
there can be no assurance as to those conclusions.
On December 23, 1998, the Office of Defense Trade Controls, or ODTC, of the
U.S. Department of State temporarily suspended the previously approved technical
assistance agreement under which SS/L had been preparing for the launch of the
ChinaSat-8 satellite. According to ODTC, the purpose of the temporary suspension
was to permit that agency to review the agreement for conformity with then
newly-enacted
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legislation (Section 74 of the Arms Export Control Act) with respect to the
export of missile equipment and technology. In addition, SS/L was required to
re-apply for new export licenses from the State Department to permit the launch
of ChinaSat-8 on a Long March launch vehicle, when the old export licenses
issued by the Commerce Department, the agency that previously had jurisdiction
over satellite licensing, expired in March 2000. On January 4, 2001, the ODTC,
while not rejecting these license applications, notified SS/L that they were
being returned without action. SS/L and the State Department are now in
discussions regarding SS/L's obtaining the approvals required for the launch of
ChinaSat-8.
In December 1999, SS/L reached an agreement with ChinaSat to extend the
date for delivery of the ChinaSat-8 satellite to July 31, 2000. In return for
this extension and other modifications to the contract, SS/L provided to
ChinaSat two 36 MHz and one 54 MHz transponders on Telstar 10/Apstar IIR for
ChinaSat's use for the life of those transponders. As a result, SS/L recorded a
charge to earnings of $35 million in 1999. If ChinaSat were to terminate its
contract with SS/L as a result of these delays, SS/L may have to refund $134
million in advances received from ChinaSat and may incur penalties of up to $11
million and believes it would incur costs of approximately $38 million to
refurbish and retrofit the satellite so that it could be sold to another
customer, which resale cannot be guaranteed. To the extent that SS/L is able to
recover some or all of its $52 million deposit payment on the Chinese launch
vehicle, this recovery would offset a portion of such payments. There can be no
assurance, however, that SS/L will be able to either obtain a refund from the
launch provider or to find a replacement customer for the Chinese launch
vehicle.
SS/L Matters. In late 1998, following the launch of an SS/L-built
satellite sold to PanAmSat, a manufacturing error was discovered that affected
the geographical coverage of the Ku-band transponders on the satellite. On
January 6, 2000, PanAmSat filed an arbitration proceeding in connection with
this error claiming damages of $225 million for lost profits, and increased
sales and marketing costs. SS/L believes it has meritorious defenses to the
claim and that its liability is limited to a loss of a portion of the applicable
orbital incentives, the estimated impact of which is included in Loral's
consolidated financial statements. PanAmSat has received a recovery from its
insurance carrier that should reduce any damage claim. Loral and PanAmSat have
reached an agreement in principle, subject to documentation, and in light of
reserves provided, this matter will not have a material adverse effect on the
consolidated financial position or results of operations of Loral.
SS/L has an agreement with Alcatel Space Industries pursuant to which the
parties have agreed generally to operate as a team on satellite programs
worldwide. In addition, Alcatel Space has certain rights as a strategic partner
of SS/L for so long as it continues to hold at least 81.6% of the Loral
securities that it acquired in 1997 in exchange for SS/L stock that it
previously owned. Alcatel is permitted two representatives on SS/L's
seven-member board of directors, and certain actions require the approval of its
board representatives. Alcatel also has certain rights to purchase SS/L shares
at fair market value in the event of a change of control (as defined) of either
Loral or SS/L, including the right to use its Loral holdings as part of the SS/L
purchase price. These arrangements are terminable upon one-year's notice by
either party, and SS/L gave the contemplated one-year notice to Alcatel on
February 22, 2001. Alcatel filed suit on March 16, 2001 in the United States
District Court for the Southern District of New York against Loral and SS/L
alleging various breaches of the agreements, seeking declaratory and injunctive
relief to enforce its rights thereunder and challenging the effectiveness of the
termination.
Globalstar Related Matters. On February 28, 2001, plaintiff Eric Eismann
filed a purported class action complaint against Globalstar Telecommunications
Limited ("GTL") in the United States District Court for the Southern District of
New York. The other defendants named in the complaint are Loral Space &
Communications Ltd. and Bernard Schwartz. The complaint alleges that (a) GTL and
Mr. Schwartz violated Section 10(b) of the Securities Exchange Act of 1934 (the
"Exchange Act") and Rule 10b-5 promulgated thereunder, by making material
misstatements or failing to state material facts about GTL's business and
prospects; and (b) that Loral and Mr. Schwartz are secondarily liable for these
alleged misstatements and omissions under Section 20(a) of the Exchange Act as
alleged "controlling persons" of GTL. The class of plaintiffs on whose behalf
this lawsuit has been asserted consists of all buyers of GTL common stock from
December 6, 1999 through October 27, 2000, excluding the defendants and certain
persons related or affiliated therewith (the "Excluded Persons").
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Eleven additional purported class action complaints were filed in the
United States District Court for the Southern District of New York by plaintiffs
Chaim Kraus, L.A. Murphy, Eddie Maiorino, Damon Davis, Iskander Batyrev, Shelly
Garfinkel, Sequoia Land Development, Inc. and Phil Sigel, Michael Ceasar, as
Trustee for Howard Gunty Profit Sharing Plan, Colin Barry, James D. Atlas and
Lawrence Phillips, on each of March 2, 2001, March 2, 2001, March 6, 2001, March
7, 2001, March 7, 2001, March 9, 2001, March 16, 2001, March 21, 2001, March 21,
2001, March 22, 2001 and March 23, 2001, respectively. These complaints allege
claims against GTL, Loral and Mr. Schwartz (and, in the case of the
Sequoia/Sigel and Atlas complaints, two additional individual
defendants -- Messrs. Michael DeBlasio and Anthony Navarra) that are
substantially identical to those set forth in the Eismann action. The class of
plaintiffs on whose behalf these lawsuits have been asserted are: with respect
to the Kraus, Davis, Maiorino, Batyrev, Ceasar and Phillips actions, buyers of
GTL common stock in the period from December 6, 1999 through October 27, 2000;
with respect to the Murphy and Barry actions, buyers of GTL securities in the
period from December 6, 1999, through October 27, 2000; with respect to the
Sequoia/Sigel and Atlas actions, buyers of GTL common stock in the period from
December 6, 1999 through July 19, 2000; and with respect to the Garfinkel
action, buyers of GTL debt securities in the period from December 6, 1999
through October 27, 2000, in each case, other than the Excluded Persons.
Loral believes that it has meritorious defenses to the above Globalstar
Related Matters and intends to pursue them vigorously.
CCD Lawsuits. On September 12, 1991, Loral Fairchild Corp. ("Loral
Fairchild"), a subsidiary of Loral Corporation, filed suit against a number of
companies including Sony Corporation ("Sony"), Matsushita Electronics
Corporation ("Matsushita") and NEC Corp. claiming that such companies had
infringed Loral Fairchild's patents for a "charged coupled device" ("CCD"),
commonly used as an optical sensor in video cameras and fax machines. Although
the CCD patents have expired, Loral Fairchild is seeking reasonable royalties
through the expiration date from a number of defendants. On February 22, 1996, a
jury in the United States District Court for the Eastern District of New York
found unanimously that Sony had infringed the CCD patents. The trial judge,
however, in an order dated July 12, 1996, reversed the jury verdict. Loral
Fairchild appealed and sought certiorari unsuccessfully. Although Loral
Fairchild has settled its claim against one of the other defendants for
approximately $450,000, its claims against some of the other defendants were
precluded by the Sony ruling. Claims against the remaining defendants were also
dismissed. That ruling is on appeal to the Federal Circuit. Matsushita has been
granted a declaratory judgment that it has a valid and enforceable license under
the CCD patents. In addition, a trial on Matsushita's claim against Loral
Fairchild for tortious interference was conducted during July 1996, and a
verdict was rendered in favor of Loral Fairchild in September 1997.
Environmental Regulation. Operations at SS/L, Loral Skynet, Loral
CyberStar and CyberStar LP are subject to regulation by various federal, state
and local agencies concerned with environmental control. The Company believes
that these facilities are in substantial compliance with all existing federal,
state and local environmental regulations. With regard to certain sites,
environmental remediation is being performed by prior owners who retained
liability for such remediation arising from occurrences during their period of
ownership. To date, these prior owners have been fulfilling such obligations and
the size and current financial condition of the prior owners make it probable
that they will be able to complete their remediation obligations without cost to
the Company.
The Company is subject to various other legal proceedings and claims,
either asserted or unasserted, that arise in the ordinary course of business.
Although the outcome of these claims cannot be predicted with certainty, the
Company does not believe that any of these other existing legal matters will
have a material adverse effect on its consolidated financial position or results
of operations.
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 reported high
and low sales prices of the Company's common stock as reported on the NYSE:
HIGH LOW
---- ---
YEAR ENDED DECEMBER 31, 2000
Quarter ended March 31, 2000................................ $25.75 $ 9.88
Quarter ended June 30, 2000................................. 10.50 6.13
Quarter ended September 30, 2000............................ 8.50 5.00
Quarter ended December 31, 2000............................. 6.56 2.69
YEAR ENDED DECEMBER 31, 1999
Quarter ended March 31, 1999................................ $22.44 $14.44
Quarter ended June 30, 1999................................. 20.75 14.38
Quarter ended September 30, 1999............................ 22.88 16.25
Quarter ended December 31, 1999............................. 24.75 13.50
The Company does not currently anticipate paying any dividends or
distributions on its common stock. As required, Loral is currently paying
dividends on its 6% Series C Convertible Redeemable Preferred Stock (the "Series
C Preferred Stock") and its 6% Series D Convertible Redeemable Preferred Stock
(the "Series D Preferred Stock"). Loral's indenture relating to its 9.5% senior
notes also imposes limitations on Loral's ability to pay dividends to its
shareholders. The credit facility maintained by the Company's wholly owned
subsidiary, Loral SpaceCom Corporation ("Loral SpaceCom"), restricts the ability
of Loral SpaceCom to transfer cash or pay dividends to its parent (see Note 8 to
Loral's consolidated financial statements). Loral Satellite Inc.'s $500 million
credit facility restricts it from making dividend payments to its parent. Loral
CyberStar's indentures relating to its senior notes and its senior discount
notes also contain restrictions on Loral CyberStar's ability to make dividend
payments to its parent.
In March 2001, Loral announced increases in its exchange offers for shares
of the Company's Series C Preferred Stock and Series D Preferred Stock. Under
the terms of the voluntary exchange program, each share of Series C Preferred
Stock may be now exchanged for 5.5 shares of common stock and each share of
Series D Preferred Stock may now be exchanged for 5.7 shares of common stock. As
of December 31, 2000, there were 13,497,863 shares of the Series C Preferred
Stock outstanding and 8,000,000 shares of the Series D Preferred Stock
outstanding. Each offer is extended to all outstanding shares of the related
preferred stock, and is conditioned upon a minimum tender of 50% of that issue's
outstanding shares, which may be waived at Loral's option. Both offers extend to
all outstanding shares of the Series C and D preferred stock, and these offers
remain open until 5 p.m., New York City time, April 5, 2001, unless extended
again.
If all holders of the Series C and Series D preferred stock exchange their
holdings in connection with the current offer by the April 5, 2001 deadline,
Loral would save the requirement to pay approximately $48 million in dividends
for the remainder of 2001. Over the next six to seven years Loral would replace
the requirement to pay approximately $375 million in dividends and approximately
$1.1 billion in mandatory redemption payments due in 2006 and 2007 with
approximately 120 million shares of common stock. This issuance of common stock
would represent approximately 66 million of additional shares, above the 54
million issuable under the conversion terms of the Series C and Series D
preferred stock. There can be no assurance as to the amount of Series C and
Series D preferred stock that will tender into the exchange offers. Assuming all
holders of the Series C and Series D preferred stock exchange their holdings in
connection with the current offer by the April 5, 2001 deadline, at an assumed
price of $2.30 per share of common stock, Loral will incur a non-cash dividend
charge in the period in which an exchange occurs of approximately $152 million.
An exchange will have no impact on Loral's total shareholders' equity.
(b) APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK
At February 28, 2001, there were 6,320 holders of record of the Company's
common stock.
ITEM 6. SELECTED FINANCIAL DATA
The following consolidated selected financial data has been derived from,
and should be read in conjunction with, the related consolidated financial
statements.
24
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LORAL SPACE & COMMUNICATIONS LTD.
(in thousands, except per share and ratio data)
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
-------------------------------------------------- DECEMBER 31,
2000(1) 1999(2) 1998(3) 1997(3) 1996(3)
----------- ---------- ---------- ---------- ------------
STATEMENT OF OPERATIONS DATA:
Revenues............................ $ 1,224,111 $1,457,720 $1,301,702 $1,312,591 $ 5,088
Operating income (loss)............. (86,086) (62,263) (33,780) 13,552 (12,201)
Equity in net loss of affiliates,
net of taxes(4)................... (1,294,910) (177,819) (120,417) (49,037) (4,709)
Globalstar related impairment
charges, net of taxes............. (112,241)
Net income (loss)................... (1,469,678) (201,916) (138,798) 40,004 8,877
Preferred dividends and
accretion(5)...................... (67,258) (44,728) (46,425) (26,315)
Net income (loss) applicable to
common stockholders............... (1,537,206) (246,644) (185,223) 13,689 8,877
Earnings (loss) per share -- basic
and diluted....................... (5.20) (.85) (.68) .06 .04
OTHER DATA:
Ratio of earnings to fixed
charges........................... 1.9x 3.7x
Deficiency of earnings to cover
fixed charges..................... $ 152,595 $ 191,932 $ 140,438
CASH FLOW DATA:
Provided by (used in) operating
activities........................ $ 258,056 $ (6,933) $ 86,795 $ (173,609) $ (3,003)
Used in investing activities........ 376,740 679,005 555,613 1,079,411 1,962
Provided by (used in) equity
transactions...................... 352,415 (24,633) 589,187 (18,097) 602,413
Provided by (used in) financing
transactions...................... (79,551) 403,664 199,856 316,912 583,292
Dividends paid per common share.....
DECEMBER 31,
---------------------------------------------------------------
2000(1) 1999(2) 1998(3) 1997(3) 1996(3)
----------- ---------- ---------- ---------- ----------
BALANCE SHEET DATA:
Cash and cash equivalents........... $ 394,045 $ 239,865 $ 546,772 $ 226,547 $1,180,752
Total assets........................ 4,678,318 5,610,421 5,229,215 3,010,447 1,699,326
Debt, including current portion..... 2,456,844 1,999,322 1,555,775 435,398
Non-current liabilities............. 251,247 252,052 231,384 230,411 26,834
Convertible preferreds(5)........... 583,292
Shareholders' equity................ 1,586,388 2,750,664 2,935,721 1,980,520 1,070,069
- ---------------
(1) The results of operations for 2000 includes $77 million of increased costs
relating to manufacturing delays and customer contract issues ($46 million
after taxes), Loral's share of Globalstar after-tax impairment charges of
$882 million (approximately $1.2 billion on a pre-tax basis), which is
included in equity in net loss of affiliates and after-tax impairment
charges of $112 million ($125 million pre-tax) relating to Loral's
investments in and advances to Globalstar service provider partnerships.
(2) The results of operations for 1999 includes a pre-tax charge of $35 million
($21 million after taxes) relating to an agreement reached with a customer
to extend the delivery date of a satellite and other modifications to the
contract in return for providing transponders on another Loral satellite for
their remaining lives.
(3) On March 20, 1998, Loral acquired all of the outstanding stock of Loral
CyberStar in exchange for common stock of Loral. The 1998 financial
information includes Loral Cyberstar commencing from April 1, 1998. In 1997,
Loral increased its ownership in SS/L to 100%; prior to 1997, SS/L was
accounted for under the equity method of accounting. On March 14, 1997,
Loral acquired Loral Skynet from AT&T; Loral's financial information
includes the results of Loral Skynet from that date.
(4) The Company's principal affiliates are Globalstar, Satmex since November 17,
1997 and Europe*Star since December 1998. Loral also has investments in
SkyBridge and other ventures, which are accounted for under the equity
method. Loral sold its interest in K&F Industries, Inc. in 1997.
(5) Convertible preferred equivalent obligations were exchanged for 6% Series C
Preferred Stock and were reclassified to shareholders' equity in 1997 upon
approval by the Company's shareholders.
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GLOBALSTAR, L.P.
(in thousands, except per partnership interest data)
YEARS ENDED DECEMBER 31,
------------------------------------------------------
2000(1) 1999(2) 1998(2) 1997 1996
---------- -------- -------- -------- --------
STATEMENT OF OPERATIONS DATA:
Net revenue................................................. $ 3,650 $ -- $ -- $ -- $ --
Operating loss.............................................. 3,472,998 186,505 146,684 88,071 61,025
Net loss applicable to ordinary partnership interests....... 3,816,401 232,584 151,740 88,788 71,969
Net loss per weighted average ordinary partnership interest
outstanding -- basic and diluted.......................... 61.23 3.99 2.69 1.74 1.53
Cash distributions per ordinary partnership interest........
OTHER DATA:
Deficiency of earnings to cover fixed charges............... 3,824,533 466,369 330,475 184,683 81,869
CASH FLOW DATA:
Used in operating activities................................ 455,741 56,576 24,958 68,615 51,756
Used in investing activities................................ 95,156 721,733 682,884 622,004 379,130
Provided by partners' capital transactions.................. 331,275 463,329 14,825 132,990 284,714
Provided by other financing activities...................... 266,348 386,432 287,552 998,137 95,750
December 31,
------------------------------------------------------------
2000(1) 1999 1998 1997 1996
---------- ---------- ---------- ---------- --------
BALANCE SHEET DATA:
Cash and cash equivalents(3)................................ $ 196,849 $ 173,921 $ 56,739 $ 464,154 $ 21,180
Total current assets........................................ 257,453 292,902 236,288 493,780 21,786
Total assets................................................ 702,276 3,781,459 2,670,025 2,149,053 942,913
Current liabilities......................................... 2,599,121 671,302 401,190 143,810 75,267
Long-term debt, including vendor financing.................. 448,051 2,055,422 1,640,165 1,297,254 226,694
Other long-term liabilities................................. 50,318 26,406 26,289 24,072 23,729
Redeemable preferred partnership interests.................. 358,968 303,089 302,037
Partners' capital (deficiency).............................. (2,395,214) 1,028,329 602,401 380,828 315,186
- ---------------
(1) The results of operations for 2000 includes a $2.9 billion charge for the
impairment of the Globalstar system.
(2) The results of operations for 1999 and 1998 include launch related costs of
$30 million and $17 million, respectively.
(3) Includes restricted cash of $22 million and $46 million for 2000 and 1999,
respectively, received from service providers for the purchase of gateways.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Except for the historical information contained herein, the matters
discussed in the following Management's Discussion and Analysis of Results of
Operations and Financial Condition of Loral Space & Communications, Ltd. and its
subsidiaries ("Loral" or the "Company") are not historical facts, but are
"forward-looking statements," as that term is defined in the Private Securities
Litigation Reform Act of 1995. In addition, the Company or its representatives
have made and may continue to make forward-looking statements, orally or in
writing, in other contexts, such as in reports filed with the SEC, press
releases or statements made with the approval of an authorized executive officer
of the Company. These forward-looking statements can be identified by the use of
forward-looking terminology such as "believes," "expects," "plans," "may,"
"will," "would," "could," "should," "anticipates," "estimates," "project,"
"intend," or "outlook" or the negative of these words or other variations of
these words or other comparable words, or by discussion of strategy that
involves risks and uncertainties. These forward-looking statements are only
predictions, and actual events or results may differ materially as a result of a
wide variety of factors and conditions, many of which are beyond the Company's
control. Some of these factors and conditions include: (i) the Company and its
subsidiaries and affiliates have significant debt and guarantee obligations;
(ii) due to poor subscriber take-up-rates, Globalstar, L.P. ("Globalstar") is
unable to pay its debt obligations as they become due, and will require
additional financing to continue its operations; (iii) the Company may be
required to take further charges relating to its investment in connection with
Globalstar related activities; (iv) If the Company's business plan does not
succeed, our operations might not generate enough cash to pay our obligations;
(v) launch failures may delay operations; (vi) some of the satellites the
Company currently has in orbit have experienced operational problems; (vii)
Space Systems/Loral, Inc. ("SS/L")is currently in arbitration proceedings with
PanAmSat; (viii) SS/L is subject to export control restrictions and is the
target of a grand jury investigation that may adversely affect its ability to
export; (ix) severe competition in the Company's industries; and (x)
governmental or regulatory changes. For a detailed discussion of these factors
and conditions, please refer to the periodic reports filed with the SEC by
Loral, Loral CyberStar, Inc. ("Loral CyberStar") and Satelites de Mexico, S.A.
de C.V. ("Satmex"). In addition, we caution you that the Company operates in an
industry sector where securities values may be volatile and may be influenced by
economic and other factors beyond the Company's control. The Company undertakes
no obligation to update any forward-looking statements.
Loral is one of the world's leading satellite communications companies,
with substantial activities in satellite manufacturing and satellite-based
communications services. Loral has assembled the building blocks necessary to
provide a seamless, global networking capability for the information age. Loral
is organized into three distinct operating businesses:
Fixed Satellite Services ("FSS"). Through the Loral Global Alliance,
which currently consists of Loral Skynet, Loral CyberStar, Loral Skynet do
Brasil Ltda. ("Skynet do Brasil"), its 49% owned affiliate Satmex, and its
47% owned affiliate Europe*Star Limited ("Europe*Star"), Loral has become
one of the world's leading providers of satellite services using
geostationary communications satellites. The Company leases transponder
capacity on its satellites to its customers for various applications,
including broadcasting, news gathering, Internet access and transmission,
private voice and data networks, business television, distance learning and
direct-to-home television ("DTH"). The Loral Global Alliance currently has
ten high-powered geosynchronous satellites in orbit: the seven satellite
Telstar fleet, two Satmex satellites and one Europe*Star satellite, with
footprints covering almost all of the world's population;
Satellite Manufacturing and Technology. Designing and manufacturing
satellites and space systems and developing satellite technology for a
broad variety of customers and applications through Space Systems/Loral,
Inc. ("SS/L"); and
Data Services: Providing managed communications networks and Internet
and intranet services through Loral CyberStar and delivering high-speed
broadband data communications and business television and infomedia
services through CyberStar, L.P. ("CyberStar LP").
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In addition, a subsidiary of Loral acts as the managing general
partner of Globalstar, which owns and operates a global telecommunications
network designed to serve virtually every populated area of the world by
means of a 52-satellite constellation, including four in-orbit spares, a
satellite operations control center and a ground operations control center
(the "Globalstar System"). The Globalstar System commenced operations in
the first quarter of 2000 and as of February 15, 2001, the Globalstar
System provided coverage to over 109 countries, of which more than half
were in full service, served by 25 gateways. Loral, through its interests
in various joint ventures, continues to participate and to fund its share
of the operations of Globalstar service providers in Brazil, Canada, Mexico
and Russia. These Globalstar service providers have constructed and operate
gateways, are licensed to provide services and, through their sales and
marketing organizations, are actively selling Globalstar service, in their
respective territories. Loral owned 39%, 41% and 43% of Globalstar as of
December 31, 2000, 1999 and 1998, respectively (see Acquisitions and
Investments in Affiliates).
CONSOLIDATED OPERATING RESULTS
In January 2001, Globalstar suspended indefinitely principal and interest
payments on its debt and dividend payments on its redeemable preferred
partnership interests in order to conserve cash for operations. Globalstar is
currently in default under its $500 million credit facility due to Loral, its
vendor financing facility with QUALCOMM, and its 11 3/8% senior notes due
February 15, 2004. Globalstar expects that events of default will occur with
regard to Globalstar's other three senior note indentures when interest payments
become due in May and June of 2001. The aforementioned debt that is currently in
default is now subject to immediate acceleration by its holders. Globalstar has
retained The Blackstone Group as its financial adviser to assist in evaluating
its business plan and develop initiatives, including restructuring its debt,
identifying funding opportunities and pursuing other strategic alternatives. As
a result of Globalstar's actions, in the fourth quarter of 2000 Loral recorded
after-tax charges of approximately $882 million representing Loral's after-tax
share of Globalstar's impairment charges (approximately $1.2 billion on a
pre-tax basis) and after-tax impairment charges of $112 million ($125 million
pre-tax) resulting from the write-down of investments in and advances to
Globalstar service provider partnerships to their estimated fair values as of
December 31, 2000. These after-tax charges, aggregating approximately $994
million, had an effect on Loral's basic and diluted loss per share of $3.36.
In evaluating financial performance, management uses revenues and earnings
before interest, taxes, depreciation and amortization ("EBITDA") as a measure of
a segment's profit or loss. The following discussion of revenues and EBITDA
reflects the results of Loral's operating businesses for 2000, 1999 and 1998.
Revenues and EBITDA relating to Globalstar have been omitted from the tables
below. See Note 16 to Loral's consolidated financial statements for additional
information on segment results. The remainder of the discussion relates to the
consolidated results of Loral, unless otherwise noted.
Revenues:
YEARS ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
(IN MILLIONS)
Fixed satellite services(1)............................ $ 461.0 $ 341.8 $ 254.2
Satellite manufacturing and technology(2).............. 1,002.3 1,433.3 1,390.2
Data services(3)....................................... 129.8 84.6 39.8
-------- -------- --------
Segment revenues....................................... 1,593.1 1,859.7 1,684.2
Affiliate eliminations(4).............................. (136.4) (135.5) (104.8)
Intercompany eliminations(5)........................... (232.6) (266.5) (277.7)
-------- -------- --------
Revenues as reported................................... $1,224.1 $1,457.7 $1,301.7
======== ======== ========
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EBITDA(6):
YEARS ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
(IN MILLIONS)
Fixed satellite services(1)................................. $281.8 $193.1 $171.2
Satellite manufacturing and technology(2)(7)................ 35.5 102.3 117.9
Data services(3)............................................ (29.9) (35.6) (46.6)
Corporate expenses(8)....................................... (44.4) (39.3) (42.8)
------ ------ ------
Segment EBITDA before Broadband Investment and
eliminations(7)(9)........................................ 243.0 220.5 199.7
Broadband Investment(9)..................................... (21.7)
------ ------ ------
Segment EBITDA before eliminations.......................... 221.3 220.5 199.7
Affiliate eliminations(4)................................... (78.9) (77.5) (74.8)
Intercompany eliminations(5)................................ (12.2) (30.4) (23.7)
------ ------ ------
EBITDA as reported.......................................... $130.2 $112.6 $101.2
====== ====== ======
- ---------------
(1) Fixed satellite services includes 100% of the following companies since
their respective dates of acquisition: Loral CyberStar's transponder
leasing business acquired on March 20, 1998 and Europe*Star, since December
1998. For the year ended December 31, 1999, Satmex's results include $25.5
million in revenues and $11.2 million of EBITDA from the sale of
transponders to Loral Skynet.
(2) Satellite manufacturing and technology consists of 100% of SS/L's results.
(3) Data services consists of 100% of CyberStar LP (in which Loral owns an 82%
equity interest) and 100% of Loral CyberStar's data services business since
its acquisition on March 20, 1998.
(4) Represents amounts related to unconsolidated affiliates (Satmex and
Europe*Star). These amounts are eliminated in order to arrive at Loral's
consolidated results. Loral's proportionate share of these affiliates is
included in equity in net loss from affiliates in Loral's consolidated
statements of operations.
(5) Represents the elimination of intercompany sales and EBITDA primarily for
satellites under construction by SS/L for wholly owned subsidiaries, as
well as eliminating sales for the lease of transponder capacity by Data
Services and for Satellite Manufacturing and Technology from Fixed
Satellite Services.
(6) EBITDA (which is equivalent to operating loss before depreciation and
amortization, including amortization of unearned compensation) is provided
because it is a measure commonly used in the communications industry to
analyze companies on the basis of operating performance, leverage and
liquidity and is presented to enhance the understanding of Loral's
operating results. EBITDA is not an alternative to net income as an
indicator of a company's operating performance, or cash flow from
operations as a measure of a company's liquidity. EBITDA may be calculated
differently and, therefore, may not be comparable to similarly titled
measures reported by other companies.
(7) Segment EBITDA before Broadband Investment and eliminations includes
charges for Satellite Manufacturing and Technology of $77 million in 2000
relating to increased costs for manufacturing delays and customer contract
issues and $44 million in 1999 relating to an agreement with ChinaSat to
extend the delivery date of a satellite and other modifications to the
contract in return for providing transponders on another Loral satellite
for their remaining lives.
(8) Represents corporate expenses incurred in support of the Company's
operations.
(9) Includes investment in streaming media and broadband services.
2000 COMPARED WITH 1999
Segment revenues for Loral's operating businesses were $1.6 billion for
2000 versus $1.9 billion in 1999, before intercompany and affiliate eliminations
of $369 million in 2000 and $402 million in 1999. The decrease in revenues was
due primarily to lower revenues in satellite manufacturing and technology due to
the timing of bookings, offset in part by strong growth in FSS as a result of
the faster than expected loading of new satellites placed in service: Telstar 6,
Telstar 7, Telstar 10/Apstar IIR and Telstar 12 and from growth in data services
in 2000. The decrease in intercompany eliminations in 2000, primarily reflects
lower sales by satellite manufacturing and technology to FSS.
EBITDA as reported increased to $130 million in 2000 from $113 million in
1999. This increase arose primarily from strong revenue growth from fixed
satellite services due to the faster than expected loading of satellites added
to our FSS fleet and lower pension cost in 2000 primarily as a result of better
than expected asset returns in 1999, offset by lower satellite manufacturing and
technology EBITDA, which was due to lower revenues and increased costs relating
to manufacturing delays and customer contract issues. In 2000 the Company
invested $22 million in Broadband activities. In addition, in 2000 the Company
had lower intercompany eliminations.
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Depreciation and amortization rose to $216 million in 2000 from $175
million in 1999. Loral's increase primarily resulted from the initiation of
depreciation on satellites placed in service in 1999.
Interest and investment income increased to $129 million in 2000 from $89
million in 1999, principally due to the non-cash interest income related to
warrants received in connection with the guarantees provided by Loral's
subsidiaries of Globalstar's $500 million credit facility and interest income
related to the Company's purchase of Globalstar loans in 2000.
Interest expense increased to $171 million in 2000, net of capitalized
interest of $17 million, from $89 million in 1999, net of capitalized interest
of $84 million. The increase was primarily due to capitalized interest
decreasing in 2000 as a result of the commencement of service of Globalstar in
2000 and of Telstar 6, Telstar 7 and Telstar 12 in 1999 and interest expense
incurred in 2000 in connection with the Company's $500 million credit facility.
The Company realized $71 million of gains in 2000, primarily from the sale
of substantially all of its investments in available-for-sale securities.
For 2000, the Company's tax provision was $9 million as compared to a tax
provision of $1 million in 1999 after excluding the non-recurring tax benefit of
$34 million related to the reversal of a valuation allowance resulting from a
tax law change affecting the future utilization of Loral CyberStar's
pre-acquisition loss carryforwards. The increase in the 2000 tax provision was
primarily due to additional income subject to federal tax and state and local
income tax expense during 2000.
The minority interest benefit primarily reflects the reduction of CyberStar
LP's loss attributed to CyberStar LP's other investor who owned 17.6% as of
December 31, 2000.
The equity in net loss of affiliates was $1.29 billion in 2000 compared to
$178 million in 1999. Loral's share of equity in net loss of affiliates related
to Globalstar activities, net of the related tax benefit of $299 million in 2000
and $3 million in 1999, was $1.29 billion in 2000 compared to $110 million in
1999. This increase was primarily due to Globalstar recording impairment charges
of approximately $2.9 billion, Globalstar moving from the development stage into
revenue operations, which initiated depreciation of the Globalstar System, the
expensing of interest and increased operations and marketing, general and
administrative costs (see Globalstar Results). Loral's share of Satmex's net
income was $19 million in 2000 versus Loral's share of Satmex's losses of $33
million in 1999, after eliminating the profit on the sale of three transponders
to Loral Skynet. Satmex had net income in 2000 of $55 million, which primarily
resulted from a $67 million after-tax gain it recorded on the net insurance
recovery on the loss of a satellite. Also included in net loss from affiliates
is Loral's share of losses from other affiliates (see Note 7 to Loral's
consolidated financial statements).
In the fourth quarter of 2000, the Company recorded after-tax impairment
charges of $112 million related to its investments in and advances to Globalstar
service provider partnerships (see Acquisitions and Investments).
Preferred distributions were $68 million in 2000 as compared to $45 million
for 1999. The increase was primarily due to the issuance of Loral's 6% Series D
convertible redeemable preferred stock (the "Series D Preferred Stock") in
February 2000 and the 332,777 shares of common stock issued as dividend
prepayments in connection with the conversion of 1.4 million shares of Loral's
6% Series C convertible redeemable preferred stock (the "Series C Preferred
Stock") into common stock during the first quarter of 2000 (see "Liquidity and
Capital Resources").
As a result of the above, the net loss applicable to common stockholders
for 2000 was $1.54 billion or $5.20 per basic and diluted share, compared to the
net loss of $247 million or $0.85 per basic and diluted share for 1999. Basic
and diluted weighted average shares were 296 million for 2000 and 290 million
for 1999. The increase in shares primarily relates to the conversion of 1.4
million shares of Series C Preferred Stock into 3.5 million shares of Loral
common stock and shares issued to the Company's employee savings plan.
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32
1999 COMPARED WITH 1998
Segment revenues for Loral were $1.9 billion for 1999 versus $1.7 billion
in 1998, before intercompany and affiliate eliminations of $402 million in 1999
and $383 million in 1998. The increase in revenues was due primarily to growth
in fixed satellite services as a result of the service start-up of Satmex 5 in
January 1999, Loral Skynet's Telstar 6 satellite in March 1999 and the
acquisition of Telstar 10/Apstar IIR in September 1999, increased growth in data
services, partially due to the acquisition of Global Access Services in July
1999, and increases in satellite manufacturing and technology. Also contributing
to increased revenues was the inclusion of Loral CyberStar's leasing and data
businesses for the full year in 1999 versus nine months in 1998 and other
increased revenues at Satmex, primarily from the sale of three transponders to
Loral Skynet. The increase in affiliate eliminations in 1999 reflects higher
revenues for Satmex.
EBITDA as reported increased to $113 million in 1999 from $101 million in
1998. This increase arose primarily from growth in fixed satellite services due
to the initiation of service on satellites added to our FSS fleet in 1999 and
increased margins in data services, offset by lower satellite manufacturing and
technology EBITDA primarily resulting from a $44 million charge relating to an
agreement reached with a customer to extend the delivery date of a satellite and
other modifications to the contract in return for satellite capacity on another
Company-owned satellite. The net charge to Loral was $35 million, after
considering the cost of the owned transponders and, as a result, intercompany
eliminations were reduced by $9 million.
Depreciation and amortization rose to $175 million in 1999 from $135
million in 1998. Loral's increase primarily results from the initiation of
depreciation on satellites placed in service in 1999 and the inclusion of Loral
CyberStar's depreciation and the amortization of cost in excess of Loral
CyberStar's net assets acquired for the full year in 1999.
Interest and investment income increased to $89 million in 1999 from $54
million in 1998, principally due to the non-cash interest income related to
warrants received in connection with the guarantees provided by Loral's
subsidiaries of Globalstar's $500 million credit facility and the dividend
income from Loral's investment in GTL preferred stock in January 1999.
Interest expense was $89 million in 1999, net of capitalized interest of
$84 million, versus $51 million in 1998, net of capitalized interest of $60
million. The increase in interest expense in 1999 was primarily due to including
interest expense for Loral CyberStar for a full year in 1999, interest expense
on the Company's 9.5% senior notes issued in January 1999 and increased interest
expense on Loral SpaceCom Corporation's credit facility, due to higher rates and
amounts outstanding in 1999, partially offset by increased capitalized interest
in 1999.
In 1998, the Company realized a $35 million gain on the sale of Globalstar
Telecommunications Limited ("GTL") common stock, which was mostly offset by the
write-off of non-strategic investments in Asia Broadcasting and Communications
Network, Ltd. and Continental Satellite Corporation of $30 million, which were
determined to have no future value to Loral. These items resulted in a net gain
on investments of $5 million in 1998.
For 1999, the income tax benefit of $33 million included a non-recurring
tax benefit of $34 million relating to the reversal of a valuation allowance
resulting from a tax law change affecting the future utilization of Loral
CyberStar's pre-acquisition loss carryforwards. Excluding this non-recurring
benefit, the Company recorded an income tax provision of $1 million on a loss
before income taxes of $62 million. For 1998, the Company recorded an income tax
benefit of $4 million on a loss of $26 million before income taxes. The increase
in the 1999 provision was primarily due to additional income subject to federal
tax and state and local income tax expense during 1999.
The minority interest benefit primarily reflects the reduction of CyberStar
LP's loss attributed to CyberStar LP's other investor, who owned 17.6% as of
December 31, 1999.
The equity in net loss of affiliates was $178 million in 1999 compared to
$120 million in 1998. Loral's share of equity in net loss of affiliates related
to Globalstar activities, net of the related tax benefits of $3 million in 1999
and $2 million in 1998, was $110 million in 1999 compared to $75 million in
1998. This increase is primarily due to Globalstar's increased development costs
and marketing, general and administrative costs in 1999 and launch related costs
of $30 million in 1999 related to excess launch capacity. As a result of its
successful launch campaign during 1999, Globalstar does not anticipate using all
the excess launch
31
33
vehicle capacity it had contracted for and, accordingly, recorded a charge of
$30 million. In 1998, Globalstar incurred a $17 million charge related to the
loss of satellites on launch failure. Loral's share of Satmex's loss was $33
million for 1999, after eliminating the profit on its sale of three transponders
to Loral Skynet, and $16 million for 1998. Also included as equity in net loss
of affiliates is Loral's share of other affiliates (see Note 7 to Loral's
consolidated financial statements).
Preferred distributions of $45 million for 1999 and $46 million for 1998
relate to the Series C Preferred Stock.
As a result of the above, the net loss applicable to common stockholders
for 1999 was $247 million or $0.85 per basic and diluted share, compared to a
net loss applicable to common stockholders of $185 million or $0.68 per basic
and diluted share for 1998. Basic and diluted weighted average shares were 290.2
million for 1999 and 273.4 million for 1998 (see Note 15 to Loral's consolidated
financial statements). This increase is primarily due to the 23 million shares
issued to the public in June 1998 and the 18 million shares issued to acquire
Loral CyberStar in March 1998.
RESULTS BY REPORTABLE SEGMENT
Fixed Satellite Services
FSS revenue (including 100% of Satmex) increased to $461 million in 2000,
from $342 million and $254 million in 1999 and 1998, respectively. FSS revenues
increased in 2000 when compared to 1999, due to the faster than expected loading
of new satellites placed in service: Telstar 6, Telstar 7, Telstar 10/Apstar IIR
and Telstar 12. EBITDA (including 100% of Satmex and Europe*Star) increased to
$282 million in 2000, from $193 million and $171 million in 1999 and 1998,
respectively. During 1999, the Global Alliance fleet increased to 10 operational
satellites in-orbit, from five at the end of 1998. EBITDA margins increased to
61% in 2000 from 56% in 1999, as a result of utilization growth on the satellite
fleet, without a proportionate growth in costs. Funded backlog for the fixed
satellite services segment totaled $2.4 billion at the end of 2000, an increase
of over 60% from the backlog at year-end 1999, of $1.5 billion, including
intercompany backlog of $65 million and $3 million in 2000 and 1999,
respectively, and affiliate backlog of $546 million in 2000 for Satmex and
Europe*Star and $364 million in 1999 for Satmex. The average contract length of
funded backlog has grown from approximately 4.5 years at December 31, 1999, to
approximately 5.0 years at December 31, 2000. Approximately $440 million of the
2000 funded backlog is expected to be realized in 2001, including approximately
$20 million of intercompany backlog and approximately $120 million of affiliate
backlog for Satmex and Europe*Star. Capital expenditures in 2000 were
approximately $489 million, which included approximately $112 million for Satmex
and Europe*Star. Capital expenditures for 2001 are expected to be significant
due to the expansion of the satellite fleet.
Satellite Manufacturing and Technology
Revenues at SS/L, the Company's satellite manufacturing and technology
subsidiary, before intercompany eliminations, were approximately $1.0 billion in
2000 and $1.4 billion in 1999 and 1998, respectively. Revenues decreased in 2000
primarily from the timing of bookings. EBITDA before intercompany eliminations
in 2000 was $36 million versus $102 million in 1999 and $118 million in 1998.
The EBITDA decline in 2000 was primarily due to the $77 million of increased
costs relating to manufacturing delays and customer contract issues, and lower
revenues. EBITDA in 1999 included a $44 million charge relating to an agreement
reached with a customer to extend the delivery date of a satellite and other
modifications to the contract in return for satellite capacity on another
Company-owned satellite. Funded backlog for SS/L as of December 31, 2000 and
1999 was $1.7 billion and $1.3 billion, respectively, including intercompany
backlog of $477 million in 2000 and $256 million in 1999. Approximately $800
million of the 2000 funded backlog is expected to be realized in 2001, including
approximately $250 million of intercompany backlog. Revenues recorded under
contracts with Globalstar for 2000, 1999 and 1998 were $134 million, $360
million and $599 million, respectively. Capital expenditures in 2000 were
approximately $22 million and are expected to increase in 2001.
Data Services
Revenues for the data services segment increased to $130 million in 2000,
from $85 million and $40 million in 1999 and 1998, respectively, primarily from
increased global demand for access to the Internet
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backbone, by steadily growing corporate adoption of VSAT networks and from the
acquisition of Global Access Services ("Global Access") in July 1999. EBITDA in
2000 was a loss of $30 million (including $6 million in charges associated with
integration of Global Access and rationalization of the data infrastructure),
compared to a loss of $36 million in 1999 (including $11 million of asset
disposals resulting from changes in technology supporting its business strategy)
and a loss of $47 million in 1998. As of December 31, 2000 and 1999, funded
backlog for the segment was $191 million and $236 million, respectively, which
was all from external sources. This decline resulted from a debooking of $68
million of business in the fourth quarter of 2000, the bulk of which was
attributable to a single Internet customer. Approximately $60 million of 2000
external funded backlog is expected to be realized in 2001. Capital expenditures
in 2000 were approximately $23 million and are expected to decrease in 2001.
Globalstar Results
Globalstar commenced commercial operations in the first quarter of 2000,
and as of February 15, 2001, was providing service through 25 gateways, covering
109 countries, including all of North and South America (excluding northwestern
Alaska and portions of Canada above 70 degrees north latitude), Europe and
Russia. As of December 31, 2000, Globalstar had approximately 31,000 commercial
subscribers on its system. For the year ended December 31, 2000, Globalstar
recorded net revenues of $3.65 million and provided 6,604,000 minutes of
billable telecommunication services. Globalstar's revenues during 2000 were well
below Globalstar management's initial expectations and have not provided
sufficient cash flows to fund Globalstar's operations or service its debt
obligations. Globalstar's revenue performance during the fourth quarter of 2000
caused Globalstar management, in conjunction with its service provider partners,
to perform a reassessment of its business plan and long term revenue
projections.
In the fourth quarter of 2000, Globalstar recorded a $2.9 billion
impairment charge related to the $3.2 billion carrying value of the Globalstar
System, including spare satellites, launch deposits, unsold production gateways,
user terminals and related assets. This charge resulted from the revision of
estimates of gross cash flows through 2009, the estimated end of useful life of
the Globalstar System, and the determination that these assets are impaired. The
fair value, for purposes of measuring Globalstar's impairment at December 31,
2000, was determined by discounting these cash flows. Gross cash flows were
based on revenue projections offset by estimated expenditures for operations and
capital expenditures. Revenue projections were based on Globalstar's current
market outlook, which is significantly influenced by service provider
projections. Including the $2.9 billion impairment charge, Globalstar's net loss
applicable to ordinary partnership interests in 2000 was $3.8 billion.
ACQUISITIONS AND INVESTMENTS
The Company commenced operations in 1996 with equity holdings in
affiliates, including SS/L and Globalstar. From 1997 through 2000, Loral
accelerated its transformation from a company with extensive equity investments,
to a major satellite manufacturer and provider of satellite services by making a
number of acquisitions and investments that significantly affected its results
of operations and financial condition, including the following transactions
during the three years ended December 31, 2000:
Fixed Satellite Services
Loral CyberStar
On March 20, 1998, Loral acquired all of the outstanding stock of Orion
Network Systems, Inc. in exchange for Loral common stock. Loral issued 18
million shares of its common stock and assumed existing exercisable Orion
options and warrants to purchase an aggregate of 1.4 million shares of Loral
common stock. The resulting purchase price was $472.5 million. In November 1999,
Orion changed its name to Loral CyberStar, Inc. Loral accounted for the
acquisition as a purchase and its consolidated financial statements reflect the
results of operations of Loral CyberStar from April 1, 1998.
Satmex
On March 30, 1999, Loral acquired 577,554 shares of preferred stock of
Satmex at a purchase price of $30.3 million. The preferred stock has limited
voting rights, pays a dividend in limited voting common stock of
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Satmex and is exchangeable, at Satmex's option, into limited voting common stock
of Satmex based upon a predetermined exchange ratio.
Europe*Star
In December 1998, Loral finalized its strategic partnership with a
subsidiary of Alcatel to jointly build and operate Europe*Star, a geostationary
satellite system designed to provide broadcast and telecommunications services
to Europe, the Middle East, Southeast Asia, India, and South Africa. Europe*Star
is a member of the Loral Global Alliance, which is led by Loral Skynet. Through
December 31, 2000, Loral has invested $72 million in Europe*Star. As of December
31, 2000, Loral owned 47% of Europe*Star. Pursuant to the terms of the
shareholders agreement, Loral has permitted Alcatel to fund additional
expenditures to develop Europe*Star's business and infrastructure through
approximately $175 million in loans to the venture. Loral has the right to elect
either to match the amount of such loans or permit Alcatel to elect to convert
some or all its loans into equity, which could dilute Loral's equity in the
venture to as little as approximately 22%.
Data Services
Loral CyberStar -- see Loral CyberStar above.
On July 31, 1999, CyberStar LP acquired Global Access, a business
television unit of Williams Communications, Inc., for approximately $11 million
in cash. Loral has accounted for the acquisition as a purchase and its
consolidated financial statements include the results of Global Access from
August 1, 1999. Global Access provides business television, video conferencing
and other communication services to companies in various parts of the world,
including Europe, South Africa, Australia, Asia and the Americas, through
networks operated in Singapore, Dallas, London and Johannesburg.
Globalstar and GTL
As of December 31, 2000, Loral's direct and indirect investment in
connection with Globalstar related activities included about 39% of Globalstar's
common equity and about 27% of its debt, an investment in GTL preferred stock
and investments in and advances to Globalstar service provider partnerships.
During 2000, Loral recorded after-tax charges of approximately $1.4 billion
related to its investment in and advances in connection with Globalstar related
activities, consisting of Loral's share of after-tax operating losses of $1.29
billion (including approximately $882 million representing Loral's after-tax
share of Globalstar's impairment charges) and after-tax impairment charges of
$112 million resulting from the write-off of investments in and advances to
Globalstar service provider partnerships to their estimated fair values as of
December 31, 2000. After these charges, Loral's remaining investment in
Globalstar related activities was $62 million as of December 31, 2000. In
addition, Loral intends to continue to fund its share of the operations of those
Globalstar service provider ventures in which it participates as an equity
owner. If Globalstar is unable to effectuate a successful restructuring, Loral's
remaining investment in Globalstar and any additional investment in Globalstar
service providers would be impaired.
Globalstar is currently developing a new business plan that will offer a
basis for a restructuring proposal that it will provide to its creditors. If it
is unable to effectuate an out-of-court restructuring, Globalstar may file for
bankruptcy protection. Moreover, its creditors may seek to initiate involuntary
bankruptcy proceedings against Globalstar. Loral's equity interests in
Globalstar may be eliminated entirely in any such bankruptcy proceeding, as it
might in an out-of-court restructuring. The Globalstar debt obligations Loral
holds are senior unsecured obligations that rank equally in right of payments
with all other Globalstar debt obligations (see Commitments and Contingencies).
Loral made the following investments in Globalstar and GTL during 2000:
- In June 2000, Loral purchased $68 million of Globalstar notes due June
2003 in connection with the Company's guarantee of Globalstar's $250
million credit facility.
- In September 2000, Loral purchased 1,120,187 shares of GTL common stock
for $12 million.
- In November 2000, Loral purchased the creditors' interests in
Globalstar's $500 million credit facility, which it had guaranteed.
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TAXATION
Loral, as a Bermuda company, may be subject to U.S. federal, state and
local income taxation at regular corporate rates on any income that is
effectively connected with the conduct of a U.S. trade or business. When such
income is deemed removed from the U.S. business, it is subject to an additional
30% "branch profits" tax. Loral expects that a significant portion of its
worldwide income will be from non-U.S. sources and will not be effectively
connected with a U.S. trade or business. In January 2001, the United States
Treasury Department issued proposed regulations for the sourcing of space and
communications income. Depending upon how these regulations are finalized, a
substantial portion of Loral's income may be recharacterized as derived from
U.S. sources and as effectively connected with a U.S. trade or business so as to
subject that income to regular U.S. Federal income tax and a 30% branch profits
tax. The Company cannot predict the outcome of that regulatory project.
Any portion of the Company's income from sources outside the United States
may be subject to taxation by foreign countries and the extent to which these
countries may require the Company to pay tax or to make payments in lieu of tax
cannot be determined in advance. However, based upon the Company's review of
current tax laws, including applicable international tax treaties of certain
countries that the Company believes to be among our key potential markets, the
Company expects that a significant portion of the Company's worldwide income
will not be subject to tax by Bermuda or by the other foreign countries from
which the Company derives income.
The Company's U.S. subsidiaries are subject to U.S. taxes on their
worldwide income. In addition, a 30% U.S. withholding tax will be imposed on
dividends and interest paid by such subsidiaries to Loral Space & Communications
Ltd.
At December 31, 2000, the Company had net operating loss carryforwards of
$690 million which are available to reduce the Company's tax liability in the
future but expire at varying dates from 2003 through 2020. $207 million of these
loss carryforwards were generated by Loral Space & Communications Ltd. Any
realization from this portion of the loss carry forwards is dependent upon Loral
generating future taxable income that is effectively connected with the conduct
of a U.S. trade or business (see Note 9 to Loral's consolidated financial
statements).
LIQUIDITY AND CAPITAL RESOURCES
Loral intends to capitalize on its innovative capabilities, market position
and advanced technologies to offer value-added satellite-based services as part
of the evolving worldwide communications networks and, where appropriate, to
form strategic alliances with major telecommunications service providers and
equipment manufacturers to enhance and expand its satellite-based communications
service opportunities. In order to pursue such opportunities, Loral may seek
funds from strategic partners and other investors, and through incurrence of
debt or the issuance of additional equity.
Debt
$500 Million Credit Agreement
In November 2000, Loral Satellite, Inc. ("Loral Satellite"), a subsidiary
of Loral, entered into a $500 million secured credit agreement with Bank of
America, National Association and the other lenders party thereto (the "$500
Million Credit Agreement"). The $500 Million Credit Agreement provides for a
$200 million three-year revolving credit facility (the "Revolver") and a $300
million term loan (the "Term Loan"). The Term Loan is subject to an amortization
payment schedule as follows: 1% of the principal amount on each of January 15,
2001 and June 30, 2001; 15% of the principal amount on June 30, 2002; 25% of the
principal amount on March 31, 2003; and 58% of the principal amount on August
15, 2003. All amounts outstanding under the Revolver are due and payable on
August 15, 2003. Borrowings under the $500 Million Credit Agreement bear
interest, at Loral Satellite's option, at various rates based on margins over
the lead bank's base rate or the London Interbank Offer Rate for periods of one
to six months. Loral Satellite pays a commitment fee on the unused portion of
the Revolver.
The $500 Million Credit Agreement is secured by certain assets of Loral
Satellite, including the Telstar 6 and Telstar 7 satellites and the loans due to
Loral under Globalstar's $500 million credit facility (see below), and the stock
of Loral Satellite. Based on third party valuations, management believes that
the fair value of
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Telstar 6 and Telstar 7 is in excess of $500 million. As of December 31, 2000,
the net book value of Telstar 6 and Telstar 7 was approximately $350 million.
Loral has also agreed to guarantee Loral Satellite's obligations under the $500
Million Credit Agreement, which guarantee agreement contains a minimum net worth
covenant.
The $500 Million Credit Agreement contains customary financial covenants,
including maintenance of a minimum collateral coverage ratio, minimum net worth
and EBITDA. The $500 Million Credit Agreement also contains customary
limitations, including those on indebtedness, fundamental changes, asset sales,
dividends, (except that Loral Satellite may pay dividends to its parent provided
that after such dividends, Loral Satellite holds an intercompany note due from
its parent or Loral for at least $100 million), investments, capital
expenditures, creating liens (other than those created pursuant to the $500
Million Credit Agreement), prepayments or amendments of indebtedness, and
transactions with affiliates.
Proceeds from the $500 million of loans incurred under the $500 Million
Credit Agreement were used by Loral Satellite to purchase all of the creditors'
interests in the loans outstanding under Globalstar's $500 million credit
agreement (see Globalstar/GTL section of Liquidity and Capital Resources ). The
guarantee of Globalstar's $500 million credit agreement that had been provided
by Loral Satellite and Loral SatCom Ltd., a subsidiary of Loral, was terminated
and released in connection with this transaction.
Loral SpaceCom Credit Agreement
The Amended and Restated Credit Agreement, dated as of November 14, 1997,
as amended, among Loral SpaceCom Corporation ("Loral SpaceCom"), SS/L and the
banks party thereto (the "Credit Agreement"), provides for a $275 million term
loan facility, a $500 million revolving credit facility, of which up to $175
million can be used for letters of credit and a separate $75 million letter of
credit facility. The facility matures in November 2002. The Credit Agreement is
secured by the stock of Loral SpaceCom Corporation and SS/L, and contains
customary covenants, including an interest coverage ratio and debt to
capitalization ratios, as defined. As of December 31, 2000, the net book value
of the assets that secure the Credit Agreement was approximately $1 billion. In
addition, the Credit Agreement contains customary limitations, including those
on indebtedness, liens, guarantee obligations, asset sales, dividends,
investments and transactions with affiliates. The Company's note purchase
facility matured in August 2000 and the outstanding balance of $139 million was
rolled into the Revolving Credit Facility, which did not reduce the availability
under this credit facility. As of December 31, 2000, there was $65 million of
borrowing availability under this credit facility.
Other Debt Agreements
In January 1999, Loral completed a private offering of senior notes,
raising approximately $350 million from selling 9.5% senior notes due 2006, of
which a portion was used to invest in $150 million face amount of GTL's $350
million offering of GTL Series A Preferred Stock, thereby maintaining Loral's
prior proportionate ownership position in Globalstar. The related indenture
contains customary covenants, including those on indebtedness and dividends.
The Company had outstanding letters of credit of approximately $18 million
and $118 million as of December 31, 2000 and 1999, respectively. The Company
also had $20 million and $13 million Canadian Dollar letters of credit
outstanding as of December 31, 2000 and 1999, respectively.
Loral CyberStar's outstanding debt as of December 31, 2000, of $1.0
billion, is non-recourse to Loral, and includes certain restrictions on Loral
CyberStar's ability to pay dividends or make loans to Loral. The accreted
principal value of Loral CyberStar's senior notes and senior discount notes was
$870 million at December 31, 2000.
As of December 31, 2000, Loral believes it was in compliance with all
covenants pertaining to its debt facilities.
Equity
In March 2001, Loral announced increases in its exchange offers for shares
of the Company's Series C Preferred Stock and Series D Preferred Stock. Under
the terms of the voluntary exchange program, each share of Series C Preferred
Stock may be now exchanged for 5.5 shares of common stock and each share of
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Series D Preferred Stock may now be exchanged for 5.7 shares of common stock. As
of December 31, 2000, there were 13,497,863 shares of the Series C Preferred
Stock outstanding and 8,000,000 shares of the Series D Preferred Stock
outstanding. Each offer is extended to all outstanding shares of the related
preferred stock, and is conditioned upon a minimum tender of 50% of that issue's
outstanding shares, which may be waived at Loral's option. Both offers extend to
all outstanding shares of the Series C and D preferred stock, and these offers
remain open until 5 p.m., New York City time, April 5, 2001, unless extended
again.
If all holders of the Series C and Series D preferred stock exchange their
holdings in connection with the current offer by the April 5, 2001 deadline,
Loral would save the requirement to pay approximately $48 million in dividends
for the remainder of 2001. Over the next six to seven years Loral would replace
the requirement to pay approximately $375 million in dividends and approximately
$1.1 billion in mandatory redemption payments due in 2006 and 2007 with
approximately 120 million shares of common stock. This issuance of common stock
would represent approximately 66 million of additional shares, above the 54
million issuable under the conversion terms of the Series C and Series D
preferred stock. There can be no assurance as to the amount of Series C and
Series D preferred stock that will tender into the exchange offers. Assuming all
holders of the Series C and Series D preferred stock exchange their holdings in
connection with the current offer by the April 5, 2001 deadline, at an assumed
price of $2.30 per share of common stock, Loral will incur a non-cash dividend
charge in the period in which an exchange occurs of approximately $152 million.
An exchange will have no impact on Loral's total shareholders' equity.
On March 31, 2000, Lockheed Martin Corporation ("Lockheed Martin")
converted 45,896,978 shares of Loral's Series A preferred stock into 45,896,978
shares of Loral common stock. Loral filed a registration statement to register
the resale by Lockheed Martin of the shares of common stock acquired upon the
conversion of the Series A preferred stock, which became effective in May 2000.
Loral has agreed to maintain the effectiveness of such registration until May
19, 2001, subject to certain extensions.
In February 2000, Loral sold $400 million of Series D Preferred Stock due
2007, in an offering exempt from registration. The preferred stock is
convertible into approximately 20.2 million shares of common stock at a
conversion price of $19.83 per share.
In February 2000, 1.4 million shares of Series C Preferred Stock were
converted into 3.5 million shares of Loral common stock. In connection with this
conversion, Loral issued to converting holders 332,777 additional shares of its
common stock, which approximated the dividend prepayments to which they would
have been entitled if a provisional redemption of those securities had been
made.
Cash
As of December 31, 2000, Loral had $394 million of cash and cash
equivalents. Loral intends to utilize its existing capital base to further
develop satellite technologies and hardware, by building out its fixed satellite
services business.
Net Cash Provided by (Used in) Operating Activities
Net cash provided by operating activities for 2000 was $258 million,
primarily due to the net loss as adjusted for non-cash operating items of $71
million, decreases in contracts-in-process of $199 million, inventories of $31
million and deposits of $34 million, offset by decreases in accounts payable of
$91 million.
Net cash used in operating activities for 1999 was $7 million, primarily
due to increases in contracts-in-process of $65 million, deposits of $54 million
and other assets of $64 million and a decrease in customer advances of $91
million. This was offset by the net loss as adjusted for non-cash operating
items of $164 million, a decrease in inventories of $67 million and an increase
in long-term liabilities of $61 million.
Net Cash Used in Investing Activities
Net cash used in investing activities for 2000 was $377 million, primarily
as a result of capital expenditures of $424 million mainly for the construction
or acquisition of satellites (including $181 million for the final payment for
Telstar 10/Apstar IIR), $169 million of investments in affiliates and the
purchase of Globalstar notes of $68 million, offset by a reduction in restricted
and segregated cash of $187 million and proceeds from sales of
available-for-sale securities and investments of $97 million.
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Net cash used in investing activities for 1999 was $679 million, primarily
as a result of $470 million of capital expenditures mainly for the construction
of satellites, the $148 million cost of acquiring GTL Series A Preferred Stock,
$44 million of capitalized interest on investments, $55 million of advances to
affiliates and $107 million of other investments in affiliates, offset by a
reduction in restricted and segregated cash of $156 million, used for the
construction of Loral CyberStar satellites and interest payments on its senior
notes.
Net Cash Provided by Financing Activities
Net cash provided by financing activities for 2000 was $273 million, due
primarily to net proceeds of $388 million from the Company's issuance of Series
D Preferred Stock and $56 million from borrowings under debt obligations, offset
by repayments of debt obligations of $135 million and preferred dividends of $62
million.
Net cash provided by financing activities for 1999 was $379 million, due
primarily to the net proceeds of $344 million from the Company's issuance of
9.5% senior notes, net borrowings under the Company's revolving credit facility
of $70 million and proceeds from equity transactions of $20 million, offset in
part by debt repayments of $23 million and preferred dividends of $45 million.
Fixed Satellite Services
Loral Skynet
Loral Skynet currently has four high-power satellites in orbit. Loral
intends to expand Loral Skynet's business to become a worldwide satellite
service provider through the construction of additional satellites.
Loral CyberStar
Loral CyberStar currently has three satellites in orbit (Telstar 11,
Telstar 12 and Telstar 10/Apstar IIR). Telstar 12, originally intended to
operate at 12 degrees W.L., was launched aboard an Ariane launch vehicle in
October 1999 into the orbital slot located at 15 degrees W.L., and commenced
operations in January 2000. Under an agreement reached with Eutelsat, Loral
CyberStar agreed to operate Telstar 12 at 15 degrees W.L. while Eutelsat
continues to develop its services at 12.5 degrees W.L. Eutelsat has in turn
agreed not to use its 14.8 degrees W.L. orbital slot and to assert its priority
rights at such location on Loral CyberStar's behalf. As part of this
coordination effort, Loral CyberStar agreed to provide to Eutelsat four 54 MHz
transponders on Telstar 12 for the life of the satellite and have retained risk
of loss with respect to those transponders. Eutelsat also has the right to
acquire, at cost, four transponders on the next replacement satellite for
Telstar 12. As part of the international coordination process, Loral continues
to conduct discussions with various administrations regarding Telstar 12's
operations at 15 degrees W.L. If these discussions are not successful, Telstar
12's useable capacity may be reduced.
On May 4, 1999, the Orion 3 satellite was placed into a lower-than-expected
orbit after its launch on a Delta III rocket. According to Boeing, the Delta III
rocket apparently failed to complete its second stage burn, and, as a result,
the satellite, manufactured by Hughes Space and Communications Corporation,
achieved an orbit well below the planned final altitude and could not be used
for its intended purpose. The satellite and launch were fully insured for
approximately $266 million, which was received in 1999. DACOM Corporation, a
Korean communications company which had purchased eight transponders on Orion 3
for a total of $89 million, had made prepayments of approximately $34 million to
Loral CyberStar. Under the agreement with DACOM, the amount prepaid was refunded
in July 1999.
To replace Orion 3, on September 28, 1999, Loral CyberStar purchased from
APT Satellite Company Limited ("APT") for approximately $273 million, the rights
to all transponder capacity and existing customer leases on the Apstar IIR
satellite (except for one C-band transponder retained by APT), and renamed the
satellite the Telstar 10/Apstar IIR satellite. Loral CyberStar has full use of
the transponders for the remaining life of Telstar 10/Apstar IIR. Loral
CyberStar will also have the option to lease from APT replacement satellites
upon the end of life of Telstar 10/Apstar IIR. In March 2000, Loral CyberStar
made the final payment to APT.
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Satmex
Satmex currently has two satellites in orbit (Solidaridad 2 and Satmex 5)
and one satellite in inclined orbit (Morelos 2). On August 30, 2000, Satmex
announced that its Solidaridad 1 satellite ceased operation and was
irretrievably lost. The loss was caused by the failure of the back-up control
processor on board the satellite. Solidaridad 1, which was built by Hughes Space
and Communications ("Hughes") and launched in 1994, experienced a failure of its
primary control processor in April 1999, and had been operating on its back-up
processor since that time. The majority of Solidaridad 1's customers have been
provided replacement capacity on other Satmex satellites or on satellites
operated by Loral Skynet. Satmex received net insurance proceeds of $235 million
relating to the loss of Solidaridad 1. In connection with this loss, Satmex
recognized an after-tax gain of $67 million, which resulted from the insurance
proceeds in excess of the carrying amount of the satellite and the incremental
costs associated with providing replacement capacity, as required by its
contracts with its customers. Satmex has contracted with SS/L to build a
replacement satellite. This satellite, known as Satmex 6, is scheduled to be
launched in 2003, and is designed to provide broader coverage and higher power
levels than any other satellite currently in the Satmex fleet.
At December 31, 2000, Solidaridad 2 had a remaining estimated useful life
of eight years. Moreover, Solidaridad 2 was manufactured by Hughes and is
similar in design to Solidaridad 1 and to other Hughes satellites which have
experienced in-orbit component failures. While Satmex has obtained in-orbit
insurance for Solidaridad 2, a satellite failure may result in a drop in
Satmex's profits, which loss of profits would not be insured. The in-orbit
insurance for Solidaridad 2 expires in November 2002. Satmex cannot guarantee
that it will be able to renew the insurance at the end of this period, or that
if renewal is available, that it would be on acceptable terms. For example, a
renewal policy for Solidaridad 2 may not insure against an in-orbit failure due
to the loss of the satellite's control processor, the same component that caused
the loss of Solidaridad 1 and other Hughes satellites. An uninsured loss would
have a material adverse effect on Satmex's results of operations and financial
condition.
In May 2000, Satelites Enigma S.A. de C.V., a subsidiary of Principia, S.A.
de C.V. ("Principia"), exercised its option to purchase 104,105 shares of Satmex
preferred stock from Loral for $6.6 million in cash. Loral realized a gain of $1
million in connection with this transaction.
On February 16, 2000, Satmex obtained amendments to certain of its debt
agreements, which adjusted certain financial covenants. Satmex believes that its
future operating cash flow and the availability of its revolving credit facility
will be sufficient to service its interest and debt repayment requirements and
ensure compliance with its debt agreements.
On March 31, 1999, Satmex redeemed $35 million of its secured floating rate
notes using proceeds from the sale of preferred stock. On September 30, 1999,
Satmex redeemed an additional $50 million of its secured floating rate notes.
The related covenants of such debt restrict the ability of Satmex to pay
dividends to Loral.
In connection with the privatization by the Mexican Government of its fixed
satellite services business, Loral and Principia formed a joint venture,
Firmamento Mexicano, S.A. de R.L. de C.V. ("Holdings"). In 1997, Holdings
acquired 75% of the outstanding capital stock of Satmex. As part of the
acquisition, Servicios Corporativos Satelitales, S.A. de C.V. ("Servicios"), a
wholly owned subsidiary of Holdings, issued a seven-year Government Obligation
("Government Obligation") to the Mexican Government in consideration for the
assumption by Satmex of the debt incurred by Servicios in connection with the
acquisition. The Government Obligation had an initial face amount of $125
million, which accretes at 6.03% and expires in December 2004. The debt of
Satmex and Holdings is non-recourse to Loral and Principia. However, Loral and
Principia have agreed to maintain assets in a collateral trust in an amount
equal to the value of the Government Obligation through December 30, 2000 and,
thereafter, in an amount equal to 1.2 times the value of the Government
Obligation until maturity. As of December 31, 2000, Loral and Principia have
pledged their respective shares in Holdings in such trust. Loral has a 65%
economic interest in Holdings and a 49% indirect economic interest in Satmex.
Loral accounts for Satmex using the equity method.
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Satellite Manufacturing and Technology
Due to the long lead times required to produce purchased parts and launch
vehicles, SS/L has entered into various purchase commitments with suppliers.
These commitments aggregated approximately $505 million as of December 31, 2000,
and primarily related to satellite backlog.
Data Services
Based upon its current expectations for growth, Loral CyberStar anticipates
it will have additional funding requirements over the next three years to fund
the streaming media investment, the purchase of VSATs, senior note interest
payments, other capital expenditures and other operating needs. Loral CyberStar
will need to secure funding from Loral, or raise additional financing to fund
these requirements. Sources of additional capital may include public or private
debt, equity financings or strategic investments. To the extent that Loral
CyberStar seeks to raise additional debt financing, its indentures limit the
amount of such additional debt and prohibit Loral CyberStar from using Telstar
11, Telstar 10/Apstar IIR and Telstar 12 as collateral for indebtedness for
money borrowed. If Loral CyberStar requires additional financing and is unable
to obtain such financing from Loral or from outside sources in the amounts and
at the times needed, there would be a material adverse effect on Loral
CyberStar.
Broadband Investment
In keeping with its strategy to redirect the Company's resources and
attention to its core businesses, the Company has substantially revised its plan
for participation in the broadband communications market. At year-end 2000,
Loral determined it would not deploy a proprietary direct-to-the-consumer
broadband service, as previously planned, with its attendant time-to-market,
partner, marketing and financial challenges. Rather, Loral will participate in
the broadband market by providing its customers with satellite platforms for
their broadband offerings, through Loral's expansion of its fixed satellite
services fleet and related capabilities and through its satellite design and
production capabilities. Loral believes this strategy will realize revenues and
cash flows from the broadband data opportunities earlier than its former
approach. The Company's broadband and streaming media investment in 2000 was $22
million.
Globalstar and GTL (See Acquisitions and
Investments and Commitments and Contingencies)
In September 2000 GTL entered into a purchase agreement with Bear Stearns
International Limited ("Bear Stearns"), under which Bear Stearns had agreed to
purchase over several tranches, up to $105 million of shares of GTL common
stock. Sales under this agreement were subject to certain conditions, including
the requirement that GTL's share price be trading higher than $4.50. As of
December 31, 2000, Bear Stearns had purchased 4,050,000 shares of GTL common
stock for net proceeds of $28 million. GTL used the proceeds from the sales to
purchase 1,000,001 ordinary partnership interests in Globalstar.
In September 2000, Globalstar's founding partners, Loral, Vodafone,
Qualcomm, Elsacom and TESAM, purchased an aggregate of 5.2 million shares of
common stock of GTL for $56 million. GTL used the proceeds from the sales to
purchase 1,295,360 ordinary partnership interests in Globalstar.
In May 2000, Globalstar finalized $531.1 million of vendor financing
arrangements (including $31.1 million of capitalized interest as of May 2000)
with Qualcomm that replaced the previous $100 million vendor financing
agreement. The terms of the vendor financing provided for interest at 6%, a
maturity date of August 15, 2003 and required repayment pro rata with the term
loans due to Loral under Globalstar's $500 million credit facility discussed
above. As of December 31, 2000, $550.7 million was outstanding under this
facility (including $50.7 million of capitalized interest). In connection with
this agreement, Qualcomm received warrants to purchase 3,450,000 Globalstar
partnership interests at an exercise price of $42.25 per interest. The exercise
price was determined by reference to the fair market value of GTL's common stock
on the closing date of the vendor financing, based on an approximate one
partnership interest for four shares of GTL common stock. 50% of the warrants
vested on the closing date, 25% vested on September 1, 2000 and 25% will vest on
September 1, 2001. The warrants will expire in 2007.
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Loral has agreed that if the principal amount (excluding capitalized
interest of $42.5 million as of December 31, 2000) outstanding under the
Qualcomm vendor financing facility exceeds the principal amount outstanding
under Globalstar's $500 million credit facility to Loral, as determined on
certain measurement dates, then Loral will guarantee 50% of such excess amount.
In February 2000, GTL sold 8,050,000 shares of its common stock to the
public under a shelf registration statement filed by Globalstar and GTL in July
1999 with the SEC covering up to $500 million of securities. GTL used the net
proceeds from the offering of approximately $268.5 million to purchase 1,987,654
ordinary partnership interests in Globalstar.
In December 1999, GTL completed a private offering of $150 million of 9%
Series B convertible redeemable preferred stock (the "GTL Series B Preferred
Stock"). GTL used the net proceeds from this offering to purchase 9% Series B
convertible redeemable preferred partnership interests ("9% RPPIs") of
Globalstar.
On August 5, 1999, Globalstar entered into a $500 million credit agreement
with a group of banks for the build-out of the Globalstar system, of which $400
million was outstanding at December 31, 1999. The credit facility was guaranteed
by Loral SatCom Ltd. and Loral Satellite, Inc. In November 2000, the assets of
Loral SatCom Ltd. were transferred into Loral Satellite and Loral Satellite
entered into a $500 Million Credit Agreement, at which time these guarantees
were released (see Debt section of Liquidity and Capital Resources). In
consideration for these guarantees in 1999, Loral received warrants to purchase
3,450,000 Globalstar partnership interests at an exercise price of $91 per
interest (75% of the warrants had vested as of December 31, 2000).
In January 1999, Globalstar sold to GTL seven million units (face amount of
$50 per unit) of 8% Series A convertible redeemable preferred partnership
interests ("8% RPPIs"), in connection with GTL's offering of seven million
shares (face amount of $50 per share) of GTL 8% Series A convertible redeemable
preferred stock (the "GTL Series A Preferred Stock"). The GTL Series A Preferred
Stock is convertible into shares of GTL common stock at a conversion price of
$23.2563 per share. Loral purchased three million shares or $150 million face
amount of the GTL Series A Preferred Stock offered. Dividends on the 8% RPPIs
and the GTL Series A Preferred Stock accrue at 8% per annum and are payable
quarterly.
SS/L has provided $344 million of billings deferred under its construction
contracts with Globalstar; comprised of: $120 million of orbital incentives, of
which $44 million was repaid in 1999, $60 million was repaid in 2000 and $8
million is scheduled to be received in 2001; $90 million of vendor financing
which bears interest at LIBOR plus 3% and is repayable over five years
commencing in 2001; and $134 million of non-interest bearing vendor financing,
due over five years in equal monthly installments, commencing in 2000. SS/ L's
terms with its subcontractors include $101 million of financing assumed by them,
which is to be repaid on substantially similar terms (of which $52 million is
non-recourse to SS/L in the event of non-payment by Globalstar due to
bankruptcy).
COMMITMENTS AND CONTINGENCIES
Loral Skynet has entered into prepaid leases and sales contracts relating
to transponders on its satellites. Under the terms of the agreements, Loral
Skynet continues to operate the satellites which carry the transponders and
provides a warranty for a period of 10 to 14 years, in the case of sales
contracts, and the lease term, in the case of prepaid leases. Depending on the
contract, Loral Skynet may be required to replace transponders which do not meet
operating specifications. All customers are entitled to a refund equal to the
reimbursement value, as defined, in the event there is no replacement. In the
case of sales contracts, the reimbursement value is determined based on the
original purchase price plus an interest factor from the time the payment was
received to acceptance of the transponder by the customer, reduced on a
straight-line basis over the warranty period. In the case of prepaid leases, the
reimbursement value is equal to the unamortized portion of the lease prepayment
by the customer.
Eleven of the satellites built by SS/L and launched since 1997, four of
which are owned and operated by Loral's subsidiaries or affiliates, have
experienced minor losses of power from their solar arrays. SS/L is currently
investigating the cause of these failures. Although, to date, neither the
Company nor any of the customers using the affected satellites have experienced
any degradation in performance, there can be no
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assurance that one or more of the affected satellites will not experience
additional power loss that could result in performance degradation, including
loss of transponder capacity. In the event of additional power loss, the extent
of the performance degradation, if any, will depend on numerous factors,
including the amount of the additional power loss, the level of redundancy built
into the affected satellite's design, when in the life of the affected satellite
the loss occurred and the number and type of use being made of transponders then
in service. Until the cause of the failures can be identified or other adequate
remedial measures can be taken, launches of satellites under construction and
construction of new satellites may be delayed. Delays in the production or
launch of satellites could have a material adverse effect on the operation of
SS/L's business and the complete or partial loss of satellites could result in a
loss of orbital incentive payments and, in the case of satellites owned by Loral
subsidiaries and affiliates, a loss of revenue and customers. This investigation
is in its very early stages and not all relevant information is now known. Based
upon information currently available, including design redundancies to
accommodate small power losses and that no pattern has been identified as to the
timing or specific location within the solar arrays of the failures, the Company
believes that this matter will not have a material adverse effect on the
consolidated financial position or results of operations of Loral.
In late 1998, following the launch of an SS/L-built satellite sold to
PanAmSat, a manufacturing error was discovered that affected the geographical
coverage of the Ku-band transponders on the satellite. On January 6, 2000,
PanAmSat filed an arbitration proceeding in connection with this error claiming
damages of $225 million for lost profits and increased sales and marketing
costs. SS/L believes it has meritorious defenses to the claim and that its
liability is limited to a loss of a portion of the applicable orbital
incentives, the estimated impact of which is included in Loral's consolidated
financial statements. PanAmSat has received a recovery from its insurance
carrier that should reduce any damage claim. Loral and PanAmSat have reached an
agreement in principle, subject to documentation, and in light of reserves
provided, this matter will not have a material adverse effect on the
consolidated financial position or results of operations of Loral.
SS/L has an agreement with Alcatel Space Industries pursuant to which the
parties have agreed generally to operate as a team on satellite programs
worldwide. In addition, Alcatel Space has certain rights as a strategic partner
of SS/L for so long as it continues to hold at least 81.6% of the Loral
securities that it acquired in 1997 in exchange for SS/L stock that it
previously owned. Alcatel is permitted two representatives on SS/L's
seven-member board of directors, and certain actions require the approval of its
board representatives. Alcatel also has certain rights to purchase SS/L shares
at fair market value in the event of a change of control (as defined) of either
Loral or SS/L, including the right to use its Loral holdings as part of the SS/L
purchase price. These arrangements are terminable upon one-year's notice by
either party, and SS/L gave the contemplated one-year notice to Alcatel on
February 22, 2001. Alcatel filed suit on March 16, 2001 in the United States
District Court for the Southern District of New York against Loral and SS/L
alleging various breaches of the agreements, seeking declaratory and injunctive
relief to enforce its rights thereunder and challenging the effectiveness of the
termination.
SS/L was informed in 1998 that it was a target of a grand jury
investigation being conducted by the office of the U.S. Attorney for the
District of Columbia with respect to possible violations of export control laws
that may have occurred in connection with the participation of SS/L employees on
a committee formed in the wake of the 1996 crash of a Long March rocket in China
and whose purpose was to consider whether studies of the crash made by the
Chinese had correctly identified the cause of the failure. The Company is not in
a position to predict the direction or outcome of the investigation. If SS/L
were to be indicted and convicted of a criminal violation of the Arms Export
Control Act, it would be subject to a fine of $1 million per violation and could
be debarred from certain export privileges and, possibly, from participation in
government contracts. Since many of SS/L's satellites are built for foreign
customers and/or launched on foreign rockets, such a debarment would have a
material adverse effect on SS/L's business and, therefore, the Company.
Indictment for such violations would subject SS/L to discretionary debarment
from further export licenses. Under the applicable regulations, SS/L could be
debarred from export privileges without being convicted of any crime if it is
indicted for these alleged violations, and loss of export privileges would harm
SS/L's business. Whether or not SS/L is indicted or convicted, SS/L remains
subject to the State Department's general statutory authority to prohibit
exports of satellites and related services if it finds a violation of the Arms
Export Control Act that puts SS/L's reliability in question, and it can suspend
export privileges whenever it determines that grounds
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for debarment exist and that such suspension "is reasonably necessary to protect
world peace or the security or foreign policy of the United States."
As far as SS/L can determine, no sensitive information or technology was
conveyed to the Chinese, and no secret or classified information was discussed
with or reported to them. SS/L believes that its employees acted openly and in
good faith and that none engaged in intentional misconduct. Accordingly, the
Company does not believe that SS/L has committed a criminal violation of the
export control laws. The Company does not expect the grand jury investigation or
its outcome to result in a material adverse effect upon its business. However,
there can be no assurance as to these conclusions.
On December 23, 1998, the Office of Defense Trade Controls, or ODTC, of the
U.S. Department of State temporarily suspended a previously approved technical
assistance agreement under which SS/L had been preparing for the launch of the
ChinaSat-8 satellite. According to ODTC, the purpose of the temporary suspension
was to permit that agency to review the agreement for conformity with then
newly-enacted legislation (Section 74 of the Arms Export Control Act) with
respect to the export of missile equipment and technology. In addition, SS/L was
required to re-apply for new export licenses from the State Department to permit
the launch of ChinaSat-8 on a Long March launch vehicle, when the old export
licenses issued by the Commerce Department, the agency that previously had
jurisdiction over satellite licensing, expired in March 2000. On January 4,
2001, the ODTC, while not rejecting these license applications, notified SS/L
that they were being returned without action. SS/L and the State Department are
now in discussions regarding SS/L's obtaining the approvals required for the
launch of ChinaSat-8.
In December 1999, SS/L reached an agreement with ChinaSat to extend the
date for delivery of the ChinaSat-8 satellite to July 31, 2000. In return for
this extension and other modifications to the contract, SS/L provided to
ChinaSat two 36 MHz and one 54 MHz transponders on Telstar 10/Apstar IIR for
ChinaSat's use for the life of those transponders. As a result, the Company
recorded a charge to earnings of $35 million in 1999. If ChinaSat were to
terminate its contract with SS/L as a result of these delays, SS/L may have to
refund $134 million in advances received from ChinaSat and may incur penalties
of up to $11 million and believes it would incur costs of approximately $38
million to refurbish and retrofit the satellite so that it could be sold to
another customer, which resale cannot be guaranteed. To the extent that SS/L is
able to recover some or all of its $52 million deposit payment on the Chinese
launch vehicle, this recovery would offset a portion of such payments. There can
be no assurance, however, that SS/L will be able to either obtain a refund from
the launch provider or to find a replacement customer for the Chinese launch
vehicle.
In March 1999, jurisdiction for satellite licensing was transferred from
the Commerce Department to the State Department and the State Department has
issued regulations relating to the export of and disclosure of technical
information related to, satellites and related equipment. It has been SS/L's
experience that obtaining licenses and technical assistance agreements under
these new regulations takes more time and is considerably more burdensome than
in the past. Delays in obtaining the necessary licenses and technical assistance
agreements may delay SS/L's performance on existing contracts, and, as a result,
SS/L may incur penalties or lose incentive payments under these contracts. In
addition, such delays may have an adverse effect on SS/L's ability to compete
against unregulated foreign satellite manufacturers for new satellite contracts.
Loral holds debt obligations from Globalstar (see Acquisitions and
Investments). In a bankruptcy or restructuring proceeding involving Globalstar,
challenges could be initiated seeking subordination or recharacterization of the
debt Loral holds from Globalstar. While we know of no reason why such a claim
would prevail with respect to the debt Loral holds in Globalstar, there can be
no assurance that such claims will not be made in any restructuring or
bankruptcy proceeding involving Globalstar. Moreover, there can be no assurance
that actions will not be initiated in a Globalstar bankruptcy proceeding to
characterize payments previously made by Globalstar to Loral as preferential
payments subject to repayment. Loral also may be subject to other claims brought
by Globalstar creditors and securities holders, who may seek to impose
liabilities on the Company as a result of the Company's relationships with
Globalstar. For example, see Globalstar Related Matters below.
The Company has estimated the recovery of certain insurance proceeds in its
consolidated financial statements as of December 31, 2000, in connection with an
insurance claim currently being negotiated with its
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insurance carrier. Management believes that the ultimate resolution of these
negotiations will not have a material adverse effect on the consolidated
financial position or results of operations of Loral.
The Company is subject to various other legal proceedings and claims,
either asserted or unasserted, that arise in the ordinary course of business.
Although the outcome of these claims cannot be predicted with certainty, the
Company does not believe that any of these other existing legal matters will
have a material adverse effect on its consolidated financial position or results
of operations.
Globalstar Related Matters. On February 28, 2001, plaintiff Eric Eismann
filed a purported class action complaint against Globalstar Telecommunications
Limited ("GTL") in the United States District Court for the Southern District of
New York. The other defendants named in the complaint are Loral Space &
Communications Ltd. and Bernard Schwartz. The complaint alleges that (a) GTL and
Mr. Schwartz violated Section 10(b) of the Securities Exchange Act of 1934 (the
"Exchange Act") and Rule 10b-5 promulgated thereunder, by making material
misstatements or failing to state material facts about GTL's business and
prospects; and (b) that Loral and Mr. Schwartz are secondarily liable for these
alleged misstatements and omissions under Section 20(a) of the Exchange Act as
alleged "controlling persons" of GTL. The class of plaintiffs on whose behalf
this lawsuit has allegedly been asserted consists of all buyers of GTL common
stock from December 6, 1999 through October 27, 2000, excluding the defendants
and certain persons related or affiliated therewith (the "Excluded Persons").
Eleven additional purported class action complaints were filed in the
United States District Court for the Southern District of New York by plaintiffs
Chaim Kraus, L.A. Murphy, Eddie Maiorino, Damon Davis, Iskander Batyrev, Shelly
Garfinkel, Sequoia Land Development, Inc. and Phil Sigel, Michael Ceasar, as
Trustee for Howard Gunty Profit Sharing Plan, Colin Barry, James D. Atlas and
Lawrence Phillips, on each of March 2, 2001, March 2, 2001, March 6, 2001, March
7, 2001, March 7, 2001, March 9, 2001, March 16, 2001, March 21, 2001, March 21,
2001, March 22, 2001 and March 23, 2001, respectively. These complaints allege
claims against GTL, Loral and Mr. Schwartz (and, in the case of the
Sequoia/Sigel and Atlas complaints, two additional individual
defendants -- Messrs. Michael DeBlasio and Anthony Navarra) that are
substantially identical to those set forth in the Eismann action. The class of
plaintiffs on whose behalf these lawsuits have been asserted are: with respect
to the Kraus, Davis, Maiorino, Batyrev, Ceasar and Phillips actions, buyers of
GTL common stock in the period from December 6, 1999 through October 27, 2000;
with respect to the Murphy and Barry actions, buyers of GTL securities in the
period from December 6, 1999, through October 27, 2000; with respect to the
Sequoia/Sigel and Atlas actions, buyers of GTL common stock in the period from
December 6, 1999 through July 19, 2000; and with respect to the Garfinkel
action, buyers of GTL debt securities in the period from December 6, 1999
through October 27, 2000, in each case, other than the Excluded Persons.
Loral believes that it has meritorious defenses to the above Globalstar
Related Matters and intends to pursue them vigorously.
OTHER MATTERS
Accounting Pronouncements
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting
for Derivative Instruments and Hedging Activities ("SFAS 133"), requires that
all derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, the type of hedge
transaction. The key criterion for hedge accounting is that the derivative must
be highly effective in achieving offsetting changes in fair value or cash flows
of the hedged items during the term of the hedge. The Company adopted SFAS No.
133, as amended, on January 1, 2001. The adoption of SFAS No. 133 will result in
a $1.7 million reduction in net income, net of tax, from a cumulative effect of
a change in accounting principle, and a $1.2 million increase in comprehensive
income, net of tax, in the Company's consolidated financial statements for the
quarter ending March 31, 2001. The adoption will also impact assets and
liabilities recorded on the Company's consolidated balance sheet.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101, as amended, was effective
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for the Company in the fourth quarter of 2000 and clarified the SEC's views on
U.S. GAAP to revenue recognition in financial statements. The requirements of
SAB No. 101 did not have a significant impact on the Company's consolidated
financial position or results of operations.
In September 2000, the FASB issued SFAS No. 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No.
140 replaces SFAS No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities. It revises the standards for
accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures, but it carries over most of SFAS
No. 125's provisions without reconsideration. The Company has adopted the
applicable disclosure requirements of SFAS No. 140 in its consolidated financial
statements as of December 31, 2000. The Company is currently evaluating the
impact of adopting the remaining provisions of SFAS No. 140, which will be
effective for transactions entered into after March 31, 2001.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency
The Company has limited involvement with derivative financial instruments
and does not use such instruments for trading purposes. The derivative financial
instruments are used to manage foreign currency exchange risk.
As of December 31, 2000, the Company had foreign currency exchange
contracts (forwards and swaps) with several banks to purchase and sell foreign
currencies, primarily Japanese yen, aggregating $ 232.2 million. Such contracts
were designated as hedges of certain foreign contracts and subcontracts to be
performed by SS/L through May 2006. The fair value of these contracts, based on
quoted market prices as of December 31, 2000, was $202.9 million. As of December
31, 2000, deferred gains on forward contracts to sell foreign currencies,
primarily yen, were $21.8 million and deferred losses on forward contracts to
purchase foreign currencies, primarily yen, were($7.2) million.
The Company is exposed to credit-related losses in the event of
nonperformance by counter parties to these financial instruments, but does not
expect any counter party to fail to meet its obligation.
The maturity of foreign currency exchange contracts held as of December 31,
2000 is consistent with the contractual or expected timing of the transactions
being hedged, principally receipt of customer payments under long-term contracts
and payments to vendors under subcontracts. These foreign exchange contracts
mature as follows (in thousands):
TO PURCHASE TO SELL
AS OF DECEMBER 31, 2000 ------------------- --------------------
AT AT AT AT
YEARS TO CONTRACT MARKET CONTRACT MARKET
MATURITY RATE RATE RATE RATE
-------- -------- ------- -------- --------
1................................. $54,986 $51,413 $ 74,741 $ 66,341
2 to 5............................ 16,097 13,648 75,584 63,860
6 to 10........................... 5,133 3,635 5,674 3,967
------- ------- -------- --------
$76,216 $68,696 $155,999 $134,168
======= ======= ======== ========
AS OF DECEMBER 31, 1999 $69,353 $69,619 $ 39,966 $ 34,944
======= ======= ======== ========
Interest
As of December 31, 2000 and 1999, the fair value of the Company's long-term
debt was estimated to be $1.63 billion and $1.55 billion, respectively, using
quoted market prices. The long-term debt carrying value exceeded fair value by
$831 million and $443 million as of December 31, 2000 and 1999, respectively.
Market rate risk on debt is estimated as the potential increase in annual
interest expense resulting from a hypothetical one percentage point increase in
interest rates and amounts to $19 million and $18 million for 2000 and 1999,
respectively.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Financial Statement Schedules on page
F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
Information required for this item is presented in the Company's 2000
definitive proxy statement which is incorporated herein by reference.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information concerning the executive
officers of Loral as of March 1, 2000.
NAME AGE POSITION
---- --- --------
Bernard L. Schwartz.......... 75 Chairman of the Board of Directors and Chief Executive
Officer since January 1996. Prior to that, Chairman and
Chief Executive Officer of Loral Corporation ("Old
Loral") since 1972.
Eric J. Zahler............... 50 President and Chief Operating Officer since February
2000. Prior to that Executive Vice President since
November 1999. Prior to that Senior Vice President,
General Counsel and Secretary since February 1998. Prior
to that, Vice President, General Counsel and Secretary
since March 1996. Prior to that, Vice President and
General Counsel of Old Loral since April 1992.
Michael P. DeBlasio.......... 64 First Senior Vice President since September 1998. Prior
to that, First Senior Vice President and Chief Financial
Officer since February 1998. Prior to that, Senior Vice
President and Chief Financial Officer since March 1996.
Prior to that, Senior Vice President -- Finance of Old
Loral since 1979.
Robert E. Berry.............. 72 Senior Vice President since November 1996 and Chairman of
Space Systems/Loral since September 1999. Prior to that,
President of Space Systems/Loral since 1990.
Nicholas C. Moren............ 54 Senior Vice President and Treasurer since February 1998.
Prior to that, Vice President and Treasurer since March
1996. Prior to that, Vice President and Treasurer of Old
Loral since April 1991.
Richard J. Townsend.......... 50 Senior Vice President and Chief Financial Officer since
October 1998. Prior to that, Corporate Controller and
Director of Strategy for ITT Industries since 1997. Prior
to that, Vice President of Finance Worldwide Industries
for IBM and various other financial management positions
with IBM since 1979.
Laurence D. Atlas............ 43 Vice President, Government
Relations -- Telecommunications since May 1997. Prior to
that, Associate Chief of the Common Carrier Bureau of the
FCC since January 1995. Prior to that, Associate Chief of
the FCC's Wireless Telecommunications Bureau since
November 1994. Prior to that, associate in the law firm
of Willkie Farr & Gallagher since 1982.
W. Neil Bauer................ 54 Vice President, and President of Loral CyberStar, Inc.
since March 1998. Prior to that, Chief Executive Officer
and President of Orion Network Systems, Inc. since
September 1993.
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NAME AGE POSITION
---- --- --------
Jeanette H. Clonan........... 52 Vice President -- Communications and Investor Relations
since December 1996. Prior to that, Director -- Corporate
Communications from June 1996. Prior to that, Vice
President -- Corporate Relations of Jamaica Water
Securities since September 1992.
Terry J. Hart................ 54 Vice President since February 1998 and President of Loral
Skynet since March 1997. Prior to that, Division Manager
of AT&T Skynet Satellite Services since 1991.
Stephen L. Jackson........... 59 Vice President -- Administration since March 1997. Prior
to that, Vice President -- Administration of Old Loral
since 1978.
Avi Katz..................... 42 Vice President, General Counsel and Secretary since
November 1999. Prior to that Vice President, Deputy
General Counsel and Assistant Secretary since February
1998. Prior to that, Deputy General Counsel and Assistant
Secretary since August 1997. Prior to that, Associate
General Counsel and Assistant Secretary since July 1996.
Prior to that, associate in the law firm of Willkie Farr
& Gallagher since 1987.
John Klineberg............... 62 Vice President of Loral and President of Space
Systems/Loral since September 1999. Prior to that,
Executive Vice President of Satellite Constellation
Establishment of Globalstar since January 1998. Prior to
that, Executive Vice President, Globalstar Program at
Space Systems/Loral from 1995 to January 1998. Prior to
that, a variety of technical and management positions
with NASA, including Director of the Goddard Space Flight
Center and NASA's Lewis Research Center.
Russell R. Mack.............. 46 Vice President -- Business Ventures since February 1998.
Prior to that, Director of Business Planning and
Development since April 1996. Prior to that, Manager of
Project Finance of Old Loral since July 1991.
Anthony J. Navarra........... 53 Vice President of Loral and President of Globalstar since
September 1999 and President of GTL since February 2000.
Prior to that, acting Chief Operating Officer of
Globalstar since March 1999 and Executive Vice President
of GTL since 1999. Prior to that, Vice President of GTL
since 1995 and Executive Vice President, Strategic
Development of Globalstar since March 1994.
Harvey B. Rein............... 47 Vice President and Controller since April 1996. Prior to
that, Assistant Controller of Old Loral since 1985.
Thomas B. Ross............... 71 Vice President -- Government Relations since November
1996. Prior to that, Vice President -- Corporate
Communications from April 1996. Prior to that, Vice
President -- Communications of Globalstar from May 1995
to April 1996. Prior to that, Special Assistant to the
President and Senior Director for Public Affairs of the
National Security Council from April 1994 to May 1995 and
Senior Vice President of Hill & Knowlton.
Janet T. Yeung............... 36 Vice President, Deputy General Counsel and Assistant
Secretary since February 2000. Prior to that, Associate
General Counsel and Assistant Secretary since November
1999. Prior to that, Associate General Counsel since
February 1998. Prior to that, associate in the law firm
of Willkie Farr & Gallagher since September 1991.
47
49
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 presented in the
Company's 2000 definitive proxy statement which is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
PAGE
----
Index to Financial Statements............................... F-1
Loral Space & Communications Ltd.
Independent Auditors' Report.............................. F-2
Consolidated Balance Sheets as of December 31, 2000 and
1999................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998....................... F-4
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 2000, 1999 and 1998........... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998....................... F-6
Notes to Consolidated Financial Statements................ F-7
Globalstar, L.P.
Independent Auditors' Report.............................. *
Consolidated Balance Sheets as of December 31, 2000 and
1999................................................... *
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998....................... *
Consolidated Statements of Partners' Capital and
Subscriptions Receivable for the years ended December
31, 2000, 1999 and 1998................................ *
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999, 1998 and cumulative........... *
Notes to Consolidated Financial Statements................ *
- ---------------
* Incorporated herein by reference from the Annual Report on Form
10-K of Globalstar Telecommunications Limited and Globalstar,
L.P. for the year ended December 31, 2000, pages F-1 through
F-42.
(a) 2. Financial Statement Schedules
Independent Auditors' Report.................. S-1
Schedule I -- Condensed Financial Information
of Registrant................................. S-2
Financial statement schedules not listed are
either not required or the information
required is reflected in the consolidated
financial statements.
(a) 3. Exhibits
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.1 Restructuring, Financing and Distribution Agreement, dated
as of January 7, 1996, among Loral Corporation, Loral
Aerospace Holdings, Inc., Loral Aerospace Corp., Loral
General Partner, Inc., Loral Globalstar L.P., Loral
Globalstar Limited, the Registrant and Lockheed Martin
Corporation(1)
48
50
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.2 Amendment to Restructuring, Financing and Distribution
Agreement, dated as April 15, 1996(1)
2.3 Agreement for the Purchase and Sale of Assets dated as of
September 25, 1996 by and between AT&T Corp., as Seller, and
Loral Space & Communications Ltd., as Buyer(2)
2.4 First Amendment to Agreement for the Purchase and Sale of
Assets dated as of March 14, 1997 by and between AT&T Corp.,
as Seller, and Loral Space & Communications Ltd., as
Buyer(3)
2.5 Agreement and Plan of Merger dated as of October 7, 1997 by
and among Orion Network Systems, Inc., Loral Space &
Communications Ltd. and Loral Satellite Corporation(4)
2.6 First Amendment to Agreement and Plan of Merger dated as of
February 11, 1998 by and among Orion Network Systems, Inc.,
Loral Space & Communications Ltd. and Loral Satellite
Corporation(5)
2.7 Second Amendment to Agreement and Plan of Merger dated as of
March 20, 1998 by and among Orion Network Systems, Inc.,
Loral Space & Communications Ltd. and Loral Satellite
Corporation(12)
3.1 Memorandum of Association(1)
3.2 Memorandum of Increase of Share Capital(1)
3.3 Third Amended and Restated Bye-laws(18)
3.4 Schedule IV to the Third Amended and Restated Bye-laws(18)
4.1 Rights Agreement dated March 27, 1996 between the Registrant
and The Bank of New York, Rights Agent(1)
4.2 Indenture dated as of January 15, 1999 relating to
Registrant's 9 1/2% Senior Notes due 2006(14)
10.1 Shareholders Agreement dated as of April 23, 1996 between
Loral Corporation and the Registrant(1)
10.1.1 Amended Shareholders Agreement dated as of March 29, 2000
between the Registrant and Lockheed Martin Corporation(18)
10.2 Tax Sharing Agreement dated as of April 22, 1996 between
Loral Corporation, the Registrant, Lockheed Martin
Corporation and LAC Acquisition Corporation(1)
10.3 Exchange Agreement dated as of April 22, 1996 between the
Registrant and Lockheed Martin Corporation(1)
10.4 Amended and Restated Agreement of Limited Partnership of
Globalstar, L.P., dated as of January 26, 1999 among
Loral/Qualcomm Satellite Services, L.P., Globalstar
Telecommunications Limited, AirTouch Satellite Services,
Inc., Dacom Corporation, Dacom International, Inc., Hyundai
Corporation, Hyundai Electronics Industries Co., Ltd.,
Loral/DASA Globalstar, L.P., Loral Space & Communications
Ltd., San Giorgio S.p.A., TeleSat Limited, TE.S.AM and
Vodafone Satellite Services Limited(14)
10.4.1 Amendment dated as of December 8, 1999 to the Amended and
Restated Agreement of Limited Partnership of Globalstar,
L.P.(15)
10.4.2 Amendment dated as of February 1, 2000 to the Amended and
Restated Agreement of Limited Partnership of Globalstar,
L.P.(18)
10.5 Service Provider Agreements by and between Globalstar, L.P.
and each of Loral General Partner, Inc. and Loral/DASA
Globalstar, L.P.(8)
10.6 Contract between Globalstar, L.P. and Space Systems/Loral,
Inc.(8)
10.7 1996 Stock Option Plan(1)++
10.7.1 Amendment to 1996 Stock Option Plan(14)++
10.7.2 2000 Stock Option Plan(19)++
10.7.3 Amendment No. 1 to 2000 Stock Option Plan+++
10.7.4 Amendment No. 2 to 2000 Stock Option Plan+++
10.8 Common Stock Purchase Plan for Non-Employee Directors(1)++
49
51
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.9 Employment Agreement between the Registrant and Bernard L.
Schwartz(1)++
10.9.1 Amendment dated as of March 1, 1998 to Employment Agreement
between the Registrant and Bernard L. Schwartz(12)++
10.9.2 Amendment dated as of July 18, 2000 to Employment Agreement
between the Registrant and Bernard L. Schwartz+++
10.10 Registration Rights Agreement dated as of August 9, 1996
among Loral Space & Communications Ltd., Lehman Brothers
Capital Partners II, L.P., Lehman Brothers Merchant Banking
Portfolio Partnership L.P., Lehman Brothers Offshore
Investment Partnership L.P. and Lehman Brothers Offshore
Investment Partnership-Japan L.P.(9)
10.11 Registration Rights Agreement dated November 6, 1996
relating to the Registrant's 6% Convertible Preferred
Equivalent Obligations due 2006(6)
10.12 Registration Rights Agreement (Series C Preferred Stock)
dated as of March 31, 1997 between Loral Space &
Communications Ltd. and Finmeccanica S.p.A. and dated as
June 23, 1997 among Loral Space & Communications Ltd.,
Aerospatiale SNI and Alcatel Espace(10)
10.13 Registration Rights Agreement (Common Stock) dated as of
June 23, 1997 among Loral Space & Communications Ltd.,
Aerospatiale SNI and Alcatel Espace(10)
10.14 Alliance Agreement dated as of June 23, 1997 among Loral
Space & Communications Ltd., Aerospatiale SNI, Alcatel
Espace and Finmeccanica S.p.A.(10)
10.15 Principal Stockholder Agreement dated as of October 7, 1997
among Loral Space & Communications Ltd., Loral Satellite
Corporation, Orion Network Systems, Inc. and certain Orion
stockholders signatory thereto(4)
10.16 Amended and Restated Credit and Participation Agreement,
dated as of November 14, 1997, among Loral SpaceCom
Corporation, Space Systems/Loral, Inc., the Banks parties
thereto, Bank of America National Trust and Savings
Association, as Administrative Agent, and Istituto Bancario
San Paolo di Torino S.p.A, individually and as Italian
Export Financing and Arranger and as Selling Bank(11)
10.16.1 First Amendment dated as of May 7, 1998 to and of the
Amended and Restated Credit and Participation Agreement,
dated as of November 14, 1997, among Loral SpaceCom
Corporation, Space Systems/Loral, Inc. and, the banks
parties thereto(14)
10.16.2 Second Amendment dated as of September 4, 1998 to and of the
Amended and Restated Credit Agreement dated as of November
14, 1997, among Loral SpaceCom Corporation, Space
Systems/Loral, Inc. and the banks parties thereto.(18)
10.16.3 Third Amendment dated as of July 12, 1999 to and of the
Amended and Restated Credit Agreement dated as of November
14, 1997, among Loral SpaceCom Corporation, Space
Systems/Loral, Inc. and the banks parties thereto.(18)
10.16.4 Fourth Amendment dated as of November 10, 1999 to and of the
Amended and Restated Credit Agreement dated as of November
14, 1997, among Loral SpaceCom Corporation, Space Systems/
Loral, Inc. and the banks parties thereto.(18)
10.16.5 Fifth Amendment dated as of December 15, 2000 to and of the
Amended and Restated Credit Agreement dated as of November
14, 1997, among Loral SpaceCom Corporation, Space Systems/
Loral, Inc. and the banks parties thereto.+
10.17 Agreement of Limited Partnership of CyberStar, L.P. dated as
of June 30, 1997(12)
10.18 Purchase and Sale Agreement dated November 17, 1997 between
the Federal Government of the United Mexican States and
Corporativo Satelites Mexicanos, S.A. de C.V. for the
purchase and sale of the capital stock of Satelites
Mexicanos, S.A. de C.V. (English translation of Spanish
original)(12)
50
52
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.19 Amended and Restated Membership Agreement dated and
effective as of August 21, 1998 among Loral Satmex Ltd. and
Ediciones Enigma, S.A. de C.V. and Firmamento Mexicano, S.
de R.L. de C.V.(14)
10.20 Letter Agreement dated December 29, 1997 between Loral Space
& Communications Ltd., Telefonica Autrey S.A. de C.V.,
Donaldson, Lufkin & Jenrette Securities Corporation, Lehman
Brothers Inc. and Lehman Commercial Paper Inc. and related
Agreement between the Federal Government of United Mexican
States, Telefonica Autrey, S.A. de C.V., Ediciones Enigma,
S.A. de C.V., Loral Space & Communications Ltd., Loral
Satmex Ltd. and Servicios Corporativos Satelitales, S.A. de
C.V.(12)
10.21 Shareholders Agreement dated December 7, 1998 by and among
Alcatel SpaceCom, Loral Space & Communications Ltd., Dr.
Jurgen Schulte-Hillen and EuropeStar Limited(14)
10.22 Registration Rights Agreement dated as of January 21, 1999
relating to Registrant's 9 1/2% Senior Notes due 2006(14)
10.23 Lease Agreement dated as of August 18, 1999 by and between
Loral Asia Pacific Satellite (HK) Limited and APT Satellite
Company Limited(17)
10.24 Registration Rights Agreement dated as of February 18, 2000
relating to Registrant's 6% Series D Convertible Redeemable
Preferred Stock due 2007(18)
10.25 Fee Agreement dated as of April 19, 1996 by and among
Globalstar, Globalstar Telecommunications Limited, Loral
Corporation, Loral Space & Communications Ltd., Qualcomm
Limited Partner, Inc., Space Systems/Loral, Inc. and DASA
Globalstar Limited Partner, Inc.(20)
10.26 Intercreditor Agreement dated as of April 19, 1996 by and
among Globalstar, Globalstar Telecommunications Limited,
Loral Corporation, Loral Space & Communications Ltd.,
Qualcomm Limited Partner, Inc., Space Systems/Loral, Inc.
and DASA Globalstar Limited Partner, Inc.(20)
10.27 Credit Agreement dated as of November 17, 2000 by and among
Loral Satellite, Inc., Bank of America, National
Association, Bank of America Securities LLC, Credit Lyonnais
and Lehman Commercial Paper, Inc.(21)
10.28 Guarantee dated as of November 17, 2000 made by Loral Space
& Communications Ltd.(21)
10.29 Assignment, Amendment and Release Agreement dated as of
November 17, 2000 by and among the lenders parties to the
Globalstar Credit Agreement, Loral Satellite, Inc., Loral
Satcom Ltd., Loral Space & Communications Ltd., Loral Space
& Communications Corporation, Globalstar, L.P. and Bank of
America, National Association(21)
10.30 Amended and Restated Collateral Agreement dated as of
November 17, 2000 by and among Loral Satellite, Inc. and
Bank of America, National Association(21)
10.31 Form of Employment Protection Agreement+++
12 Statement Re: Computation of Ratios+
21 List of Subsidiaries of the Registrant+
23 Consent of Deloitte & Touche LLP+
99.1 Consolidated Financial Statements of Globalstar, L.P. and
Independent Auditors' Report(13)
- ---------------
(1) Incorporated by reference from the Registrant's Registration Statement on
Form 10 (No. 1-14180).
(2) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on September 27, 1996.
(3) Incorporated by reference from the Registrant's Current Report on Form 8-K
on March 28, 1997.
(4) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on October 10, 1997.
(5) Incorporated by reference from the Registrant's Registration Statement on
Form S-4 filed on February 17, 1998 (File No. 333-46407).
51
53
(6) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the nine month period ended December 31, 1996.
(7) Incorporated by reference from the Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 filed by Globalstar Telecommunications
Limited (File No. 0-25456).
(8) Incorporated by reference from the Registration Statement on Form S-1 of
Globalstar Telecommunications Limited (File No. 33-86808).
(9) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on August 13, 1996.
(10) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on July 8, 1997.
(11) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on December 9, 1997.
(12) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997.
(13) Incorporated by reference from the Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 filed by Globalstar Telecommunications
Limited and Globalstar, L.P. (File No. 0-25456).
(14) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998.
(15) Incorporated by reference from the Current Report on Form 8-K filed on
December 21, 1999 by Globalstar Telecommunications Limited and Globalstar,
L.P.
(16) Incorporated by reference from Registrant's Current Report on Form 8-K
filed on August 6, 1999.
(17) Incorporated by reference from Registrant's Current Report on Form 8-K
filed on August 23, 1999.
(18) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1999.
(19) Incorporated by reference from Registrant's Current Report on Form 8-K
filed on May 3, 2000.
(20) Incorporated by reference from Registrant's Current Report on Form 8-K
filed on July 7, 2000.
(21) Incorporated by reference from Registrant's Current Report on Form 8-K
filed on November 20, 2000.
+ Filed herewith.
++ Management compensation plan.
(b) Reports on Form 8-K.
DATE OF REPORT DESCRIPTION
-------------- -----------
November 17, 2000 Item 5 -- Other Events $500 Million Secured Credit Agreement
52
54
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 SPACE & COMMUNICATIONS LTD.
By: /s/ BERNARD L. SCHWARTZ
------------------------------------
Bernard L. Schwartz
(Chairman of the Board and
Chief Executive Officer)
Date: March 29, 2001
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.
/s/ BERNARD L. SCHWARTZ Chairman of the Board, Chief March 29, 2001
- --------------------------------------------------- Executive Officer and Director
Bernard L. Schwartz (Principal Executive Officer)
/s/ HOWARD GITTIS Director March 29, 2001
- ---------------------------------------------------
Howard Gittis
/s/ ROBERT B. HODES Director March 29, 2001
- ---------------------------------------------------
Robert B. Hodes
/s/ GERSHON KEKST Director March 29, 2001
- ---------------------------------------------------
Gershon Kekst
/s/ CHARLES LAZARUS Director March 29, 2001
- ---------------------------------------------------
Charles Lazarus
/s/ MALVIN A. RUDERMAN Director March 29, 2001
- ---------------------------------------------------
Malvin A. Ruderman
/s/ E. DONALD SHAPIRO Director March 29, 2001
- ---------------------------------------------------
E. Donald Shapiro
/s/ ARTHUR L. SIMON Director March 29, 2001
- ---------------------------------------------------
Arthur L. Simon
/s/ DANIEL YANKELOVICH Director March 29, 2001
- ---------------------------------------------------
Daniel Yankelovich
/s/ RICHARD J. TOWNSEND Chief Financial Officer and March 29, 2001
- --------------------------------------------------- Senior Vice President
Richard J. Townsend (Principal Financial Officer)
/s/ HARVEY B. REIN Vice President and Controller March 29, 2001
- --------------------------------------------------- (Principal Accounting Officer)
Harvey B. Rein
53
55
INDEX TO FINANCIAL STATEMENTS
Loral Space & Communications Ltd. and Subsidiaries
Independent Auditors' Report.............................. F-2
Consolidated Balance Sheets as of December 31, 2000 and
1999................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998....................... F-4
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 2000, 1999 and 1998........... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998....................... F-6
Notes to Consolidated Financial Statements................ F-7
F-1
56
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS OF LORAL SPACE & COMMUNICATIONS LTD.
We have audited the accompanying consolidated balance sheets of Loral Space
& Communications Ltd. (a Bermuda company) and its subsidiaries (collectively,
the "Company") as of December 31, 2000 and 1999 and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 2000. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit 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, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of the Company as of
December 31, 2000 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2000, in conformity
with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
San Jose, California
March 27, 2001
F-2
57
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
DECEMBER 31,
-------------------------
2000 1999
---- ----
ASSETS
Current assets:
Cash and cash equivalents................................. $ 394,045 $ 239,865
Restricted and segregated cash............................ 187,315
Accounts receivable, net.................................. 56,347 47,899
Contracts-in-process...................................... 180,868 420,449
Inventories............................................... 120,608 111,060
Other current assets...................................... 79,713 47,261
----------- ----------
Total current assets............................... 831,581 1,053,849
Property, plant and equipment, net.......................... 1,944,815 1,884,975
Cost in excess of net assets acquired, net.................. 918,826 946,781
Long-term receivables....................................... 145,504 167,464
Investments in and advances to affiliates................... 251,658 1,117,475
Deposits.................................................... 161,790 195,875
Deferred tax assets......................................... 293,142 9,013
Other assets................................................ 131,002 234,989
----------- ----------
$ 4,678,318 $5,610,421
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 110,715 $ 85,496
Accounts payable.......................................... 139,104 207,362
Satellite purchase price payable.......................... 181,928
Accrued employment costs.................................. 45,271 44,797
Customer advances......................................... 70,866 67,725
Accrued interest and preferred dividends.................. 51,645 49,093
Other current liabilities................................. 45,049 37,770
Income taxes payable...................................... 31,904 19,708
----------- ----------
Total current liabilities.......................... 494,554 693,879
Pension and other postretirement liabilities................ 51,619 51,601
Long-term liabilities....................................... 180,275 177,300
Long-term debt.............................................. 2,346,129 1,913,826
Minority interest........................................... 19,353 23,151
Commitments and contingencies (Notes 7, 8, 11 and 13)
Shareholders' equity:
Series A convertible preferred stock, $.01 par value;
150,000,000 shares authorized, 0 and 45,896,977 shares
issued.................................................. 459
Series B preferred stock, $.01 par value; 750,000 shares
authorized and unissued.................................
6% Series C convertible redeemable preferred stock
($674,922 and $745,472 redemption value), $.01 par
value; 20,000,000 shares authorized, 13,497,863 and
14,909,437 shares issued................................ 665,809 735,437
6% Series D convertible redeemable preferred stock
($400,000 redemption value), $.01 par value, 20,000,000
shares authorized, 8,000,000 and 0 shares issued........ 388,204
Common stock, $.01 par value; 750,000,000 shares
authorized, 298,323,283 and 245,204,432 shares issued... 2,983 2,452
Paid-in capital........................................... 2,448,519 2,347,323
Treasury stock, at cost; 174,195 shares................... (3,360) (3,360)
Unearned compensation..................................... (148) (1,253)
Retained deficit.......................................... (1,946,507) (409,301)
Accumulated other comprehensive income.................... 30,888 78,907
----------- ----------
Total shareholders' equity......................... 1,586,388 2,750,664
----------- ----------
$ 4,678,318 $5,610,421
=========== ==========
See notes to consolidated financial statements.
F-3
58
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
YEARS ENDED DECEMBER 31,
--------------------------------------------
2000 1999 1998
------------ ------------ ------------
Revenues from satellite sales........................ $ 809,815 $1,178,193 $1,117,721
Revenues from satellite services..................... 414,296 279,527 183,981
----------- ---------- ----------
Total revenues..................................... 1,224,111 1,457,720 1,301,702
Cost of satellite sales.............................. 755,483 1,071,063 995,401
Cost of satellite services........................... 301,722 225,874 134,473
Selling, general and administrative expenses......... 252,992 223,046 205,608
----------- ---------- ----------
Operating loss....................................... (86,086) (62,263) (33,780)
Interest and investment income....................... 129,237 89,422 53,867
Interest expense..................................... (170,836) (89,297) (51,209)
Gain on investments, net............................. 70,842 5,494
----------- ---------- ----------
Loss before income taxes, equity in net loss of
affiliates, minority interest and Globalstar
related impairment charges......................... (56,843) (62,138) (25,628)
Income tax expense (benefit)......................... 9,375 (32,516) (3,871)
----------- ---------- ----------
Loss before equity in net loss of affiliates,
minority interest and Globalstar related impairment
charges............................................ (66,218) (29,622) (21,757)
Equity in net loss of affiliates, net of tax benefits
of $309,481, $15,496 and $6,324, respectively...... (1,294,910) (177,819) (120,417)
Minority interest, net of taxes...................... 3,691 5,525 3,376
Globalstar related impairment charges, net of tax
benefit of $13,169................................. (112,241)
----------- ---------- ----------
Net loss............................................. (1,469,678) (201,916) (138,798)
Preferred dividends and accretion.................... (67,528) (44,728) (46,425)
----------- ---------- ----------
Net loss applicable to common shareholders........... $(1,537,206) $ (246,644) $ (185,223)
=========== ========== ==========
Loss per share -- basic and diluted.................. $ (5.20) $ (0.85) $ (0.68)
=========== ========== ==========
Weighted average shares outstanding:
Basic and diluted.................................. 295,839 290,232 273,402
=========== ========== ==========
See notes to consolidated financial statements.
F-4
59
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(in thousands, except per share amounts)
6% SERIES C 6% SERIES D
SERIES A CONVERTIBLE CONVERTIBLE
CONVERTIBLE REDEEMABLE REDEEMABLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK
---------------- ----------------- ----------------- ----------------
SHARES SHARES SHARES SHARES PAID-IN
ISSUED AMOUNT ISSUED AMOUNT ISSUED AMOUNT ISSUED AMOUNT CAPITAL
------- ------ ------ -------- ------ -------- ------- ------ ----------
Balance January 1, 1998........... 45,897 $ 459 14,909 $733,762 200,951 $2,010 $1,216,377
Shares issued:
Common stock and vested options
issued to acquire Loral
CyberStar....................... 17,969 179 468,846
Unvested options issued to
acquire Loral CyberStar......... 4,512
Loral CyberStar note conversion
and Fractional shares........... 32 (5)
Common stock sold to public,
net............................. 23,000 230 601,586
Exercise of stock options and
related tax benefits, net of
shares tendered................. 739 8 8,112
Employee savings plan............ 1,171 12 25,669
Unearned compensation............. 5,658
Amortization of unearned
compensation.....................
Preferred dividends $3.00 per
share............................
Accretion to redemption value..... 1,675
Net loss..........................
Other comprehensive income........
Comprehensive loss................
------- ----- ------ -------- ----- -------- ------- ------ ----------
Balance December 31, 1998......... 45,897 459 14,909 735,437 243,862 2,439 2,330,755
Shares issued:
Exercise of stock options and
related tax benefits............ 288 3 3,442
Employee savings plan............ 944 9 16,640
Exercise of warrants for common
stock........................... 110 1 1
Forfeited unearned compensation... (3,755)
Unearned compensation............. 240
Amortization of unearned
compensation.....................
Preferred dividends $3.00 per
share............................
Net loss..........................
Other comprehensive income........
Comprehensive loss................
------- ----- ------ -------- ----- -------- ------- ------ ----------
Balance December 31, 1999......... 45,897 459 14,909 735,437 245,204 2,452 2,347,323
Shares issued:
Exercise of stock options and
related tax benefits............ 31 252
Employee savings plan............ 3,213 32 25,658
Conversion of Series A preferred
stock to common stock and
issuance expenses............... (45,897) (459) 45,897 459 (85)
Conversion of Series C preferred
stock to common stock and
related issuance of additional
common shares on conversion..... (1,411) (69,628) 3,862 39 75,471
Issuance of Series D preferred
stock, net...................... 8,000 $388,204
Warrant exercises................ 116 1
Forfeited unearned compensation... (229)
Amortization of unearned
compensation.....................
Amortization of restricted
stocks...........................
Unearned compensation on grants to
non-employees, including
mark-to-market adjustment........ 129
Amortization of deferred
compensation related to
non-employees....................
Preferred dividends $3.00 per
share............................
Net loss..........................
Other comprehensive income........
Realized gains included in net
loss.............................
Comprehensive loss................
------- ----- ------ -------- ----- -------- ------- ------ ----------
Balance December 31, 2000......... $ 13,498 $665,809 8,000 $388,204 298,323 $2,983 $2,448,519
======= ===== ====== ======== ===== ======== ======= ====== ==========
ACCUMULATED
OTHER
RETAINED COMPREHENSIVE TOTAL
TREASURY UNEARNED EARNINGS INCOME SHAREHOLDERS'
STOCK COMPENSATION (DEFICIT) (LOSS) EQUITY
-------- ------------ ----------- ------------- -------------
Balance January 1, 1998........... $(1,680) $ (249) $ 22,566 $ 7,275 $ 1,980,520
Shares issued:
Common stock and vested options
issued to acquire Loral
CyberStar....................... 469,025
Unvested options issued to
acquire Loral CyberStar......... (4,512)
Loral CyberStar note conversion
and Fractional shares........... (5)
Common stock sold to public,
net............................. 601,816
Exercise of stock options and
related tax benefits, net of
shares tendered................. (1,680) 6,440
Employee savings plan............ 25,681
Unearned compensation............. (5,658)
Amortization of unearned
compensation..................... 2,188 2,188
Preferred dividends $3.00 per
share............................ (44,750) (44,750)
Accretion to redemption value..... (1,675)
Net loss.......................... (138,798)
Other comprehensive income........ 33,604
Comprehensive loss................ (105,194)
------- ------- ----------- -------- -----------
Balance December 31, 1998......... (3,360) (8,231) (162,657) 40,879 2,935,721
Shares issued:
Exercise of stock options and
related tax benefits............ 3,445
Employee savings plan............ 16,649
Exercise of warrants for common
stock........................... 2
Forfeited unearned compensation... 3,755
Unearned compensation............. (240)
Amortization of unearned
compensation..................... 3,463 3,463
Preferred dividends $3.00 per
share............................ (44,728) (44,728)
Net loss.......................... (201,916)
Other comprehensive income........ 38,028
Comprehensive loss................ (163,888)
------- ------- ----------- -------- -----------
Balance December 31, 1999......... (3,360) (1,253) (409,301) 78,907 2,750,664
Shares issued:
Exercise of stock options and
related tax benefits............ 252
Employee savings plan............ 25,690
Conversion of Series A preferred
stock to common stock and
issuance expenses............... (85)
Conversion of Series C preferred
stock to common stock and
related issuance of additional
common shares on conversion..... (5,882)
Issuance of Series D preferred
stock, net...................... 388,204
Warrant exercises................ 1
Forfeited unearned compensation... 229
Amortization of unearned
compensation..................... 846 846
Amortization of restricted
stocks........................... 79 79
Unearned compensation on grants to
non-employees, including
mark-to-market adjustment........ (129)
Amortization of deferred
compensation related to
non-employees.................... 80 80
Preferred dividends $3.00 per
share............................ (61,646) (61,646)
Net loss.......................... (1,469,678)
Other comprehensive income........ 21,689
Realized gains included in net
loss............................. (69,708)
Comprehensive loss................ (1,517,697)
------- ------- ----------- -------- -----------
Balance December 31, 2000......... $(3,360) $ (148) $(1,946,507) $ 30,888 $ 1,586,388
======= ======= =========== ======== ===========
See notes to consolidated financial statements.
F-5
60
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
YEARS ENDED DECEMBER 31,
--------------------------------------------
2000 1999 1998
------------ ------------ ------------
Operating activities:
Net loss................................................... $(1,469,678) $(201,916) $(138,798)
Non-cash items:
Equity in net loss of affiliates, net of taxes........... 1,294,910 177,819 120,417
Minority interest, net of taxes.......................... (3,691) (5,525) (3,376)
Deferred taxes........................................... (4,474) (39,865) (5,940)
Non-cash interest and investment income.................. (40,682) (22,877) (14,249)
Non-cash interest expense................................ 37,074 33,758 20,474
Depreciation and amortization............................ 216,263 174,906 135,029
Gain on investments, net................................. (70,842) (5,494)
Loss on ChinaSat agreement............................... 35,492
Loss on disposal of property, plant and equipment........ 12,696
Globalstar related impairment charges, net of taxes...... 112,241
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable, net................................... (8,448) (19,360) (4,086)
Contracts-in-process....................................... 199,125 (65,253) (72,413)
Inventories................................................ 30,908 67,117 (90,897)
Other current assets....................................... (6,173) (13,098) 14,450
Long-term receivables...................................... 10,335 (5,486) 6,662
Deposits................................................... 34,085 (54,350) 14,000
Other assets............................................... (9,247) (63,739) (16,056)
Accounts payable........................................... (90,558) (7,517) 9,048
Accrued expenses and other current liabilities............. 10,305 8,128 19,432
Income taxes payable....................................... 11,492 6,914 (8,322)
Customer advances.......................................... 3,141 (90,547) 54,090
Long-term liabilities...................................... 2,975 61,000 51,844
Other...................................................... (1,005) 4,770 980
----------- --------- ---------
Net cash provided by (used in) operating activities......... 258,056 (6,933) 86,795
----------- --------- ---------
Investing activities:
Cash acquired in connection with Loral CyberStar
acquisition.............................................. 53,801
Acquisition of businesses, net of cash acquired............ (10,790) (6,877)
Proceeds from the sale of investment in affiliates, net.... 246,867
Proceeds from the sale of investments...................... 97,137
Investments in and advances to affiliates.................. (192,530) (354,849) (624,079)
Advances repaid by affiliate............................... 23,487
Purchase of Globalstar loans............................... (67,950)
Use and transfer of restricted and segregated cash......... 187,315 156,381 264,123
Capital expenditures....................................... (424,199) (469,747) (489,448)
----------- --------- ---------
Net cash used in investing activities....................... (376,740) (679,005) (555,613)
----------- --------- ---------
Financing activities:
Proceeds from the issuance of 6% Series D preferred stock,
net...................................................... 388,204
Proceeds from the issuance of 9.5% senior notes, net....... 343,875
Proceeds from sale of common stock, net.................... 601,816
Proceeds from other stock issuances........................ 25,857 20,095 32,121
Borrowings under revolving credit facility, net............ 55,762 70,000 150,000
Borrowings under note purchase facility.................... 12,581 38,423
Repayments under term loan................................. (81,250) (18,750)
Repayments under revolving credit facility, net............ (50,000)
Repayments under Export-Import facility.................... (2,146) (2,146) (2,146)
Repayments of other long-term obligations.................. (1,917) (1,896) (7,819)
Contributions from minority partners....................... 21,398
Preferred dividends........................................ (61,646) (44,728) (44,750)
----------- --------- ---------
Net cash provided by financing activities................... 272,864 379,031 789,043
----------- --------- ---------
Increase (decrease) in cash and cash equivalents............ 154,180 (306,907) 320,225
Cash and cash equivalents -- beginning of period............ 239,865 546,772 226,547
----------- --------- ---------
Cash and cash equivalents -- end of period.................. $ 394,045 $ 239,865 $ 546,772
----------- --------- ---------
Non-cash activities:
Incurrence of debt to acquire creditors' interests in
Globalstar credit facility............................... $ 500,000
===========
Conversion of Series A preferred stock to common stock..... $ 459
===========
Conversion of Series C preferred stock to common stock and
related issuance of additional common shares on
conversion............................................... $ 75,510
===========
Unrealized gain on available-for-sale securities........... $ 22,937 $ 38,909 $ 32,988
=========== ========= =========
Common stock issued to acquire Loral CyberStar............. $ 469,025
=========
Supplemental information:
Interest paid, net of capitalized interest................. $ 130,314 $ 29,675 $ 8,360
=========== ========= =========
Taxes paid................................................. $ 2,712 $ 1,480 $ 9,789
=========== ========= =========
See notes to consolidated financial statements.
F-6
61
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND PRINCIPAL BUSINESS
Loral Space & Communications Ltd. together with its subsidiaries ("Loral"
or the "Company") is one of the world's leading satellite communications
companies with substantial activities in satellite manufacturing and
satellite-based communications services. Loral has assembled the building blocks
necessary to provide a seamless, global networking capability for the
information age. Loral is organized into three distinct operating businesses
(see Note 16):
Fixed Satellite Services ("FSS"): Leasing transponder capacity to customers
for various applications, including broadcasting, news gathering, Internet
access and transmission, private voice and data networks, business
television, distance learning and direct-to-home television ("DTH"), through
the activities of Loral Skynet, Loral CyberStar, Inc. ("Loral CyberStar"),
Loral Skynet do Brasil Ltda. ("Skynet do Brasil"), Satelites Mexicanos, S.A.
de C.V. ("Satmex") and Europe*Star Limited ("Europe*Star");
Satellite Manufacturing and Technology: Designing and manufacturing
satellites and space systems and developing satellite technology for a broad
variety of customers and applications through Space Systems/ Loral, Inc.
("SS/L"); and
Data Services: Providing managed communications networks and Internet and
intranet services through Loral CyberStar and delivering high-speed
broadband data communications and business television and infomedia services
through CyberStar, L.P. ("CyberStar LP").
In addition, a subsidiary of Loral acts as the managing general partner of
Globalstar, L.P. ("Globalstar"), which owns and operates a global
telecommunications network designed to serve virtually every populated area of
the world by means of a 52-satellite constellation, including four in-orbit
spares (the "Globalstar System"). The Globalstar System commenced operations in
the first quarter of 2000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Loral, a Bermuda company, has a December 31 year-end. The consolidated
financial statements for the three years ended December 31, 2000, include the
results of Loral and its subsidiaries, including Loral CyberStar from April 1,
1998 (see Note 4) and have been prepared in accordance with U.S. generally
accepted accounting principles ("U.S. GAAP"). All intercompany transactions have
been eliminated.
Investments in Satmex, Europe*Star and Globalstar as well as other
affiliates, are accounted for using the equity method. Income and losses of
affiliates are recorded based on Loral's beneficial interest. Intercompany
profit arising from transactions with affiliates is eliminated to the extent of
the Company's beneficial interest. The excess carrying value of these
investments over Loral's interest in the underlying net assets is being
amortized in accordance with Loral's policy for costs in excess of net assets
acquired and, if applicable, begins upon the commencement of commercial service
of the affiliate. Advances to affiliates consist of amounts due under extended
payment terms. Equity in losses of affiliates is not recognized after the
carrying value of an investment, including advances and loans, has been reduced
to zero, unless guarantees or other obligations exist. In connection with
Loral's investment in Globalstar and Europe*Star, Loral capitalized interest
cost on its investment, until such entities commenced commercial operations.
Certain of the Company's affiliates are subject to the risks associated with new
businesses.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the amounts of revenues
and expenses reported for the period. Actual results could differ from
estimates.
F-7
62
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
A significant portion of Loral's satellite manufacturing and technology
revenue is associated with long-term contracts which require significant
estimates. These estimates include forecasts of costs and schedules, estimating
contract revenue related to contract performance (including orbital incentives)
and the potential for component obsolescence in connection with long-term
procurements. Significant estimates also include the estimated useful lives of
the Company's satellites and the amortization period of cost in excess of net
assets acquired.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and highly liquid
investments with original maturities of three months or less.
Restricted and Segregated Cash
In connection with the acquisition of Loral CyberStar, Loral acquired cash
and cash equivalents which were restricted in use to the payment of interest on
Loral CyberStar's senior notes and payments for satellite construction. At
December 31, 1999, Loral CyberStar had $50.0 million of restricted cash, which
was subsequently used for interest payments on its senior notes and $137.3
million of segregated cash which was subsequently used towards the final payment
on the purchase of Telstar 10/Apstar IIR (see Note 6).
Concentration of Credit Risk
Financial instruments which potentially subject Loral to concentrations of
credit risk consist principally of cash and cash equivalents, foreign exchange
contracts, contracts-in-process, long-term receivables and advances and loans to
affiliates (see Note 7). Loral's cash and cash equivalents are maintained with
high-credit-quality financial institutions. Historically, Loral's customers have
been primarily large multinational corporations and U.S. and foreign governments
for which the creditworthiness was generally substantial. In recent years, the
Company has added commercial customers which include companies in emerging
markets or the development stage, some of which are highly leveraged or
partially funded. Management believes that its credit evaluation, approval and
monitoring processes combined with negotiated billing arrangements mitigate
potential credit risks with regard to the Company's current customer base.
Accounts Receivable
As of December 31, 2000 and 1999, accounts receivable was reduced by an
allowance for doubtful accounts of $11.1 million and $4.6 million, respectively.
Inventories
Inventories consist principally of parts and subassemblies used in the
manufacture of satellites which have not been specifically identified to
contracts-in-process, and are valued at the lower of cost or market. Cost is
determined using the first-in-first-out (FIFO) or average cost method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is provided
on the straight-line method for satellites and related equipment over the
estimated useful lives of the related assets. Depreciation is provided primarily
on an accelerated method for other owned assets over the estimated useful life
of the related assets. Leasehold improvements are amortized over the shorter of
the lease term or the estimated useful life of the improvements.
Costs incurred in connection with the construction and successful
deployment of the Company's satellites and related equipment are capitalized.
Such costs include direct contract costs, allocated indirect costs, launch
costs, launch insurance and construction period interest. Capitalized interest
related to the construction of
F-8
63
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
satellites for 2000, 1999 and 1998 was $12.2 million, $40.8 million and $34.7
million, respectively. All capitalized satellite costs are amortized over the
estimated useful life of the related satellite. The estimated useful life of the
satellites, ranging from 12 to 18 years, was determined by engineering analyses
performed at the in-service date. Satellite lives are reevaluated periodically.
Losses from unsuccessful launches and in-orbit failures of the Company's
satellites, net of insurance proceeds, are recorded in the period a loss occurs.
Cost in Excess of Net Assets Acquired
The excess of the cost of purchased businesses over the fair value of net
assets acquired is primarily being amortized over 40 years using the
straight-line method. Accumulated amortization was $85.9 million and $58.9
million as of December 31, 2000 and 1999, respectively.
Valuation of Long-Lived Assets and Cost in Excess of Net Assets Acquired
The carrying value of Loral's long-lived assets, including investments in
and advances to affiliates, and cost in excess of net assets acquired is
reviewed for impairment whenever events or changes in circumstances indicate
that an asset may not be recoverable. The Company looks to current and future
profitability, as well as current and future undiscounted cash flows, excluding
financing costs, as primary indicators of recoverability. If an impairment is
determined to exist, any related impairment loss is calculated based on fair
value.
Deposits
Deposits primarily represent prepaid amounts on satellite launch vehicles
which are expected to be utilized for the launch of customer or Company-owned
satellites.
Investments in Available-For-Sale Securities and Other Securities
The Company's investment in Sirius Satellite Radio Inc. ("Sirius") and The
Fantastic Corporation ("Fantastic") common stock are classified as
available-for-sale, and are recorded at fair value, with the resulting
unrealized gain or loss excluded from net loss and reported as a component of
other comprehensive income (see Notes 3 and 12), until realized. In 2000, the
Company sold approximately 1.9 million shares of Sirius common stock and
approximately 542,000 shares of Fantastic common stock, realizing net gains of
$69.7 million. As of December 31, 2000, the Company owned approximately 612,000
shares of Fantastic common stock, acquired at an average cost of $2.185 per
share, which is included in other current assets. As of December 31, 1999, the
Company owned approximately 1.2 million shares of Fantastic common stock
acquired at an average cost of $2.185 per share and approximately 1.9 million
shares of Sirius common stock, acquired at an average cost of approximately
$13.16 per share, which is included in other long term assets. See also Note 7.
In 1998, the Company wrote-off certain non-strategic equity investments
totaling $29.5 million, which were determined to have no future value to Loral.
Revenue Recognition
Revenue from satellite sales under long-term fixed-price contracts is
recognized using the cost-to-cost percentage-of-completion method. Revenue
includes estimated orbital incentives discounted to their present value at
launch date. Costs include the development effort required for the production of
high-technology satellites, non-recurring engineering and design efforts in
early periods of contract performance, as well as the cost of qualification
testing requirements.
Revenue under cost-reimbursable type contracts is recognized as costs are
incurred; incentive fees are estimated and recognized over the contract term.
F-9
64
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Contracts with the U.S. government are subject to termination by the U.S.
government for convenience or for default. Other government contract risks
include dependence on future appropriations and administrative allotment of
funds and changes in government policies. Costs incurred under U.S. government
contracts are subject to audit. Management believes the results of such audits
will not have a material effect on Loral's financial position or its results of
operations.
Losses on contracts are recognized when determined. Revisions in profit
estimates are reflected in the period in which the conditions that require the
revision become known and are estimable.
In accordance with industry practice, contracts-in-process include unbilled
amounts relating to contracts and programs with long production cycles, a
portion of which may not be billable within one year.
Revenue from data services equipment sales are primarily recognized upon
acceptance by the customer. Revenue from data services equipment sales under
long-term fixed price contracts is recognized using the cost-to-cost
percentage-of-completion method.
The Company provides satellite capacity under lease agreements that
generally provide for the use of satellite transponders and, in certain cases,
earth stations for periods generally ranging from one year to the end of life of
the satellite. Some of these agreements have certain obligations, including
providing spare or substitute capacity, if available, in the event of satellite
failure. If no spare or substitute capacity is available, the agreement may be
terminated. Revenue under transponder lease and data services agreements is
recognized as services are performed, provided that a contract exists, the price
is fixed or determinable and collectibility is reasonably assured. Revenues
under contracts that include fixed lease payment increases are recognized on a
straight line basis over the life of the lease.
Research and Development
Independent research and development costs, which are expensed as incurred,
were $55.1 million, $64.7 million and $68.5 million for 2000, 1999 and 1998,
respectively, and are included in selling, general and administrative expenses.
Foreign Exchange Contracts
Loral enters into foreign exchange contracts as hedges against exchange
rate fluctuations of future accounts receivable and accounts payable under
contracts-in-process which are denominated in foreign currencies. Realized and
unrealized gains and losses on foreign exchange contracts designated as hedges
are deferred and recognized over the lives of the related contracts-in-process.
Stock-Based Compensation
As permitted by Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation ("SFAS 123"), Loral accounts for
stock-based awards to employees using the intrinsic value method in accordance
with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees ("APB 25"). The Company accounts for stock-based awards to
nonemployees in accordance with SFAS 123 and its interpretations.
Income Taxes
As a Bermuda company, Loral Space & Communications Ltd. is subject to U.S.
federal, state and local income taxation at regular corporate rates plus an
additional 30% "branch profits" tax on any income that is effectively connected
with the conduct of a U.S. trade or business. Loral's U.S. subsidiaries are
subject to regular corporate tax on their worldwide income.
F-10
65
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Deferred income taxes reflect the tax effect of temporary differences
between the carrying amount of assets and liabilities for financial and income
tax reporting and are measured by applying tax rates in effect at the end of
each year.
New Accounting Pronouncements
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting
for Derivative Instruments and Hedging Activities ("SFAS 133"), requires that
all derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, the type of hedge
transaction. The key criterion for hedge accounting is that the derivative must
be highly effective in achieving offsetting changes in fair value or cash flows
of the hedged items during the term of the hedge. The Company adopted SFAS No.
133, as amended, on January 1, 2001. The adoption of SFAS No. 133 will result in
a $1.7 million reduction in net income, net of tax, from a cumulative effect of
a change in accounting principle, and a $1.2 million increase in comprehensive
income, net of tax, in the Company's consolidated financial statements for the
quarter ending March 31, 2001. The adoption will also impact assets and
liabilities recorded on the Company's consolidated balance sheet.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101, as amended, was effective for the Company in the
fourth quarter of 2000 and clarified the SEC's views on U.S. GAAP to revenue
recognition in financial statements. The requirements of SAB No. 101 did not
have a significant impact on the Company's consolidated financial position or
results of operations.
In September 2000, the FASB issued SFAS No. 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No.
140 replaces SFAS No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities. It revises the standards for
accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures, but it carries over most of SFAS
No. 125's provisions without reconsideration. The Company has adopted the
applicable disclosure requirements of SFAS No. 140 in its consolidated financial
statements as of December 31, 2000. The Company is currently evaluating the
impact of adopting the remaining provisions of SFAS No. 140, which will be
effective for transactions entered into after March 31, 2001.
Reclassifications
Certain reclassifications have been made to conform prior year amounts to
the current year's presentation.
F-11
66
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The components of accumulated other comprehensive income (loss) are as
follows (in thousands):
YEARS ENDED
DECEMBER 31, DECEMBER 31,
----------------- ----------------------------
2000 1999 2000 1999 1998
------- ------- -------- ------- -------
Cumulative translation adjustment...... $(1,513) $ (265) $ (1,248) $ (881) $ 616
Unrealized gains on available-for-sale
securities........................... 32,401 79,172 22,937 38,909 32,988
Realized gains included in net loss.... (69,708)
------- ------- -------- ------- -------
Accumulated other comprehensive income
(loss)............................... $30,888 $78,907 $(48,019) $38,028 $33,604
======= ======= ======== ======= =======
4. ACQUISITIONS
Fixed Satellite Services
Loral CyberStar
On March 20, 1998, Loral acquired all of the outstanding stock of Loral
CyberStar in exchange for Loral common stock. Loral issued 18 million shares of
its common stock and assumed existing Loral CyberStar vested options and
warrants to purchase 1.4 million shares of Loral common stock representing an
aggregate purchase price of $472.5 million. The purchase price represented
$447.7 million in excess of Loral CyberStar's net book value, which was
primarily allocated to cost in excess of net assets acquired of $619.7 million,
and a fair value adjustment of $153.4 million to increase the carrying value of
Loral CyberStar's senior notes and senior discount notes. In addition, Loral
agreed to assume Loral CyberStar's unvested employee stock options, which
resulted in a new measurement date and an unearned compensation charge of $4.5
million, which was amortized over the vesting periods of the options. Loral's
consolidated financial statements include Loral CyberStar's results of
operations from April 1, 1998.
Data Services
Loral CyberStar -- see Loral CyberStar above.
On July 31, 1999, Loral's subsidiary, CyberStar LP, acquired Global Access,
a business television unit of Williams Communications, Inc., for approximately
$11 million in cash. Global Access provides business television, video
conferencing and other communication services to companies in various parts of
the world through networks operated in Singapore, Dallas, London and
Johannesburg. Approximately $8.2 million of the purchase price was allocated to
cost in excess of net assets acquired, which is being amortized over 10 years.
Loral's consolidated financial statements include Global Access's results of
operations from August 1, 1999.
The above acquisitions were accounted for using the purchase method. Had
the acquisition of Loral CyberStar occurred on January 1, 1998, the unaudited
pro forma revenue, net loss applicable to common stockholders and related basic
and diluted loss per share for the year ended December 31, 1998 would have been:
$1.3 billion, $205 million and $0.74, respectively. These results, which are
based on various assumptions, are not necessarily indicative of what would have
occurred had the acquisition been consummated on January 1, 1998. The results of
operations of Global Access were not considered material to the Company;
accordingly, pro forma results have not been presented.
F-12
67
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. CONTRACTS-IN-PROCESS AND LONG-TERM RECEIVABLES
Contracts-in-Process
DECEMBER 31,
--------------------
2000 1999
-------- --------
(IN THOUSANDS)
U.S. government contracts:
Amounts billed...................................... $ 8,285 $ 9,003
Unbilled receivables................................ 4,098 6,965
-------- --------
12,383 15,968
-------- --------
Commercial contracts:
Amounts billed...................................... 50,587 213,514
Unbilled receivables................................ 117,898 190,967
-------- --------
168,485 404,481
-------- --------
$180,868 $420,449
======== ========
Unbilled amounts include recoverable costs and accrued profit on progress
completed, which have not been billed. Such amounts are billed upon shipment of
the product, achievement of contractual milestones, or completion of the
contract and, at such time, are reclassified to billed receivables.
Long-Term Receivables
Billed receivables relating to long-term contracts are expected to be
collected within one year. Loral classifies billings deferred and the orbital
component of unbilled receivables expected to be collected beyond one year as
long-term. Receivable balances related to satellite orbital incentive payments
and billings deferred as of December 31, 2000 are scheduled to be received as
follows (in thousands):
2001........................................................ $ 11,701
2002........................................................ 24,874
2003........................................................ 44,850
2004........................................................ 26,833
2005........................................................ 7,923
Thereafter.................................................. 41,024
--------
157,205
Less current portion included in contracts-in-process....... (11,701)
--------
Long-term receivables....................................... $145,504
========
F-13
68
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. PROPERTY, PLANT AND EQUIPMENT
DECEMBER 31,
------------------------
2000 1999
---------- ----------
(IN THOUSANDS)
Land and land improvements......................... $ 25,073 $ 25,073
Buildings.......................................... 74,871 72,216
Leasehold improvements............................. 20,883 19,289
Satellites in-orbit, including satellite
transponder rights of $298.4 million............. 1,648,691 1,648,691
Satellites under construction...................... 267,700 80,892
Earth stations..................................... 50,987 53,309
Equipment, furniture and fixtures.................. 299,740 259,640
Other construction in progress..................... 50,243 48,417
---------- ----------
2,438,188 2,207,527
Accumulated depreciation and amortization.......... (493,373) (322,552)
---------- ----------
$1,944,815 $1,884,975
========== ==========
On May 4, 1999, the Company's Orion 3 broadcast video and data
communications satellite was placed into a lower-than-expected orbit after its
launch on a Boeing Delta III rocket. According to Boeing, the Delta III rocket
failed to complete its second stage burn, and, as a result, the satellite,
manufactured by Hughes Space and Communications Corporation, achieved an orbit
well below the planned final altitude and could not be used for its intended
purpose. The satellite and launch were fully insured for approximately $266
million, which was received in 1999. DACOM Corporation, a Korean communications
company which had purchased eight transponders on Orion 3 for a total of $89
million, had made prepayments of approximately $34 million to the Company. Under
the agreement with DACOM, the amount prepaid was refunded in 1999.
To replace Orion 3, on September 28, 1999, Loral CyberStar purchased from
APT Satellite Company Limited ("APT") for approximately $273 million, the rights
to all transponder capacity and existing customer leases on the Apstar IIR
satellite (except for one C-band transponder retained by APT), and renamed the
satellite the Telstar 10/Apstar IIR satellite. Loral CyberStar has full use of
the transponders for the remaining life of Telstar 10/Apstar IIR. Loral
CyberStar has the option to lease from APT replacement satellites upon the end
of life of Telstar 10/Apstar IIR. In March 2000, the Company made the final
payment to APT.
Depreciation and amortization expense for property, plant and equipment was
$182.4 million, $139.9 million and $106.2 million for 2000, 1999 and 1998,
respectively. Accumulated depreciation and amortization as of December 31, 2000
and 1999 includes $29.0 million and $6.2 million, respectively, related to
satellite transponders where Loral has the rights to transponders for the
remaining life of the related satellite.
Satellites in-orbit are either leased by customers or held for lease by the
Company. Future minimum lease receipts due from customers under non-cancelable
operating leases for transponder capacity on the
F-14
69
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. PROPERTY, PLANT AND EQUIPMENT -- (CONTINUED)
Company's satellites in-orbit and for service agreements as of December 31,
2000, are as follows (in thousands):
2001............................................. $ 367,215
2002............................................. 358,773
2003............................................. 296,922
2004............................................. 240,141
2005............................................. 190,202
Thereafter....................................... 538,653
----------
$1,991,906
==========
7. INVESTMENTS IN AND ADVANCES TO AFFILIATES
Investments in and Advances to Affiliates consists of (in thousands):
DECEMBER 31,
----------------------
2000 1999
-------- ----------
Globalstar:
Equity and related investments..................... $ $ 658,317
Vendor financing ($186 million principal amount as
of December 31, 2000)........................... 219,823
Acquired notes and loans ($568 million principal
amount as of December 31, 2000)................. 50,267
-------- ----------
50,267 878,140
Globalstar service provider partnerships equity
investments and advances........................... 11,400 62,933
Satmex equity investments............................ 84,290 70,747
Europe*Star equity investments and advances.......... 104,593 81,772
Other affiliate equity investments................... 1,108 23,883
-------- ----------
$251,658 $1,117,475
======== ==========
Equity in net loss of affiliates consists of (in thousands):
YEARS ENDED DECEMBER 31,
-------------------------------------
2000 1999 1998
----------- --------- ---------
Globalstar, net of tax benefit......... $(1,256,772) $ (98,980) $ (67,016)
Globalstar service provider
partnerships......................... (37,903) (10,881) (7,995)
Satmex................................. 18,786 (33,403) (16,317)
Europe*Star............................ (6,499) (4,833) (3,624)
SkyBridge, net of tax benefit.......... (566) (13,211) (25,465)
Other affiliates, net of tax benefit... (11,956) (16,511)
----------- --------- ---------
$(1,294,910) $(177,819) $(120,417)
=========== ========= =========
F-15
70
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INVESTMENTS IN AND ADVANCES TO AFFILIATES -- (CONTINUED)
The consolidated statements of operations reflect the effects of the
following amounts related to transactions with or investments in affiliates (in
thousands):
YEARS ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
Revenues................................... $161,730 $410,988 $623,668
Interest and investment income............. 70,616 36,306 12,521
Interest expense capitalized on development
stage entities........................... 4,846 43,548 25,417
Elimination of Loral's proportionate share
of intercompany profits.................. 7,245 4,541 7,225
Amortization of excess carrying value,
capitalized interest and intercompany
profits related to investment in
Globalstar............................... 29,444
Globalstar
A subsidiary of Loral is the managing general partner of Globalstar. In
addition, Globalstar Telecommunications Limited ("GTL") acts as a general
partner of Globalstar, which is its sole business. All funds raised by GTL to
date have been used to purchase Globalstar securities. Partners in Globalstar
have the right to convert their ordinary partnership interests into GTL common
stock on an approximate one interest for four shares basis, under certain
defined circumstances.
In January 2001, Globalstar suspended indefinitely principal and interest
payments on its debt in order to conserve cash for operations. Globalstar is
currently in default under its $500 million credit facility due to Loral, its
vendor financing facility with QUALCOMM, and its 11 3/8% senior notes due
February 15, 2004. Globalstar expects that events of default will occur with
regard to Globalstar's other three senior note indentures when interest payments
become due in May and June of 2001. The aforementioned debt that is currently in
default is now subject to immediate acceleration by its holders. Globalstar has
retained The Blackstone Group as its financial adviser to assist in evaluating
its business plan and to develop initiatives, including restructuring its debt,
identifying funding opportunities and pursuing other strategic alternatives.
As of December 31, 2000, the Company's direct and indirect investment in
connection with Globalstar related activities included about 39% of Globalstar's
common equity, about 27% of its debt, an investment in GTL preferred stock and
investments in and advances to Globalstar service provider partnerships. During
2000, Loral recorded after-tax charges of approximately $1.4 billion ($ 1.7
billion pre-tax) related to Loral's investment in and advances in connection
with Globalstar related activities, consisting of Loral's share of after-tax
operating losses of $1.29 billion or approximately $1.6 billion on a pre-tax
basis (including approximately $882 million representing Loral's after-tax share
of Globalstar's impairment charges or approximately $1.2 billion on a pre-tax
basis ) and after-tax impairment charges of $112 million ($125 million pre-tax),
resulting from the write-down of investments in and advances to Globalstar
service provider partnerships to their estimated fair values as of December 31,
2000.
The Company's investment in Globalstar's $500 million credit facility is
classified as an available-for-sale security. After reducing this investment to
zero in connection with the Company recording its share of Globalstar's
operating losses, the Company increased its investment in this security to its
fair value of $50.3 million, with the resulting unrealized gain excluded from
net loss and reported as a component of other comprehensive income (see Notes 3
and 12). As of December 31, 2000, the Company had recognized net unrealized
gains in connection with this security of $32.7 million after taxes.
After these charges, Loral's remaining investment in Globalstar related
activities was $62 million as of December 31, 2000, consisting of $50.3 million
relating to its investment in Globalstar's $500 million credit facility and
$11.4 million relating to its investments in and advances to Globalstar service
provider partnerships.
F-16
71
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INVESTMENTS IN AND ADVANCES TO AFFILIATES -- (CONTINUED)
Globalstar is currently developing a new business plan that will offer a
basis for a restructuring proposal that it will provide to its creditors. If it
is unable to effectuate an out-of-court restructuring, Globalstar may file for
bankruptcy protection. Moreover, its creditors may seek to initiate involuntary
bankruptcy proceedings against Globalstar. Loral's equity interests in
Globalstar may be eliminated entirely in any such bankruptcy proceeding, as it
might in an out-of-court restructuring. The Globalstar debt obligations that
Loral holds are senior unsecured obligations that rank equally in right of
payments with all other Globalstar debt obligations (see Note 13).
Loral accounts for its investment in Globalstar on the equity method,
recognizing its allocated share of net losses based on the direct and indirect
ordinary partnership interests it owns. As of December 31, 2000, the market
value of the 9.9 million shares of GTL stock owned by Loral, based on the last
reported sale was $9 million.
Loral's original investment in Globalstar was made in 1994 in connection
with its formation. Loral has continued to make investments in Globalstar and
GTL since its inception, including the following transactions during the year
ended December 31, 2000:
- In June 2000, Loral purchased $68 million of Globalstar notes due June
2003 in connection with the Company's guarantee of Globalstar's $250
million credit facility (see Note 13).
- In September 2000, Loral purchased 1,120,187 shares of GTL common stock
for $12 million.
- In November 2000, Loral purchased the creditors' interests in
Globalstar's $500 million credit facility, which it had guaranteed (see
Note 8). The Company has classified this investment as an available-for-
sale security (see Note 12).
Also in 1999, Loral received warrants to purchase 3,450,000 Globalstar
partnership interests, which expire August 2006, at an exercise price of $91 per
interest (75% of the warrants had vested as of December 31, 2000), in
consideration for guarantees relating to Globalstar's $500 million credit
agreement (see Note 8).
Loral has granted to certain of its officers and directors options to
purchase 1,988,000 of its shares of GTL common stock. During 2000 and 1999,
options were exercised to purchase 60,000 and 40,000 shares at a weighted
average exercise price of $5.00 and $6.25 per share, respectively. At December
31, 2000, options to purchase 1,568,000 shares of common stock at a weighted
average exercise price of $7.09 per share were outstanding. These options expire
beginning in 2006.
SS/L is the prime contractor for the construction and launch of
Globalstar's satellites. SS/L has awarded subcontracts to third parties,
including other investors in Globalstar, for substantial portions of the work
under these contracts. As of December 31, 2000, Loral is constructing an
additional eight spares under a separate contract. Billed and unbilled
receivables due within one year under these contracts were ($12.6) million and
$59.4 million, as of December 31, 2000 and 1999, respectively, and orbital
incentives (described below) due within one year are included in
contracts-in-process in the consolidated balance sheets.
SS/L has provided $344 million of billings deferred under these
construction contracts comprised of: $120 million of orbital incentives, of
which $44 million was repaid in 1999, $60 million was repaid in 2000 and $8
million is scheduled to be received in 2001; $90 million of vendor financing,
which bears interest at LIBOR plus 3% and is repayable over five years
commencing in 2001; and $134 million of non-interest bearing vendor financing,
due over five years in equal monthly installments, commencing in 2000. SS/L's
terms with its subcontractors include $101 million of financing assumed by them,
which is to be repaid on substantially similar terms (of which $52 million is
non-recourse to SS/L in the event of non-payment by Globalstar due to
bankruptcy) and is included in long-term liabilities on the consolidated balance
sheets.
F-17
72
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INVESTMENTS IN AND ADVANCES TO AFFILIATES -- (CONTINUED)
The following table presents summary financial data for Globalstar as of
December 31, 2000 and 1999 and for each of the three years in the period ended
December 31, 2000 (in thousands):
YEARS ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
---------- -------- --------
STATEMENT OF OPERATIONS DATA:
Revenues........................................... $ 3,650 $ $
Operating loss (including an impairment charge of
$2,939,790 in 2000).............................. 3,472,998 186,505 146,684
Net loss........................................... 3,785,671 180,364 129,543
Preferred distributions............................ 30,730 52,220 22,197
Net loss applicable to ordinary partnership
interests........................................ 3,816,401 232,584 151,740
DECEMBER 31,
------------------------
2000 1999
----------- ----------
BALANCE SHEET DATA:
Current assets............................................. $ 257,453 $ 292,902
Total assets............................................... 702,276 3,781,459
Current liabilities........................................ 2,599,121 671,302
Long-term debt, including vendor financing................. 448,051 2,055,422
Other long-term liabilities................................ 50,318 26,406
Partners' capital (deficiency)............................. (2,395,214) 1,028,329
Satmex
In connection with the privatization by the Federal Government of Mexico
(the "Mexican Government") of its fixed satellite services business, Loral and
Principia, S.A. de C.V. ("Principia") formed a joint venture, Firmamento
Mexicano, S.A. de R.L. de C.V. ("Holdings"). In 1997, Holdings acquired 75% of
the outstanding capital stock of Satmex. As part of the acquisition, Servicios
Corporativos Satelitales, S.A. de C.V. ("Servicios"), a wholly owned subsidiary
of Holdings, issued a seven-year obligation to the Mexican Government (the
"Government Obligation") in consideration for the assumption by Satmex of the
debt incurred by Servicios in connection with the acquisition. The Government
Obligation had an initial face amount of $125 million, which accretes at 6.03%
and expires in December 2004. The debt of Satmex and Servicios is non-recourse
to Loral and Principia; however, Loral and Principia have agreed to maintain
assets in a collateral trust in an amount equal to the value of the Government
Obligation through December 30, 2000 and, thereafter, in an amount equal to 1.2
times the value of the Government Obligation until maturity. As of December 31,
2000, Loral and Principia have pledged their respective shares in Holdings in
such trust. Loral has a 65% economic interest in Holdings and a 49% indirect
economic interest in Satmex.
Loral and Principia are responsible for managing Satmex. They are entitled
to receive an aggregate management fee, based on a sliding scale, applied to
Satmex's quarterly gross revenues up to a maximum of 3.75% of each year's
cumulative gross revenues. In 2000, Loral recognized management fee income of
$2.7 million. Loral and Principia agreed to waive such fee for 1999 and 1998.
Beginning in 1999, Loral licensed certain intellectual property to Satmex for a
fee of up to 1.5% of Satmex's gross revenues, as defined, resulting in $2
million and $1 million of such fees in 2000 and 1999, respectively.
On March 30, 1999, Loral acquired 577,554 shares of preferred stock of
Satmex at a purchase price of $30.3 million. The preferred stock has limited
voting rights, pays a dividend in common stock of Satmex and is exchangeable, at
Satmex's option, into common stock of Satmex based upon a predetermined exchange
ratio.
F-18
73
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INVESTMENTS IN AND ADVANCES TO AFFILIATES -- (CONTINUED)
In May 2000, Satelites Enigma S.A. de C.V., a subsidiary of Principia,
exercised its option to purchase 104,105 shares of Satmex preferred stock from
Loral for $6.6 million in cash and Loral realized a gain of $1 million, which is
included in gain on investments on Loral's consolidated statements of
operations.
In August 2000, Satmex announced that its Solidaridad 1 satellite ceased
operation and was irretrievably lost. The loss was caused by the failure of the
back-up control processor on board the satellite. Solidaridad 1, which was built
by Hughes Space and Communications and launched in 1994, experienced a failure
of its primary control processor in April 1999, and had been operating on its
back-up processor since that time. Satmex received net insurance proceeds of
$235 million relating to the loss of Solidaridad 1. Satmex has contracted with
SS/L to build its replacement satellite. In connection with the loss of
Solidaridad 1, Satmex recognized an after tax gain of $67 million, which
resulted from the insurance proceeds in excess of the carrying amount of the
satellite and the incremental costs associated with providing replacement
capacity, as required by its contracts with its customers.
The following table presents summary financial data for Satmex as of
December 31, 2000 and 1999 and for each of the three years in the period ended
December 31, 2000 (in thousands):
YEARS ENDED DECEMBER 31,
---------------------------------
2000(1) 1999(2) 1998
-------- -------- ---------
STATEMENT OF OPERATIONS DATA:
Revenues.................................. $136,441 $135,520 $ 104,779
Operating income.......................... 34,315 24,988 32,841
Net income (loss)......................... 55,184 (46,663) (23,650)
Net income (loss) applicable to common
stockholders............................ 53,677 (47,793) (23,650)
DECEMBER 31,
------------------------
2000 1999
---------- ----------
BALANCE SHEET DATA:
Current assets...................................... $ 277,702 $ 36,461
Total assets........................................ 1,123,577 1,038,594
Current liabilities................................. 50,379 23,845
Long-term debt...................................... 571,000 557,000
Long-term liabilities............................... 110,478 121,213
Shareholders' equity................................ 391,720 336,536
- ---------------
(1) During 2000, Satmex recognized an after-tax gain of $67 million from its net
insurance recovery on the loss of a satellite.
(2) During 1999, Satmex sold three Ku-band transponders on Satmex 5 to Loral
Skynet for $25.5 million, resulting in a gain of $11.2 million. Loral's
proportionate share of the profit on these transponders of $3.6 million was
eliminated in Loral's consolidated results.
Europe*Star
Europe*Star, a joint venture between Loral and Alcatel, launched
Europe*Star 1, an all Ku-band satellite, in October 2000. Alcatel was the
primary contractor of Europe*Star 1, with SS/L acting as a subcontractor. During
2000 and 1999, Loral invested $6 million and $17 million in Europe*Star,
respectively. As of December 31, 2000 and 1999 Loral owned 47% of Europe*Star.
Pursuant to the terms of the shareholders agreement, Loral has permitted Alcatel
to fund additional expenditures to develop Europe*Star's
F-19
74
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INVESTMENTS IN AND ADVANCES TO AFFILIATES -- (CONTINUED)
business and infrastructure through approximately $175 million in loans to the
venture. Loral has the right to elect either to match the amount of such loans
or permit Alcatel to elect to convert some or all its loans into equity, which
could dilute Loral's equity in the venture to as little as approximately 22%.
Loral has provided $38.1 million and $19.5 million of advances to Europe*Star as
of December 31, 2000 and 1999, respectively. Europe*Star 1, marketed as part of
the Loral Global Alliance, commenced service in January 2001.
SkyBridge
In June 1997, Loral and Alcatel formed a strategic partnership to jointly
develop, deploy and operate high-speed global multimedia satellite networks that
will bring high-bandwidth services to businesses and to consumers. The agreement
includes cross investments in Loral's geostationary (GEO) satellite-based
CyberStar LP project and Alcatel's LEO satellite-based SkyBridge project. Each
company participates in the development of the two projects. The SkyBridge
project is currently in the development stage. As of December 31, 2000, Loral
had contributed to SkyBridge and Alcatel had contributed to CyberStar LP $46
million and $30 million, respectively. As of December 31, 2000, Loral owned
approximately 14% of the outstanding partnership interests in SkyBridge. SS/L is
a subcontractor for the construction of the SkyBridge satellites. There were no
outstanding receivables related to this contract as of December 31, 2000.
The following table presents summary financial data for SkyBridge as of
December 31, 2000 and 1999 and for each of the three years in the period ended
December 31, 2000 and cumulative (in thousands):
CUMULATIVE
FEBRUARY 26, 1997 YEARS ENDED
(INCEPTION) TO DECEMBER 31,
DECEMBER 31, ------------------------------
2000 2000 1999 1998
----------------- -------- -------- --------
STATEMENT OF OPERATIONS DATA:
Revenues................................ $ $ $ $
Operating loss.......................... 367,733 46,196 129,639 144,624
Net loss................................ 358,952 43,964 126,749 141,714
DECEMBER 31,
-----------------
2000 1999
------- -------
BALANCE SHEET DATA:
Current assets.............................................. $20,410 $46,572
Total assets................................................ 20,625 46,811
Current liabilities......................................... 10,148 24,117
Net partners' capital....................................... 10,477 22,694
Other Affiliates
Other affiliates include Loral's investment in Mabuhay Space Holdings
Limited ("Mabuhay"), which owns and operates certain satellite transponders. As
of December 31, 2000, the Company's investment in Mabuhay had been reduced to
zero. Loral recorded impairment charges relating to its investment in Mabuhay in
2000 and 1999 of $12 million and $15 million, respectively, net of related tax
benefits.
F-20
75
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM DEBT
DECEMBER 31,
------------------------
2000 1999
---------- ----------
(IN THOUSANDS)
Term loan, 10.45% at December 31, 2000...................... $ 300,000 $
Revolver, 9.95% at December 31, 2000........................ 200,000
Term loan facility, 7.0% and 7.1% at December 31, 2000 and
1999, respectively........................................ 175,000 256,250
Revolving credit facility, 7.0% and 7.1% at December 31,
2000 and 1999, respectively............................... 420,000 275,000
Note purchase facility...................................... 139,238
9.5% Senior notes due 2006.................................. 350,000 350,000
Export-Import credit facility............................... 10,726 12,872
Other....................................................... 576 591
Non-recourse debt of Loral CyberStar:
11.25% Senior notes due 2007 (principal amount $443
million)............................................... 495,377 501,734
12.5% Senior discount notes due 2007 (principal amount at
maturity $484 million and accreted principal amount
$427 million and $378 million at December 31, 2000 and
1999, respectively).................................... 491,841 448,409
Other..................................................... 13,324 15,228
---------- ----------
Total debt.................................................. 2,456,844 1,999,322
Less, current maturities.................................... 110,715 85,496
---------- ----------
$2,346,129 $1,913,826
========== ==========
$500 Million Credit Agreement
On August 5, 1999, Globalstar entered into a $500 million credit agreement
with a group of banks for the build-out of the Globalstar System. Globalstar's
$500 million credit facility was guaranteed by Loral Satellite, Inc. ("Loral
Satellite") and Loral SatCom Ltd., wholly owned subsidiaries of Loral, for which
Loral received 3,450,000 warrants to purchase Globalstar partnership interests
(see Note 7). The guarantee was secured by the pledge of certain assets of Loral
and its subsidiaries, including the stock of the guarantors and the Telstar 6
and Telstar 7 satellites.
In November 2000, the assets of Loral SatCom Ltd. were transferred into
Loral Satellite and Loral Satellite entered into a $500 million secured credit
agreement with Bank of America, National Association and the other lenders party
thereto (the "$500 Million Credit Agreement"). The $500 Million Credit Agreement
provides for a $200 million three-year revolving credit facility (the
"Revolver") and a $300 million term loan (the "Term Loan"). The Term Loan is
subject to an amortization payment schedule as follows: 1% of the principal
amount on each of January 15, 2001 and June 30, 2001; 15% of the principal
amount on June 30, 2002; 25% of the principal amount on March 31, 2003; and 58%
of the principal amount on August 15, 2003. All amounts outstanding under the
Revolver are due and payable on August 15, 2003. Borrowings under the $500
Million Credit Agreement bear interest, at Loral Satellite's option, at various
rates based on margins over the lead bank's base rate or the London Interbank
Offer Rate for periods of one to six months. Loral Satellite pays a commitment
fee on the unused portion of the Revolver.
The $500 Million Credit Agreement is secured by certain assets of Loral
Satellite, including the Telstar 6 and Telstar 7 satellites and the loans due to
Loral under Globalstar's $500 million credit facility (see below), and the stock
of Loral Satellite. Based on third party valuations, management believes that
the fair value of
F-21
76
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM DEBT -- (CONTINUED)
Telstar 6 and Telstar 7 is in excess of $500 million. As of December 31, 2000,
the net book value of Telstar 6 and Telstar 7 was approximately $350 million.
Loral has also agreed to guarantee Loral Satellite's obligations under the $500
Million Credit Agreement, which guarantee agreement contains a minimum net worth
covenant.
The $500 Million Credit Agreement contains customary financial covenants,
including maintenance of a minimum collateral coverage ratio, minimum net worth
and EBITDA, as defined. The $500 Million Credit Agreement also contains
customary limitations, including those on indebtedness, fundamental changes,
asset sales, dividends, (except that Loral Satellite may pay dividends to its
parent provided that after such dividends, Loral Satellite holds an intercompany
note due from its parent or Loral for at least $100 million), investments,
capital expenditures, creating liens (other than those created pursuant to the
$500 Million Credit Agreement), prepayments or amendments of indebtedness, and
transactions with affiliates.
Proceeds from the $500 million of loans incurred under the $500 Million
Credit Agreement were used by Loral Satellite to purchase all of the creditors'
interests in the loans outstanding under Globalstar's $500 million credit
agreement (see Note 7). The guarantee of Globalstar's $500 million credit
agreement that had been provided by Loral Satellite and Loral SatCom Ltd. was
terminated and released in connection with this transaction.
Loral SpaceCom Credit Agreement
The Amended and Restated Credit Agreement, dated as of November 14, 1997,
as amended, among Loral SpaceCom Corporation ("Loral SpaceCom"), SS/L and the
banks party thereto (the "Credit Agreement"), provides for a $275 million term
loan facility (the "Term Loan Facility"), and a $500 million revolving credit
facility (the "Revolving Credit Facility"), of which up to $175 million can be
used for letters of credit and a separate $75 million letter of credit facility.
The Credit Agreement matures in November 2002. The term loan facility requires
repayment in 12 consecutive quarterly installments which began on December 31,
1999. The first four installments were $18.75 million each, with the final eight
installments being $25 million each. The separate $75 million letter of credit
facility has matured. Borrowings under the Credit Agreement are secured by the
stock of Loral SpaceCom and SS/L and bear interest, at Loral SpaceCom's option,
at various rates based on margins over the lead bank's base rate or the London
Interbank Offer Rate ("LIBOR") for periods of one to six months. As of December
31, 2000, the net book value of the assets that secure the Credit Agreement was
approximately $1 billion. Loral SpaceCom pays a commitment fee on the unused
portion of the facilities. The Credit Agreement contains various customary
covenants, including an interest coverage ratio and debt to capitalization
ratios, as defined. In addition, the Credit Agreement contains limitations on
indebtedness, liens, guarantee obligations, asset sales, dividends, investments
and transactions with affiliates. Under the terms of the Credit Agreement, Loral
SpaceCom may pay dividends to its parent if the cumulative dividend payments do
not exceed 50% of cumulative net income, as defined, and the ratio of funded
debt to EBITDA, as defined, is less than three to one. As of December 31, 2000,
Loral SpaceCom had no capacity under this covenant to pay its parent any
dividends. The Credit Agreement further provides that Loral SpaceCom may pay
dividends to its parent of up to $70 million, subject to there being at least
$700 million of shareholders' equity. In December 2000, Loral SpaceCom used up
this capacity in full when it paid a $70 million dividend to its parent. Total
borrowing availability under the Credit Agreement was $65.1 million at December
31, 2000.
In 1994, SS/L entered into a $139.3 million note purchase facility with an
Italian bank. Borrowings were determined by formula and were made in accordance
with a specified schedule. The drawdown period expired on December 31, 1999. The
note purchase facility matured in August 2000 and the outstanding balance of
$139 million was rolled into the Revolving Credit Facility, which did not change
the availability under the Revolving Credit Facility. Interest was charged at a
weighted average annual rate of 4.26% and was paid semi-annually. Interest,
however, on any borrowings that occurred after January 13, 1999 ($12.6 million
at December 31, 1999) and until delivery of the satellites related to the
specific borrowings that have taken place
F-22
77
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM DEBT -- (CONTINUED)
were at market rates for this period and not at the 4.26% rate. Prior to
repayment, all borrowings under this facility reduced the amount available under
the Credit Agreement.
Other Credit Agreements
In 1999, Loral sold $350 million principal amount of 9.5% Senior Notes due
2006 ("Senior Notes"). The Senior Notes are general unsecured obligations of
Loral that: (1) are structurally junior in right of payment to all existing and
future indebtedness of Loral's subsidiaries; (2) are equal in right of payment
with all existing and future senior indebtedness of Loral (except as to assets
pledged to secure such indebtedness); and (3) are senior in right of payment to
any future indebtedness which is by its terms junior in right of payment to any
senior indebtedness of Loral. Interest on the Senior Notes accrues at the rate
of 9.5% per annum and is payable semi-annually. The Senior Notes will mature on
January 15, 2006. Loral may redeem all or part of the Senior Notes on or after
January 15, 2003. Prior to January 15, 2002, Loral may redeem up to 35% of the
Senior Notes from the proceeds of certain equity offerings. Upon a change of
control (as defined), each holder of Senior Notes will have the right to require
Loral to repurchase such holder's Senior Notes at a price equal to 101% of the
principal amount thereof plus accrued interest to the date of repurchase.
SS/L borrowed a total of $42.9 million under an export-import credit
facility (the "EX-IM Facility") with a Japanese bank. The EX-IM Facility is
fully secured by a letter of credit arrangement with another bank. As of
December 31, 2000, no amounts remained available for borrowing under this
facility. The outstanding principal is to be repaid in semi-annual installments
through November 1, 2005. Interest is charged at LIBOR less 1/4% and is payable
semi-annually on May 1 and November 1.
In connection with the Loral CyberStar acquisition, Loral did not assume
Loral CyberStar's senior notes, senior discount notes or other debt instruments.
Such debt is non-recourse to Loral and includes certain restrictions on Loral
CyberStar's ability to pay dividends or make loans to Loral. The carrying value
of the senior notes and senior discount notes was increased to reflect a fair
value adjustment of $153.4 million based on quoted market prices at the date of
acquisition. Such adjustment resulted in effective interest rates of 8.69% and
9.69% on the senior notes and senior discount notes, respectively, through
maturity.
The Loral CyberStar senior notes are due in 2007, bear interest of 11.25%
and pay interest semi-annually. The senior discount notes are due in 2007, bear
interest of 12.5% and pay interest semi-annually commencing on July 15, 2002.
The accreted principal value of the senior discount notes was $427 million and
$378 million as of December 31, 2000 and 1999, respectively.
Along with the issuance of each senior note and senior discount note, one
warrant was issued to purchase shares of common stock. Upon the acquisition of
Loral CyberStar, each warrant was converted so that it could purchase shares of
Loral common stock. As of December 31, 2000, exercisable warrants for 78,300
shares of Loral common stock at an exercise price of $0.02 per share under the
Loral CyberStar senior notes and 155,295 shares of Loral common stock at an
exercise price of $0.03 per share under the Loral CyberStar senior discount
notes are yet to be exercised.
As of December 31, 2000, Loral believes it was in compliance with all
covenants pertaining to its debt facilities.
The aggregate maturities of total debt for the years 2001 through 2005 are
as follows (in millions): $110.7, $544.9, $452.9, $3.9 and $4.1.
F-23
78
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES
The (benefit) provision for income taxes on the loss before income taxes,
equity in net loss of affiliates, minority interest and Globalstar related
impairment charges consists of the following (in thousands):
YEARS ENDED DECEMBER 31,
-----------------------------
2000 1999 1998
-------- -------- -------
Current:
U.S. federal................................... $ 2,527 $ 5,591 $ 2,069
State and local................................ 11,322 1,758
-------- -------- -------
13,849 7,349 2,069
Deferred:
U.S. federal................................... (1,924) (44,766) (9,219)
State and local................................ (2,550) 4,901 3,279
-------- -------- -------
(4,474) (39,865) (5,940)
-------- -------- -------
Total (benefit) provision for income taxes....... $ 9,375 $(32,516) $(3,871)
======== ======== =======
The (benefit) provision for income taxes excludes the following (in
thousands):
YEARS ENDED DECEMBER 31,
------------------------------
2000 1999 1998
--------- -------- -------
Equity in net loss of Globalstar partnership:
Current tax (benefit)......................... $ $ (4,836) $ (354)
Deferred tax (benefit) provision.............. (298,664) 1,405 (2,068)
Equity in net loss of other affiliates:
Deferred tax (benefit)........................ (10,817) (12,065) (3,902)
--------- -------- -------
Subtotal of amounts attributable to equity in
net loss of affiliates........................ (309,481) (15,496) (6,324)
Globalstar related impairment charges:
Deferred tax (benefit)........................ (13,169)
Minority interest for CyberStar L.P.:
Current tax provision......................... 703 749 35
Deferred tax (benefit) provision.............. (186) (120) 600
Tax benefit from exercise of stock options,
credited directly to shareholders' equity:
Current tax (benefit)......................... (366)
Unrealized gain on available-for-sale
securities:
Deferred tax provision........................ 17,593
F-24
79
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES -- (CONTINUED)
The (benefit) provision for income taxes on the loss before income taxes,
equity in net loss of affiliates, minority interest and Globalstar related
impairment charges differs from the amount computed by applying the statutory
U.S. Federal income tax rate because of the effect of the following items (in
thousands):
YEARS ENDED DECEMBER 31,
------------------------------------
2000 1999 1998
-------- -------- --------
Tax (benefit) at U.S. statutory........... $(19,895) $(21,748) $ (8,970)
Federal income tax rate................. (35%) (35%) (35%)
Permanent adjustments which change
statutory amount:
State and local income taxes, net of
federal income tax.................... 5,702 4,329 2,131
Non-U.S. income and losses taxed at
lower rates........................... 11,144 6,624 (5,235)
Non-deductible amortization of cost in
excess of net assets acquired......... 8,738 8,718 7,376
Reversal of valuation allowance for
Loral CyberStar pre-acquisition NOL
carryforwards......................... (33,565)
Other, net.............................. 3,686 3,126 827
-------- -------- --------
Net income tax (benefit) provision........ $ 9,375 $(32,516) $ (3,871)
======== ======== ========
As of December 31, 2000, the Company had net operating loss carryforwards
of approximately $690.6 million, which includes $136.4 million related to Loral
CyberStar for its pre-acquisition tax years and $207.5 million related to
foreign partner interests in Globalstar and CyberStar L.P., as well as tax
credit carryforwards of approximately $2.6 million, which expire at varying
dates from 2003 through 2020. Due to uncertainties regarding its ability to
realize the benefits from a portion of these Loral CyberStar pre-acquisition net
operating loss carryforwards as well as the loss carryforwards related to the
foreign partner interests in Globalstar and Cyberstar L.P. and certain other
deferred tax assets, the Company established a valuation allowance of $114.0
million as of December 31, 2000 against these net deferred tax assets. The
valuation allowance was $52.1 million at December 31, 1999 and $70.9 million at
December 31, 1998. The increase during 2000 primarily related to the additional
reserve established for the benefit from the loss carryforwards related to the
foreign partner interests in Globalstar. During 1999, the Company reversed a
portion of its valuation allowance relating to the Loral CyberStar
pre-acquisition loss carryforwards as a result of a tax law change. For the
years ended December 31, 2000, 1999 and 1998, income (loss) before income taxes
includes approximately $(25) million, $(20) million and $15 million,
respectively, of non-U.S. source income (loss).
The significant components of the net deferred income tax asset are (in
thousands):
DECEMBER 31,
----------------------
2000 1999
--------- ---------
Postretirement benefits other than pensions.......... $ 13,990 $ 13,520
Inventoried costs.................................... 43,603 55,158
Net operating loss and tax credit carryforwards...... 255,161 138,724
Compensation and benefits............................ 15,712 12,548
Premium on senior notes.............................. 111,528 98,086
Investments in and advances to affiliates............ 301,869 17,295
Other, net........................................... (12,062) (3,734)
Pension costs........................................ (6,024) (3,436)
Property, plant and equipment........................ (186,957) (129,530)
F-25
80
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES -- (CONTINUED)
DECEMBER 31,
----------------------
2000 1999
--------- ---------
Income recognition on long-term contracts............ (97,332) (130,780)
--------- ---------
Subtotal........................................... 439,488 67,851
Less valuation allowance............................. (114,014) (52,095)
--------- ---------
Net deferred income tax asset...................... $ 325,474 $ 15,756
========= =========
The net deferred income tax asset is classified as follows (in thousands):
DECEMBER 31,
------------------
2000 1999
-------- ------
Other current assets..................................... $ 32,332 $6,743
======== ======
Other assets............................................. $293,142 $9,013
======== ======
10. SHAREHOLDERS' EQUITY
Common Stock
In 1998, Loral sold 23 million shares of its common stock for $27 per
share. The net proceeds were $602 million, of which Loral used $175 million,
net, to fund the purchase of Globalstar ordinary partnership interests (see Note
7).
Series A Preferred Stock
On March 31, 2000, Lockheed Martin Corporation ("Lockheed Martin")
converted 45,896,978 shares of Loral's Series A preferred stock into 45,896,978
shares of Loral common stock. Loral filed a registration statement to register
the resale by Lockheed Martin of the shares of common stock acquired upon the
conversion of the Series A preferred stock, which became effective in May 2000.
Loral has agreed to maintain the effectiveness of such registration until May
19, 2001, subject to certain extensions.
Significant terms of the Company's Series A Preferred Stock included a
liquidation preference of $.01 per share prior to pro rata participation with
the common stock and the ability to convert to common stock upon the receipt of
certain antitrust clearance before selling to an unaffiliated third party. The
Series A Preferred Stock had the same voting rights as the Company's common
stock except, it had no right to vote for the election of directors.
Series B Preferred Stock
The Series B Preferred Stock will, if issued, be junior to any other series
of preferred stock which may be authorized and issued. The Series B Preferred
Stock becomes issuable upon exercise by holders of rights issued under the
Company's rights plan. The rights are issued with the Company's common stock and
become detachable, and thus exercisable, only upon the occurrence of certain
events. Each right, when it becomes exercisable, entitles the holder to purchase
from the Company a unit consisting initially of one-thousandth of a share of
Series B Preferred Stock at a purchase price of $50 per unit, subject to
adjustment.
6% Series C Convertible Preferred Stock
In 1996, the Company sold $600 million of 6% Convertible Preferred
Equivalent Obligations ("CPEO's"), which were mandatorily exchanged in 1997 into
shares of the Company's 6% Series C Convertible Redeemable Preferred Stock
("Series C Preferred Stock"), resulting in a reclassification of these
F-26
81
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. SHAREHOLDERS' EQUITY -- (CONTINUED)
amounts into shareholders' equity. In addition, the Company issued additional
CPEOs and shares of Series C Preferred Stock in connection with the acquisition
of interests in SS/L and Globalstar.
In February 2000, 1.4 million shares of the Series C Preferred Stock were
converted into 3.5 million shares of Loral common stock. In connection with this
conversion, Loral issued to the converting shareholders 332,777 additional
shares of its common stock, which approximated the dividend prepayments to which
the holders would have been entitled if a provisional redemption of those
securities had been made. The Series C Preferred Stock outstanding at December
31, 2000 had an aggregate liquidation preference equal to its $675 million
aggregate redemption value and a mandatory redemption date of November 1, 2006.
The Series C Preferred Stock is convertible into 33,744,658 shares of common
stock of the Company at a conversion price of $20 per share (see Note 18).
The Series C Preferred Stock is non-voting unless Loral does not pay
dividends for an aggregate of six quarters, and with respect to dividend rights
and rights upon liquidation, winding up and dissolution, ranks pari passu with
Loral's 6% Series D Convertible Redeemable Preferred Stock ("Series D Preferred
Stock") and senior to or pari passu with all other existing and future series of
preferred stock of Loral and senior to Loral common stock. Prior to redemption,
the Series C Preferred Stock is redeemable in cash at any time, in whole or in
part, at the option of the Company (at a premium which declines over time). The
Series C Preferred Stock is redeemable in cash, Loral common stock or a
combination thereof, at the option by the Company, on the mandatory redemption
date.
6% Series D Convertible Preferred Stock
In February 2000, Loral sold $400 million of Series D Preferred Stock due
2007 in an offering exempt from registration. The Series D Preferred Stock is
convertible into 20,171,152 shares of common stock at a conversion price of
$19.83 per share (see Note 18).
The Series D Preferred Stock is non-voting, unless Loral does not pay
dividends for six consecutive quarters, and with respect to dividend rights and
rights upon liquidation, winding up and dissolution, ranks pari passu with
Loral's Series C Preferred Stock and all other existing and future series of
preferred stock of Loral and senior to Loral common stock. The Series D
Preferred Stock is redeemable in cash, Loral common stock or a combination
thereof, at the option by the Company, on the mandatory redemption date.
Exchange Offers
In March 2001, Loral announced increases in its exchange offers for shares
of the Company's Series C Preferred Stock and Series D Preferred Stock. Under
the terms of the voluntary exchange program, each share of Series C Preferred
Stock may be now exchanged for 5.5 shares of common stock and each share of
Series D Preferred Stock may now be exchanged for 5.7 shares of common stock. As
of December 31, 2000, there were 13,497,863 shares of the Series C Preferred
Stock outstanding and 8,000,000 shares of the Series D Preferred Stock
outstanding. Each offer is extended to all outstanding shares of the related
preferred stock, and is conditioned upon a minimum tender of 50% of that issue's
outstanding shares, which may be waived at Loral's option. Both offers extend to
all outstanding shares of the Series C and D preferred stock, and these offers
remain open until 5 p.m., New York City time, April 5, 2001, unless extended
again. Loral will incur a non-cash dividend charge in the period in which an
exchange occurs. An exchange will have no impact on Loral's total shareholders'
equity.
Stock Plans
On April 18, 2000, the Board of Directors of Loral approved a new stock
option plan (the "2000 Plan") in order to provide an inducement to attract and
retain the services of qualified employees. The 2000 Plan is intended to
constitute a "broadly-based plan" as defined in Section 312.04(h) of the New
York Stock Exchange ("NYSE") Listed Company Manual, which provides that at least
50% of grants thereunder
F-27
82
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. SHAREHOLDERS' EQUITY -- (CONTINUED)
exclude senior management. The 2000 Plan provides for the grant of non-qualified
stock options only. As of December 31, 2000, up to 22 million shares of common
stock may be issued under the 2000 Plan, of which approximately 16 million
options at a weighted average exercise price of $5.09 per share were outstanding
as of December 31, 2000. Employees of Loral, its subsidiaries and affiliates are
eligible to participate in the 2000 Plan. Such options become exercisable as
determined by the Board, generally over three years, and generally expire no
more than 10 years from the date of the grant. The 2000 Plan (but not
outstanding options) will terminate on the tenth anniversary of its adoption.
In April 1996, Loral established the 1996 Stock Option Plan. An aggregate
of 18 million shares of common stock have been reserved for issuance. Under this
plan, options are granted at the discretion of the Company's Board of Directors
to employees of the Company and its affiliates. Such options become exercisable
as determined by the Board, generally over three to five years, and generally
expire no more than 10 years from the date of the grant.
SFAS 123 requires the disclosure of pro forma net income and earnings per
share as though the Company had adopted the fair value method. Under SFAS 123,
the fair value of stock-based awards to employees is calculated through the use
of option pricing models, even though such models were developed to estimate the
fair value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option awards.
These models also require subjective assumptions, including future stock price
volatility and expected time to exercise, which greatly affect the calculated
values. The Company's calculations were made using the Black-Scholes option
pricing model with the following weighted average assumptions: expected life,
six to twelve months following vesting; stock volatility, 45% in 2000, 30% in
1999 and 25% in 1998; risk free interest rate, 4.4% to 6.6% based on date of
grant; and no dividends during the expected term. The Company's calculations are
based on a multiple option valuation approach and forfeitures are recognized as
they occur. If the computed fair values of the awards, including stock-based
compensation awards to employees of the Company's affiliates, had been amortized
to expense over the vesting period of the awards, pro forma net (loss)
applicable to common stockholders and related (loss) per share would have been
$(1.55) billion or $(5.25) per diluted share, $(254.7) million or $(.88) per
diluted share, and $(192.7) million or $(.70) per diluted share for 2000, 1999
and 1998, respectively.
F-28
83
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. SHAREHOLDERS' EQUITY -- (CONTINUED)
A summary of the status of the Company's stock option plans as of December
31, 2000, 1999 and 1998 and changes during the periods then ended is presented
below:
WEIGHTED-
AVERAGE
EXERCISE
SHARES PRICE
---------- ---------
Outstanding at January 1, 1998.............................. 6,760,450 $10.90
Granted at fair market value (weighted average fair value
$5.63 per share).......................................... 3,737,400 21.73
Granted below fair market value (weighted average fair value
$12.11 per share)......................................... 600,000 11.72
Loral CyberStar stock options converted in connection with
Acquisition (weighted average fair value $11.84 per
share).................................................... 1,443,240 14.78
Exercised................................................... (806,781) 12.15
Forfeited................................................... (857,477) 13.34
---------- ------
Outstanding at December 31, 1998............................ 10,876,832 14.90
Granted at fair market value (weighted average fair value
$5.48 per share).......................................... 3,799,100 16.62
Exercised................................................... (287,635) 13.01
Forfeited................................................... (1,031,433) 17.23
---------- ------
Outstanding at December 31, 1999............................ 13,356,864 15.25
Granted at fair market value (weighted average fair value
$1.87 per share).......................................... 20,764,697 5.80
Exercised................................................... (31,193) 9.09
Forfeited................................................... (1,342,125) $15.25
---------- ------
Outstanding at December 31, 2000............................ 32,748,243 $ 9.26
========== ======
Options exercisable at December 31, 2000.................... 9,297,970 $12.67
========== ======
Options exercisable at December 31, 1999.................... 5,667,416 $13.32
========== ======
Options exercisable at December 31, 1998.................... 3,638,305 $12.44
========== ======
The following table summarizes information about Loral's outstanding stock
options at December 31, 2000:
DECEMBER 31, 2000
----------------------------------------------------------
OUTSTANDING
----------------------------------- EXERCISABLE
WEIGHTED --------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE EXERCISE
EXERCISE PRICE RANGE NUMBER LIFE-YEARS PRICE NUMBER PRICE
- -------------------- ---------- ----------- -------- --------- --------
$ 2.97............................. 9,348,611 9.98 $ 2.97
$ 6.01 - $10.49.................... 10,814,886 9.46 8.03 1,812,500 $ 8.00
$10.50 - $15.75.................... 7,167,078 5.91 11.45 5,372,938 11.23
$15.76 - $23.84.................... 3,423,382 8.34 16.71 1,157,302 16.78
$23.85 - $27.28.................... 1,994,286 7.14 24.74 955,230 24.69
---------- ---------
32,748,243 8.57 $ 9.26 9,297,970 $12.67
========== =========
All options granted during 2000 were non-qualified stock options. As of
December 31, 2000, 7,178,763 shares of common stock were available for future
grant under the plans.
11. PENSIONS AND OTHER EMPLOYEE BENEFITS
Pensions
The Company maintains a pension plan and a supplemental retirement plan.
These plans are defined benefit pension plans and members in certain locations
may contribute to the pension plan in order to receive enhanced benefits.
Eligibility for participation in these plans vary and benefits are based on
members'
F-29
84
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. PENSIONS AND OTHER EMPLOYEE BENEFITS -- (CONTINUED)
compensation and/or years of service. None of the employees associated with the
acquisition of Loral CyberStar were transferred into these plans. The Company's
funding policy is to fund the pension plan in accordance with the Internal
Revenue Code and regulations thereon and to fund the supplemental retirement
plan on an actuarial basis, including service cost and amortization amounts.
Plan assets are generally invested in U.S. government and agency obligations and
listed stocks and bonds.
Other Benefits
In addition to providing pension benefits, the Company provides certain
health care and life insurance benefits for retired employees and dependents.
Participants are eligible for these benefits when they retire from active
service and meet the eligibility requirements for the Company's pension plan.
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.
The following tables provide a reconciliation of the changes in the plans'
benefit obligations and fair value of assets for 2000 and 1999, and a statement
of the funded status as of December 31, 2000 and 1999, respectively.
PENSION BENEFITS OTHER BENEFITS
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(IN THOUSANDS)
Reconciliation of benefit obligation
Obligation at January 1...................... $216,870 $225,957 $ 33,656 $ 37,187
Service cost................................. 7,569 8,821 1,522 1,580
Interest cost................................ 18,288 16,499 2,838 2,576
Participant contributions.................... 1,292 1,375 720 654
Plan amendments.............................. (121)
Actuarial (gain) loss........................ 16,419 (24,152) 2,487 (6,443)
Benefit payments............................. (12,212) (11,630) (2,730) (1,898)
-------- -------- -------- --------
Obligation at December 31.................... $248,105 $216,870 $ 38,493 $ 33,656
Reconciliation of fair value of plan assets
Fair value of plan assets at January 1....... $310,952 $227,235 $ 1,696 $ 1,940
Actual return on plan assets................. (25,519) 90,973 72 66
Employer contributions....................... 2,245 2,999 1,795 934
Participant contributions.................... 1,292 1,375 720 654
Benefit payments............................. (12,212) (11,630) (2,730) (1,898)
-------- -------- -------- --------
Fair value of plan assets at December 31..... $276,758 $310,952 $ 1,553 $ 1,696
Funded status
Funded (unfunded) status at December 31...... $ 28,653 $ 94,082 $(36,939) $(31,960)
Unrecognized prior service cost.............. (417) (338) (7,654) (8,926)
Unrecognized (gain) loss..................... (26,779) (102,016) 8,597 6,127
-------- -------- -------- --------
Net amount recognized........................ $ 1,457 $ (8,272) $(35,996) $(34,759)
======== ======== ======== ========
F-30
85
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. PENSIONS AND OTHER EMPLOYEE BENEFITS -- (CONTINUED)
The following table provides the details of the net pension
asset/(liability) recognized in the balance sheet as of December 31, 2000 and
1999, respectively (in thousands):
2000 1999
-------- --------
Prepaid benefit cost.................................... $ 18,084 $ 8,570
Accrued benefit liability............................... (16,627) (16,842)
-------- --------
Net amount recognized................................... $ 1,457 $ (8,272)
======== ========
The Company has a supplemental retirement plan, which has an accumulated
benefit obligation in excess of plan assets. The accumulated benefit obligation
was $25.2 million and $23.8 million and the fair value of plan assets was $9.4
million and $9.0 million, as of December 31, 2000 and 1999, respectively.
The following table provides the components of net periodic (benefit) cost
for the plans for 2000, 1999 and 1998, respectively (in thousands):
PENSION BENEFITS OTHER BENEFITS
------------------------------ ---------------------------
2000 1999 1998 2000 1999 1998
-------- -------- -------- ------- ------- -------
Service cost................ $ 7,569 $ 8,821 $ 8,340 $ 1,522 $ 1,580 $ 1,460
Interest cost............... 18,288 16,499 15,358 2,838 2,576 2,553
Expected return on plan
assets.................... (29,102) (21,401) (18,531) (161) (184) (192)
Amortization of prior
service cost.............. (41) (34) 4 (1,272) (1,272) (1,272)
Amortization of net (gain)
loss...................... (4,197) 18 20 106 238 319
-------- -------- -------- ------- ------- -------
Net periodic (benefit)
cost...................... $ (7,483) $ 3,903 $ 5,191 $ 3,033 $ 2,938 $ 2,868
======== ======== ======== ======= ======= =======
The principal actuarial assumptions were:
2000 1999 1998
---- ---- ----
Discount rate.......................................... 7.75% 8.00% 7.00%
Expected return on plan assets......................... 9.50% 9.50% 9.50%
Rate of compensation increase.......................... 4.25% 4.25% 4.25%
Actuarial assumptions used a health care cost trend rate of 7.35%
decreasing gradually to 5.25% by 2003. Assumed health care cost trend rates have
a significant effect on the amounts reported for the health care plans. A 1%
change in assumed health care cost trend rates for 2000 would have the following
effects:
1% INCREASE 1% DECREASE
----------- -----------
Effect on total of service and interest cost
components of net periodic postretirement health
care benefit cost................................. $ 708,000 $ (561,000)
Effect on the health care component of the
accumulated postretirement benefit obligation..... 5,111,000 (4,126,000)
Employee Savings Plan
The Company has an employee savings plan which provides that the Company
match the contributions of participating employees up to a designated level.
Under this plan, the matching contributions in Loral common stock or cash were
$6.2 million, $7.0 million and $6.1 million for 2000, 1999 and 1998,
respectively.
F-31
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LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
fair value:
The carrying amount of cash and cash equivalents and restricted cash
approximates fair value because of the short maturity of those instruments. The
fair value of the investments in available-for-sale securities are based on
market quotations or, for the Companys investment in Globalstar's $500 million
credit facility, the quoted market price of Globalstar's public debt securities
(see Note 7). The fair value of the Company's long-term debt is based on
carrying value for those obligations that have short-term variable interest
rates on the outstanding borrowings and quoted market prices for obligations
with long-term or fixed interest rates.
The estimated fair values of the Company's financial instruments are as
follows (in thousands):
DECEMBER 31,
---------------------------------------------------
2000 1999
------------------------- -----------------------
CARRYING CARRYING FAIR
AMOUNT FAIR VALUE AMOUNT VALUE
------------ ---------- ---------- ----------
Cash and cash equivalents..... $ 394,045 $ 394,045 $ 239,865 $ 239,865
Restricted and segregated
cash........................ 187,315 187,315
Investments in
available-for-sale
securities.................. 51,331 51,331 106,783 106,783
Long-term debt, including
current maturities.......... 2,456,844 1,625,426 1,999,322 1,554,979
The fair value of the investments in available-for-sale securities includes
unrealized gains of $50 million and $79 million as of December 31, 2000 and
1999, respectively, which is included in accumulated other comprehensive income
(see Note 3). The unrealized gain at December 31, 2000, relates substantially to
the Company's investment in Globalstar's $500 million credit facility.
Foreign Currency Hedges
As of December 31, 2000 and 1999, the Company had foreign currency exchange
contracts (forwards and swaps) with several banks to purchase and sell foreign
currencies, primarily Japanese yen, aggregating $232.2 million and $106.3
million, respectively.
Such contracts were designated as hedges of certain foreign contracts and
subcontracts to be performed by SS/L through May 2006. The fair value of these
contracts, based on quoted market prices, was $202.9 million and $104.6 million
as of December 31, 2000 and 1999, respectively. As of December 31, 2000 and
1999, deferred gains on forward contracts to sell foreign currencies, primarily
yen, were $21.8 million and $2.0 million, respectively, and deferred gains
(losses) on forward contracts to purchase foreign currencies, primarily yen,
were ($7.2) million and $0.3 million, respectively.
The Company is exposed to credit-related losses in the event of
non-performance by counter parties to these financial instruments, but does not
expect any counter party to fail to meet its obligation.
The maturity of foreign currency exchange contracts held as of December 31,
2000 is consistent with the contractual or expected timing of the transactions
being hedged, principally receipt of customer payments
F-32
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LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. FINANCIAL INSTRUMENTS -- (CONTINUED)
under long-term contracts and payments to vendors under subcontracts. As of
December 31, 2000, these foreign exchange contracts mature as follows (in
thousands):
TO PURCHASE TO SELL
------------------ -------------------
AT AT AT AT
CONTRACT MARKET CONTRACT MARKET
YEARS TO MATURITY RATE RATE RATE RATE
----------------- -------- ------- -------- --------
1..................................... $54,986 $51,413 $ 74,741 $ 66,341
2 to 5................................ 16,097 13,648 75,584 63,860
6 to 10............................... 5,133 3,635 5,674 3,967
------- ------- -------- --------
$76,216 $68,696 $155,999 $134,168
======= ======= ======== ========
13. COMMITMENTS AND CONTINGENCIES
In May 2000, Globalstar finalized $531.1 million of vendor financing
arrangements (including $31.1 million of capitalized interest as of May 2000)
with Qualcomm that replaced the previous $100 million vendor financing
agreement. The terms of the vendor financing provided for interest at 6%, a
maturity date of August 15, 2003 and required repayment pro rata with the term
loans due to Loral under Globalstar's $500 million credit facility (see Note 8).
As of December 31, 2000, $550.7 million was outstanding under this facility
(including $50.7 million of capitalized interest). In connection with this
agreement, Qualcomm received warrants to purchase 3,450,000 Globalstar
partnership interests at an exercise price of $42.25 per interest. The exercise
price was determined by reference to the fair market value of GTL's common stock
on the closing date of the vendor financing, based on an approximate one
partnership interest for four shares of GTL common stock. 50% of the warrants
vested on the closing date, 25% vested on September 1, 2000 and 25% will vest on
September 1, 2001. The warrants will expire in 2007.
Loral has agreed that if the principal amount (excluding capitalized
interest of $42.5 million at December 31, 2000) outstanding under the Qualcomm
vendor financing facility exceeds the principal amount outstanding under
Globalstar's $500 million credit facility, as determined on certain measurement
dates, then Loral will guarantee 50% of such excess amount.
The Company had outstanding letters of credit of approximately $18.2
million and $118 million as of December 31, 2000 and 1999, respectively. The
Company also had Canadian Dollar letters of credit outstanding of approximately
$20 million and $12.5 million as of December 31, 2000 and 1999, respectively.
Due to the long lead times required to produce purchased parts and launch
vehicles, the Company has entered into various purchase commitments with
suppliers. These commitments aggregated approximately $505 million as of
December 31, 2000, and primarily related to satellite backlog.
Loral Skynet has entered into prepaid leases and sales contracts relating
to transponders on its satellites. Under the terms of these agreements, Loral
Skynet continues to operate the satellites which carry the transponders and
provides a warranty for a period of 10 to 14 years, in the case of sales
contracts, and the lease term, in the case of the prepaid leases. Depending on
the contract, Loral Skynet may be required to replace transponders which do not
meet operating specifications. All customers are entitled to a refund equal to
the reimbursement value if there is no replacement. In the case of the sales
contracts, the reimbursement value is based on the original purchase price plus
an interest factor from the time the payment was received to acceptance of the
transponder by the customer, reduced on a straight-line basis over the warranty
period. In the case of prepaid leases, the reimbursement value is equal to the
unamortized portion of the lease prepayment made by the customer.
F-33
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LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
Eleven of the satellites built by SS/L and launched since 1997, four of
which are owned and operated by Loral's subsidiaries or affiliates, have
experienced minor losses of power from their solar arrays. SS/L is currently
investigating the cause of these failures. Although, to date, neither the
Company nor any of the customers using the affected satellites have experienced
any degradation in performance, there can be no assurance that one or more of
the affected satellites will not experience additional power loss that could
result in performance degradation, including loss of transponder capacity. In
the event of additional power loss, the extent of the performance degradation,
if any, will depend on numerous factors, including the amount of the additional
power loss, the level of redundancy built into the affected satellite's design,
when in the life of the affected satellite the loss occurred and the number and
type of use being made of transponders then in service. Until the cause of the
failures can be identified or other adequate remedial measures can be taken,
launches of satellites under construction and construction of new satellites may
be delayed. Delays in the production or launch of satellites could have a
material adverse effect on the operation of SS/L's business and the complete or
partial loss of satellites could result in a loss of orbital incentive payments
and, in the case of satellites owned by Loral subsidiaries and affiliates, a
loss of revenue and customers. This investigation is in its very early stages
and not all relevant information is now known. Based upon information currently
available, including design redundancies to accommodate small power losses and
that no pattern has been identified as to the timing or specific location within
the solar arrays of the failures, the Company believes that this matter will not
have a material adverse effect on the consolidated financial position or results
of operations of Loral.
In late 1998, following the launch of an SS/L-built satellite sold to
PanAmSat, a manufacturing error was discovered that affected the geographical
coverage of the Ku-band transponders on the satellite. On January 6, 2000,
PanAmSat filed an arbitration proceeding in connection with this error claiming
damages of $225 million for lost profits and increased sales and marketing
costs. SS/L believes it has meritorious defenses to the claim and that its
liability is limited to a loss of a portion of the applicable orbital
incentives, the estimated impact of which is included in Loral's consolidated
financial statements. PanAmSat has received a recovery from its insurance
carrier that should reduce any damage claim. Loral and PanAmSat have reached an
agreement in principle, subject to documentation, and in light of reserves
provided, this matter will not have a material adverse effect on the
consolidated financial position or results of operations of Loral.
SS/L has an agreement with Alcatel Space Industries pursuant to which the
parties have agreed generally to operate as a team on satellite programs
worldwide. In addition, Alcatel Space has certain rights as a strategic partner
of SS/L for so long as it continues to hold at least 81.6% of the Loral
securities that it acquired in 1997 in exchange for SS/L stock that it
previously owned. Alcatel is permitted two representatives on SS/L's
seven-member board of directors, and certain actions require the approval of its
board representatives. Alcatel also has certain rights to purchase SS/L shares
at fair market value in the event of a change of control (as defined) of either
Loral or SS/L, including the right to use its Loral holdings as part of the SS/L
purchase price. These arrangements are terminable upon one-year's notice by
either party, and SS/L gave the contemplated one-year notice to Alcatel on
February 22, 2001. Alcatel filed suit on March 16, 2001 in the United States
District Court for the Southern District of New York against Loral and SS/L
alleging various breaches of the agreements, seeking declaratory and injunctive
relief to enforce its rights thereunder and challenging the effectiveness of the
termination.
SS/L was informed in 1998 that it was a target of a grand jury
investigation being conducted by the office of the U.S. Attorney for the
District of Columbia with respect to possible violations of export control laws
that may have occurred in connection with the participation of SS/L employees on
a committee formed in the wake of the 1996 crash of a Long March rocket in China
and whose purpose was to consider whether studies of the crash made by the
Chinese had correctly identified the cause of the failure. The Company is not in
a position to predict the direction or outcome of the investigation. If SS/L
were to be indicted and convicted of a criminal violation of the Arms Export
Control Act, it would be subject to a fine of $1 million per violation and could
be debarred from certain export privileges and, possibly, from participation in
government contracts.
F-34
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LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
Since many of SS/L's satellites are built for foreign customers and/or launched
on foreign rockets, such a debarment would have a material adverse effect on
SS/L's business and, therefore, the Company. Indictment for such violations
would subject SS/L to discretionary debarment from further export licenses.
Under the applicable regulations, SS/L could be debarred from export privileges
without being convicted of any crime if it is indicted for these alleged
violations, and loss of export privileges would harm SS/L's business. Whether or
not SS/L is indicted or convicted, SS/L remains subject to the State
Department's general statutory authority to prohibit exports of satellites and
related services if it finds a violation of the Arms Export Control Act that
puts SS/L's reliability in question, and it can suspend export privileges
whenever it determines that grounds for debarment exist and that such suspension
"is reasonably necessary to protect world peace or the security or foreign
policy of the United States."
As far as SS/L can determine, no sensitive information or technology was
conveyed to the Chinese, and no secret or classified information was discussed
with or reported to them. SS/L believes that its employees acted openly and in
good faith and that none engaged in intentional misconduct. Accordingly, the
Company does not believe that SS/L has committed a criminal violation of the
export control laws. The Company does not expect the grand jury investigation or
its outcome to result in a material adverse effect upon its business. However,
there can be no assurance as to these conclusions.
On December 23, 1998, the Office of Defense Trade Controls, or ODTC, of the
U.S. Department of State temporarily suspended a previously approved technical
assistance agreement under which SS/L had been preparing for the launch of the
ChinaSat-8 satellite. According to ODTC, the purpose of the temporary suspension
was to permit that agency to review the agreement for conformity with then
newly-enacted legislation (Section 74 of the Arms Export Control Act) with
respect to the export of missile equipment and technology. In addition, SS/L was
required to re-apply for new export licenses from the State Department to permit
the launch of ChinaSat-8 on a Long March launch vehicle, when the old export
licenses issued by the Commerce Department, the agency that previously had
jurisdiction over satellite licensing, expired in March 2000. On January 4,
2001, the ODTC, while not rejecting these license applications, notified SS/L
that they were being returned without action. SS/L and the State Department are
now in discussions regarding SS/L's obtaining the approvals required for the
launch of ChinaSat-8.
In December 1999, SS/L reached an agreement with ChinaSat to extend the
date for delivery of the ChinaSat-8 satellite to July 31, 2000. In return for
this extension and other modifications to the contract, SS/L provided to
ChinaSat two 36 MHz and one 54 MHz transponders on Telstar 10/Apstar IIR for
ChinaSat's use for the life of those transponders. As a result, SS/L recorded a
charge to earnings of $35 million in 1999. If ChinaSat were to terminate its
contract with SS/L as a result of these delays, SS/L may have to refund $134
million in advances received from ChinaSat and may incur penalties of up to $11
million and believes it would incur costs of approximately $38 million to
refurbish and retrofit the satellite so that it could be sold to another
customer, which resale cannot be guaranteed. To the extent that SS/L is able to
recover some or all of its $52 million deposit payment on the Chinese launch
vehicle, this recovery would offset a portion of such payments. There can be no
assurance, however, that SS/L will be able to either obtain a refund from the
launch provider or to find a replacement customer for the Chinese launch
vehicle.
In March 1999, jurisdiction for satellite licensing was transferred from
the Commerce Department to the State Department and the State Department has
issued regulations relating to the export of and disclosure of technical
information related to, satellites and related equipment. It has been SS/L's
experience that obtaining licenses and technical assistance agreements under
these new regulations takes more time and is considerably more burdensome than
in the past. Delays in obtaining the necessary licenses and technical assistance
agreements may delay SS/L's performance on existing contracts, and, as a result,
SS/L may incur penalties or lose incentive payments under these contracts. In
addition, such delays may have an adverse effect on SS/L's ability to compete
against unregulated foreign satellite manufacturers for new satellite contracts.
F-35
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LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
Under an agreement reached with Eutelsat, Loral CyberStar agreed to operate
Telstar 12, which was originally intended to operate at 12 degrees W.L., at 15
degrees W.L. while Eutelsat will continue to develop its services at 12.5
degrees W.L. Eutelsat has in turn agreed not to use its 14.8 degrees W.L.
orbital slot and will assert its priority rights over such location on Loral
CyberStar's behalf. As part of this coordination effort, Loral CyberStar agreed
to provide to Eutelsat four transponders on Telstar 12 for the life of the
satellite and has retained risk of loss with respect to such transponders.
Eutelsat also has the right to acquire, at cost, four transponders on the next
replacement satellite for Telstar 12. As part of the international coordination
process, Loral continues to conduct discussions with various administrations
regarding Telstar 12's operations at 15 degrees W.L. If these discussions are
not successful, Telstar 12's useable capacity may be reduced.
Loral holds debt obligations from Globalstar (see Note 7). In a bankruptcy
or restructuring proceeding involving Globalstar, challenges could be initiated
seeking subordination or recharacterization of the debt Loral holds from
Globalstar. While we know of no reason why such a claim would prevail with
respect to the debt Loral holds in Globalstar, there can be no assurance that
such claims will not be made in any restructuring or bankruptcy proceeding
involving Globalstar. Moreover, there can be no assurance that actions will not
be initiated in a Globalstar bankruptcy proceeding to characterize payments
previously made by Globalstar to Loral as preferential payments subject to
repayment. Loral also may be subject to other claims brought by Globalstar
creditors and securities holders, who may seek to impose liabilities on the
Company as a result of the Company's relationships with Globalstar. For example,
see Globalstar Related Matters below.
The Company has estimated the recovery of certain insurance proceeds in its
consolidated financial statements as of December 31, 2000, in connection with an
insurance claim currently being negotiated with its insurance carrier.
Management believes that the ultimate resolution of these negotiations will not
have a material adverse effect on the consolidated financial position or results
of operations of Loral.
The Company is subject to various other legal proceedings and claims,
either asserted or unasserted, that arise in the ordinary course of business.
Although the outcome of these claims cannot be predicted with certainty, the
Company does not believe that any of these other existing legal matters will
have a material adverse effect on its consolidated financial position or results
of operations.
Globalstar Related Matters. On February 28, 2001, plaintiff Eric Eismann
filed a purported class action complaint against Globalstar Telecommunications
Limited ("GTL") in the United States District Court for the Southern District of
New York. The other defendants named in the complaint are Loral Space &
Communications Ltd. and Bernard Schwartz. The complaint alleges that (a) GTL and
Mr. Schwartz violated Section 10(b) of the Securities Exchange Act of 1934 (the
"Exchange Act") and Rule 10b-5 promulgated thereunder, by making material
misstatements or failing to state material facts about GTL's business and
prospects; and (b) that Loral and Mr. Schwartz are secondarily liable for these
alleged misstatements and omissions under Section 20(a) of the Exchange Act as
alleged "controlling persons" of GTL. The class of plaintiffs on whose behalf
this lawsuit has allegedly been asserted consists of all buyers of GTL common
stock from December 6, 1999 through October 27, 2000, excluding the defendants
and certain persons related or affiliated therewith (the "Excluded Persons").
Eleven additional purported class action complaints were filed in the
United States District Court for the Southern District of New York by plaintiffs
Chaim Kraus, L.A. Murphy, Eddie Maiorino, Damon Davis, Iskander Batyrev, Shelly
Garfinkel, Sequoia Land Development, Inc. and Phil Sigel, Michael Ceasar, as
Trustee for Howard Gunty Profit Sharing Plan, Colin Barry, James D. Atlas and
Lawrence Phillips, on each of March 2, 2001, March 2, 2001, March 6, 2001, March
7, 2001, March 7, 2001, March 9, 2001, March 16, 2001, March 21, 2001, March 21,
2001, March 22, 2001 and March 23, 2001, respectively. These complaints allege
claims against GTL, Loral and Mr. Schwartz (and, in the case of the
Sequoia/Sigel and Atlas complaints, two additional individual
defendants -- Messrs. Michael DeBlasio and Anthony Navarra) that are
F-36
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LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
substantially identical to those set forth in the Eismann action. The class of
plaintiffs on whose behalf these lawsuits have been asserted are: with respect
to the Kraus, Davis, Maiorino, Batyrev, Ceasar and Phillips actions, buyers of
GTL common stock in the period from December 6, 1999 through October 27, 2000;
with respect to the Murphy and Barry actions, buyers of GTL securities in the
period from December 6, 1999, through October 27, 2000; with respect to the
Sequoia/Sigel and Atlas actions, buyers of GTL common stock in the period from
December 6, 1999 through July 19, 2000; and with respect to the Garfinkel
action, buyers of GTL debt securities in the period from December 6, 1999
through October 27, 2000, in each case, other than the Excluded Persons.
Loral believes that it has meritorious defenses to the above Globalstar
Related Matters and intends to pursue them vigorously.
Lease Arrangements
The Company leases certain facilities, equipment and transponder capacity
under agreements expiring at various dates. Certain leases covering facilities
contain renewal and or purchase options which may be exercised by the Company.
Rent expense, net of sublease income of $4.7 million, $4.5 million and $2.6
million, was $62.7 million, $39.8 million and $26.4 million for the years ended
December 31, 2000, 1999 and 1998, respectively.
Future minimum payments, by year and in the aggregate, under non-cancelable
operating leases with initial or remaining terms of one year or more consisted
of the following as of December 31, 2000 (in thousands):
2001........................................................ $ 47,819
2002........................................................ 37,138
2003........................................................ 30,743
2004........................................................ 21,743
2005........................................................ 30,281
Thereafter.................................................. 95,480
--------
$263,204
========
Future minimum payments have been reduced by minimum sublease rentals of
$16.6 million due in the future under non-cancelable subleases.
14. RELATED PARTY TRANSACTIONS
In connection with contract performance, Loral provided services to and
acquired services from Lockheed Martin. A summary of such transactions and
balances as of December 31, 2000 and 1999, and for the three years ended
December 31, 2000, respectively, is as follows (in thousands):
YEARS ENDED
DECEMBER 31,
-------------------------------
2000 1999 1998
-------- -------- -------
Revenue from services sold.......................... $ $ 399 $ 1,301
Cost of purchased goods and services................ 155,510 151,053 70,569
Balance at year end:
Receivable........................................ $ $ 916
Payable........................................... 2,006 60,496
-------- --------
Net payable......................................... $ 2,006 $ 59,580
======== ========
F-37
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LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. RELATED PARTY TRANSACTIONS -- (CONTINUED)
Loral's sales to, purchases from, and balances with three international
aerospace and communications companies, including the effect of the related
party transactions in Note 7, as of December 31, 2000 and 1999, and for the
three years ended December 31, 2000, respectively, were as follows (in
thousands):
2000 1999 1998
-------- ------- --------
Revenue from goods and services sold................... $ 7,348 $13,360 $ 40,791
Cost of purchased goods and services................... 239,920 80,130 190,070
Balance at year end:
Receivable........................................... $ 1,041 $ 1,524
Payable.............................................. 16,476 17,190
-------- -------
Net payable............................................ $ 15,435 $15,666
======== =======
15. LOSS PER SHARE
Basic loss per share is computed based upon the weighted average number of
shares of common stock and the Series A Preferred Stock outstanding. Diluted
loss per share excludes the assumed conversion of the Series C Preferred Stock
and the Series D Preferred Stock into 33,744,658 and 20,171,152 shares of common
stock, respectively, as their effect would have been antidilutive for the years
ended December 31, 2000, 1999 and 1998, respectively. For 2000, 1999 and 1998,
weighted options equating to approximately 0.3 million, 1.2 million and 1.8
million shares of common stock, respectively, as calculated using the treasury
stock method, were excluded from the calculation of diluted loss per share, as
the effect would have been antidilutive.
The following table sets forth the computation of basic and diluted loss
per share:
YEARS ENDED DECEMBER 31,
--------------------------------------
2000 1999 1998
------------ ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Numerator:
Net loss.......................................... $1,469,678 $201,916 $138,798
Preferred dividends and accretion................. 67,528 44,728 46,425
---------- -------- --------
Numerator for basic and diluted loss per share --
net loss applicable to common stockholders..... $1,537,206 $246,644 $185,223
========== ======== ========
Denominator:
Weighted average shares:
Common stock................................. 284,491 244,335 227,505
Series A preferred stock..................... 11,348 45,897 45,897
---------- -------- --------
Denominator for basic and diluted loss per
share.......................................... 295,839 290,232 273,402
========== ======== ========
Basic and diluted loss per share.................... $ 5.20 $ 0.85 $ 0.68
========== ======== ========
16. SEGMENTS
Loral is organized into three distinct operating businesses: Fixed
Satellite Services, Satellite Manufacturing and Technology and Data Services
(see Note 1). In addition, a subsidiary of Loral also acts as the managing
general partner of Globalstar, which is included in the results of Global Mobile
Telephone Service.
F-38
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LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. SEGMENTS -- (CONTINUED)
In evaluating financial performance, management uses revenues and earnings
before interest, taxes and depreciation and amortization ("EBITDA") as the
measure of a segment's profit or loss. Segment results include the results of
its subsidiaries and its affiliates, Satmex, Europe*Star and Globalstar, which
are accounted for using the equity method in Loral's consolidated financial
statements. Intersegment revenues primarily consists of satellites under
construction by Satellite Manufacturing and Technology for Fixed Satellite
Services and Global Mobile Telephone Service and sales by Fixed Satellite
Services to Data Services and Satellite Manufacturing and Technology for the
lease of transponder capacity. The accounting policies of the reportable
segments are the same as those described in Note 2.
F-39
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LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. SEGMENTS -- (CONTINUED)
Summarized financial information concerning the reportable segments is as
follows (in thousands):
2000 SEGMENT INFORMATION
SATELLITE GLOBAL
FIXED MANUFACTURING MOBILE
SATELLITE AND DATA TELEPHONE
SERVICES(1) TECHNOLOGY(2) SERVICES(3) CORPORATE(4) SUBTOTAL SERVICE(5) TOTAL
----------- ------------- ----------- ------------ ----------- ---------- -----
REVENUES AND EBITDA:
Revenue from external
customers................... $ 412,832 $ 657,194 $129,096 $ 1,199,122 $ 3,650 $ 1,202,772
Intersegment revenue.......... 48,128 345,102 672 393,902 393,902
---------- ---------- -------- ----------- ---------- -----------
Operating segment revenues.... $ 460,960 $1,002,296 $129,768 1,593,024 3,650 1,596,674
========== ========== ========
Revenue of unconsolidated
affiliates(6)............... (136,441) (3,650) (140,091)
Intercompany revenues (7)..... (232,472) (232,472)
----------- -----------
Operating revenues as
reported.................... $ 1,224,111 $ 1,224,111
=========== ===========
Segment EBITDA before
Broadband investment and
eliminations................ $ 281,826 $ 35,529 $(29,939) $(44,431) $ 242,985 $ (210,574) $ 32,411
Broadband Investment(8)....... (21,676) (21,676) (21,676)
----------- ---------- -----------
Segment EBITDA before
eliminations................ 221,309 (210,574) 10,735
EBITDA of unconsolidated
affiliates(6)............... (78,926) 210,574 131,648
Intercompany EBITDA(7)........ (12,206) (12,206)
----------- -----------
EBITDA(9)..................... 130,177 130,177
Depreciation and
amortization(10)............ (216,263) (216,263)
----------- -----------
Operating loss................ $ (86,086) $ (86,086)
=========== ===========
OTHER DATA:
Depreciation and amortization
before affiliate
eliminations(10)............ $ 213,083 $ 37,733 $ 19,601 $ 2,828 $ 273,245 $ 324,334 $ 597,579
========== ========== ======== ========
Depreciation and amortization
of unconsolidated
affiliates(6)(10)........... (56,982) (324,334) (381,316)
----------- -----------
Depreciation and
amortization(10)............ $ 216,263 $ 216,263
=========== ===========
Capital expenditures before
affiliate eliminations...... $ 489,499 $ 22,217 $ 22,662 $ 2,067 $ 536,445 $ 129,181 $ 665,626
========== ========== ======== ========
Capital expenditures of
unconsolidated
affiliates(6)............... (112,246) (129,181) (241,427)
----------- -----------
Capital expenditures.......... $ 424,199 $ 424,199
=========== ===========
Total assets before affiliate
eliminations................ $4,021,616 $1,155,219 $226,155 $731,116 $ 6,134,106 $ 702,276 $ 6,836,382
========== ========== ======== ========
Total assets of unconsolidated
affiliates(6)............... (1,455,788) (702,276) (2,158,064)
----------- -----------
Total assets.................. $ 4,678,318 $ 4,678,318
=========== ===========
- ---------------
(1) Fixed satellite services includes 100% of the following companies since
their respective dates of acquisition: Loral CyberStar's transponder
leasing business acquired on March 20, 1998 and Europe*Star, a 47% equity
investee, since December 1998. Also includes Loral's subsidiary, Loral
Skynet do Brasil, since November 2000. The 1999 results include $25.5
million in revenues and $11.2 million in EBITDA, respectively, from the
sale by Satmex of transponders to Loral Skynet.
(2) Satellite manufacturing and technology consists of 100% of SS/L's results.
(3) Data services consists of 100% of CyberStar LP (in which Loral owns an 82%
equity interest) and 100% of Loral CyberStar's data services business since
its acquisition on March 20, 1998.
(4) Represents unallocated corporate expenses incurred in support of the
Company's operations.
(5) Represents 100% of Globalstar's results. Loral owned 39%, 41% and 43% of
Globalstar at December 31, 2000, 1999 and 1998, respectively.
(6) Represents amounts related to unconsolidated affiliates (Satmex,
Europe*Star and Globalstar), which are eliminated in order to arrive at
Loral's consolidated results. Loral's proportionate share of these
affiliates is included in equity in net loss of affiliates in Loral's
consolidated statements of operations.
(7) Represents the elimination of intercompany sales and EBITDA, primarily for
satellites under construction by SS/L for wholly-owned subsidiaries; as
well as eliminating sales for the lease of transponder capacity by
Satellite Manufacturing and Technology from Fixed Satellite Services.
(8) Includes investment in streaming media and broadband services.
(9) EBITDA (which is equivalent to operating income/loss before depreciation
and amortization, including amortization of unearned stock compensation) is
provided because it is a measure commonly used in the communications
industry to analyze companies on the basis of operating performance,
leverage and liquidity and is presented to enhance the understanding of
Loral's operating results. EBITDA is not an alternative to net income as an
indicator of a company's operating performance, or cash flow from
operations as a measure of a company's liquidity. EBITDA may be calculated
differently and, therefore, may not be comparable to similarly titled
measures reported by other companies.
(10) Includes amortization of unearned stock compensation charges.
F-40
95
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. SEGMENTS -- (CONTINUED)
1999 SEGMENT INFORMATION
SATELLITE GLOBAL
FIXED MANUFACTURING MOBILE
SATELLITE AND DATA TELEPHONE
SERVICES(1) TECHNOLOGY(2) SERVICES(3) CORPORATE(4) SUBTOTAL SERVICE(5) TOTAL
----------- ------------- ----------- ------------ -------- ---------- -----
REVENUES AND EBITDA:
Revenues from external
customers.................. $ 302,879 $ 776,557 $ 84,658 $ 1,164,094 $ 1,164,094
Intersegment revenues........ 38,946 656,714 695,660 695,660
---------- ---------- -------- ----------- -----------
Operating segment revenues... $ 341,825 $1,433,271 $ 84,658 1,859,754 1,859,754
========== ========== ========
Revenues of unconsolidated
affiliates(6).............. (135,520) (135,520)
Intercompany revenues(7)..... (266,514) (266,514)
----------- -----------
Operating revenues as
reported................... $ 1,457,720 $ 1,457,720
=========== ===========
Segment EBITDA before
eliminations............... $ 193,099 $ 102,307 $(35,624) $ (39,283) $ 220,499 $ (184,194) $ 36,305
EBITDA of unconsolidated
affiliates(6).............. (77,485) 184,194 106,709
Intercompany EBITDA(7)....... (30,371) (30,371)
----------- -----------
EBITDA(9).................... 112,643 112,643
Depreciation and
amortization(10)........... (174,906) (174,906)
----------- -----------
Operating loss............... $ (62,263) $ (62,263)
=========== ===========
OTHER DATA:
Depreciation and amortization
before affiliate
eliminations(10)........... $ 171,317 $ 40,747 $ 20,080 $ 4,169 $ 236,313 $ 6,344 $ 242,657
========== ========== ======== ==========
Depreciation and amortization
of unconsolidated
affiliates(6)(10).......... (61,407) (6,344) (67,751)
----------- -----------
Depreciation and
amortization(10)........... $ 174,906 $ 174,906
=========== ===========
Capital expenditures before
affiliate eliminations..... $ 575,447 $ 30,240 $ 19,051 $ 854 $ 625,592 $ 695,395 $ 1,320,987
========== ========== ======== ==========
Capital expenditures of
unconsolidated
affiliates(6).............. (155,845) (695,395) (851,240)
----------- -----------
Capital expenditures......... $ 469,747 $ 469,747
=========== ===========
Total assets before affiliate
eliminations............... $3,901,262 $1,641,233 $114,120 $1,212,029 $ 6,868,644 $3,781,459 $10,650,103
========== ========== ======== ==========
Total assets of
unconsolidated
affiliates(6).............. (1,258,223) (3,781,459) (5,039,682)
----------- -----------
Total assets................. $ 5,610,421 $ 5,610,421
=========== ===========
F-41
96
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. SEGMENTS -- (CONTINUED)
1998 SEGMENT INFORMATION
SATELLITE GLOBAL
FIXED MANUFACTURING MOBILE
SATELLITE AND DATA TELEPHONE
SERVICES(1) TECHNOLOGY(2) SERVICES(3) CORPORATE(4) SUBTOTAL SERVICE(5) TOTAL
----------- ------------- ----------- ------------ -------- ---------- -----
REVENUES AND EBITDA:
Revenues from external
customers.............. $ 248,904 $ 500,918 $ 39,856 $ 789,678 $ 789,678
Intersegment revenues.... 5,301 889,253 894,554 894,554
---------- ---------- -------- ----------- -----------
Operating segment
revenues............... $ 254,205 $1,390,171 $ 39,856 1,684,232 1,684,232
========== ========== ========
Revenues of
unconsolidated
affiliates(6).......... (104,779) (104,779)
Intercompany
revenues(7)............ (277,751) (277,751)
----------- -----------
Operating revenues as
reported............... $ 1,301,702 $ 1,301,702
=========== ===========
Segment EBITDA before
eliminations........... $ 171,239 $ 117,920 $(46,660) $ (42,826) $ 199,673 $ (144,953) $ 54,720
EBITDA of unconsolidated
affiliates(6).......... (74,769) 144,953 70,184
Intercompany EBITDA(7)... (23,655) (23,655)
----------- -----------
EBITDA(9)................ 101,249 101,249
Depreciation and
amortization(10)....... (135,029) (135,029)
----------- -----------
Operating loss........... $ (33,780) $ (33,780)
=========== ===========
OTHER DATA:
Depreciation and
amortization before
affiliate
eliminations(10)....... $ 130,793 $ 39,696 $ 10,193 $ 2,981 $ 183,663 $ 1,731 $ 185,394
========== ========== ======== ==========
Depreciation and
amortization of
unconsolidated
affiliates(6)(10)...... (48,634) (1,731) (50,365)
----------- -----------
Depreciation and
amortization(10)....... $ 135,029 $ 135,029
=========== ===========
Capital expenditures
before affiliate
eliminations........... $ 638,924 $ 39,650 $ 27,287 $ 2,387 $ 708,248 $ 564,629 $ 1,272,877
========== ========== ======== ==========
Capital expenditures of
unconsolidated
affiliates(6).......... (218,800) (564,629) (783,429)
----------- -----------
Capital expenditures..... $ 489,448 $ 489,448
=========== ===========
Total assets before
affiliate
eliminations........... $3,371,073 $1,673,030 $152,667 $1,238,434 $ 6,435,204 $2,670,025 $ 9,105,229
========== ========== ======== ==========
Total assets of
unconsolidated
affiliates(6).......... (1,205,989) (2,670,025) (3,876,014)
----------- -----------
Total assets............. $ 5,229,215 $ 5,229,215
=========== ===========
F-42
97
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. SEGMENTS -- (CONTINUED)
Revenue by Customer Location
The following table presents revenues by country based on customer location
for 2000, 1999 and 1998 (in thousands).
2000 1999 1998
---------- ---------- -----------
United States......................................... $ 948,288 $1,248,990 $ 1,096,497
People's Republic of China............................ 13,381 12,460 48,985
Japan................................................. 122,802 56,322 53,567
France................................................ 28,272 65,115 43,702
Other................................................. 111,368 74,833 58,951
---------- ---------- -----------
$1,224,111 $1,457,720 $ 1,301,702
========== ========== ===========
During 2000, three customers of the Satellite Manufacturing and Technology
segment accounted for 13%, 12% and 11% of consolidated revenues, respectively.
During 1999, three customers of the Satellite Manufacturing and Technology
segment accounted for 25%, 18% and 13%, respectively, of consolidated revenues.
During 1998, three customers of the Satellite Manufacturing and Technology
segment accounted for approximately 46%, 20% and 11%, respectively, of
consolidated revenues.
With the exception of the Company's satellites in-orbit (see Note 6), the
Company's long-lived assets are primarily located in the United States.
17. QUARTERLY FINANCIAL INFORMATION (Unaudited, in thousands, except per share
amounts)
QUARTER ENDED
------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30,(1) DECEMBER 31,(1)
--------- -------- ---------------- ---------------
YEAR ENDED DECEMBER 31, 2000
Revenues....................... $318,086 $324,258 $292,542 $ 289,225
EBITDA (see Note 16)........... 47,128 44,271 42,231 (3,453)
Operating loss................. 5,979 9,877 11,092 59,138
Income (loss) before income
taxes, equity in net loss of
affiliates, minority interest
and Globalstar related
impairment charges........... (4,899) 16,555 (1,533) (66,966)
Net loss....................... 123,030 93,915 80,737 1,171,996
Preferred dividends............ 19,357 16,124 15,923 16,124
Net loss applicable to common
shareholders................. 142,387 110,039 96,660 1,188,120
Loss per share -- basic and
diluted(3)................... 0.49 0.37 0.33 3.99
Market price per share
High......................... 25.75 10.50 8.50 6.56
Low.......................... 9.88 6.13 5.00 2.69
F-43
98
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. QUARTERLY FINANCIAL INFORMATION -- (CONTINUED)
QUARTER ENDED
------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30,(2) DECEMBER 31,(2)
--------- -------- ---------------- ---------------
YEAR ENDED DECEMBER 31, 1999
Revenues....................... $305,926 $378,437 $347,152 $426,204
EBITDA (see Note 16)........... 36,627 43,542 35,939 (3,465)
Operating income (loss)........ (1,166) 2,059 (8,585) (54,571)
Loss before income taxes,
equity in net loss of
affiliates and minority
interest..................... 4,201 3,147 8,303 46,487
Net loss....................... 38,501 38,068 12,464 112,883
Preferred dividends and
accretion.................... 11,607 11,606 11,606 9,909
Net loss applicable to common
shareholders................. 50,108 49,674 24,070 122,792
Loss per share -- basic and
diluted(3)................... 0.17 0.17 0.08 0.42
Market price per share
High......................... 22.44 20.75 22.88 24.75
Low.......................... 14.44 14.38 16.25 13.50
- ---------------
(1) The quarter ended September 30, 2000 includes a $33 million after-tax gain
representing Loral's share of Satmex's net insurance recovery on the loss of
a satellite. During the quarter ended December 31, 2000, Loral recorded its
after-tax share of Globalstar's impairment charges amounting to
approximately $882 million or approximately $1.2 billion on a pre-tax basis,
which is included in equity in net loss of affiliates and after-tax
impairment charges related to its investments in and advances to Globalstar
service provider partnerships of approximately $112 million ($125 million
pre-tax).
(2) The quarter ended September 30, 1999 includes a non-recurring benefit of $34
million relating to a tax law change affecting the utilization of Loral
CyberStar's pre-acquisition loss carryforwards. The results of operations
for the quarter ended December 31, 1999 includes a pre-tax charge of $35
million ($21 million after taxes) relating to an agreement reached with a
customer to extend the delivery date of a satellite and other modifications
to the contract in return for satellite capacity.
(3) The quarterly earnings per share information is computed separately for each
period. Therefore, the sum of such quarterly per share amounts may differ
from the total for the year.
F-44
99
INDEPENDENT AUDITORS' REPORT
To the Shareholders of Loral Space & Communications Ltd.:
We have audited the consolidated financial statements of Loral Space &
Communications Ltd. (a Bermuda company) and its subsidiaries (collectively, the
"Company") as of December 31, 2000 and 1999, and for each of the three years in
the period ended December 31, 2000, and have issued our report thereon dated
March 27, 2001, included elsewhere in this Annual Report on Form 10-K. Our
audits also included the consolidated financial statement schedule listed in
Item 14(a)2 of this Annual Report on Form 10-K. This consolidated financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such consolidated financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
DELOITTE & TOUCHE LLP
San Jose, California
March 27, 2001
S-1
100
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
LORAL SPACE & COMMUNICATIONS LTD.
BALANCE SHEETS
(in thousands, except share data)
DECEMBER 31,
-------------------------
2000 1999
----------- ----------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 151,405 $ 99,211
Other current assets...................................... 1,965 3,275
----------- ----------
Total current assets........................................ 153,370 102,486
Note receivable from unconsolidated subsidiary.............. 200,000 200,000
Investments in affiliates................................... 129,046 725,780
Investment in unconsolidated subsidiaries................... 1,505,870 1,986,131
Due from unconsolidated subsidiaries........................ 12,264 24,114
Other assets................................................ 6,658 115,256
----------- ----------
$ 2,007,208 $3,153,767
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and other current liabilities............ $ 1,259 $ 1,958
Accrued interest and preferred dividends.................. 25,081 22,787
Income taxes payable...................................... 7,537 5,019
Deferred income taxes..................................... 15,317 9,390
----------- ----------
Total current liabilities................................... 49,194 39,154
Deferred income taxes....................................... 21,626 13,949
Long-term debt.............................................. 350,000 350,000
Commitments and contingencies
Shareholders' equity:
Series A convertible preferred stock, $.01 par value;
150,000,000 shares authorized, 0 and 45,896,977 shares
issued................................................. 459
Series B preferred stock, $.01 par value; 750,000 shares
authorized and unissued................................
6% Series C convertible redeemable preferred stock
($674,922 and $745,472 redemption value), $.01 par
value; 20,000,000 shares authorized, 13,497,863 and
14,909,437 shares issued............................... 665,809 735,437
6% Series D convertible redeemable preferred stock
($400,000 redemption value), $.01 par value, 20,000,000
shares authorized, 8,000,000 and 0 shares issued....... 388,204
Common stock, $.01 par value; 750,000,000 shares
authorized, 298,323,283 and 245,204,432
shares issued.......................................... 2,983 2,452
Paid-in capital........................................... 2,448,519 2,347,323
Treasury stock, at cost; 174,195 shares................... (3,360) (3,360)
Unearned compensation..................................... (148) (1,253)
Retained deficit.......................................... (1,946,507) (409,301)
Accumulated other comprehensive income.................... 30,888 78,907
----------- ----------
Total shareholders' equity.................................. 1,586,388 2,750,664
----------- ----------
$ 2,007,208 $3,153,767
=========== ==========
See note to financial statements.
S-2
101
LORAL SPACE & COMMUNICATIONS LTD.
STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
YEARS ENDED DECEMBER 31,
-------------------------------------
2000 1999 1998
----------- --------- ---------
Costs and expenses..................................... $ 65,798 $ 42,108 $ 34,112
----------- --------- ---------
Operating loss......................................... (65,798) (42,108) (34,112)
Interest and investment income......................... 74,977 67,037 53,217
Interest expense....................................... (29,435)
Gain on investments, net............................... 69,706 15,494
----------- --------- ---------
Income before income taxes, equity in net loss of
unconsolidated subsidiaries and affiliates and
Globalstar related impairment charges................ 49,450 24,929 34,599
Income taxes........................................... 15,949 13,150 9,872
----------- --------- ---------
Income before equity in net loss of unconsolidated
subsidiaries and affiliates and Globalstar related
impairment charges................................... 33,501 11,779 24,727
Equity in net loss of unconsolidated subsidiaries...... (700,187) (62,060) (47,041)
Equity in net loss of affiliates....................... (723,763) (151,635) (116,484)
Globalstar related impairment charges.................. (79,229)
----------- --------- ---------
Net loss............................................... (1,469,678) (201,916) (138,798)
Preferred dividends and accretion...................... (67,528) (44,728) (46,425)
----------- --------- ---------
Net loss applicable to common stockholders............. $(1,537,206) $(246,644) $(185,223)
=========== ========= =========
Loss per share:
Basic and diluted.................................... $ (5.20) $ (0.85) $ (0.68)
=========== ========= =========
Weighted average shares outstanding:
Basic and diluted.................................... 295,839 290,232 273,402
=========== ========= =========
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
YEARS ENDED DECEMBER 31,
-------------------------------------
2000 1999 1998
----------- --------- ---------
Net loss............................................... $(1,469,678) $(201,916) $(138,798)
Other comprehensive income (loss):
Unrealized gains on available-for-sale securities and
accumulated translation adjustment of
subsidiaries...................................... 21,689 38,028 33,604
Realized gains included in net loss.................. (69,708)
----------- --------- ---------
Comprehensive loss..................................... $(1,517,697) $(163,888) $(105,194)
=========== ========= =========
See notes to financial statements.
S-3
102
LORAL SPACE & COMMUNICATIONS LTD.
STATEMENTS OF CASH FLOWS
(in thousands)
YEARS ENDED DECEMBER 31,
--------------------------------------
2000 1999 1998
----------- --------- ----------
Operating activities:
Net loss.................................................. $(1,469,678) $(201,916) $ (138,798)
Non-cash items:
Gain on investments, net.................................. (70,842) (15,494)
Equity in net loss of affiliates.......................... 723,763 151,635 116,484
Equity in net loss of unconsolidated subsidiaries......... 700,187 62,060 47,041
Deferred income taxes..................................... 13,604 15,636 10,359
Non-cash interest and investment income................... (25,821) (11,451) (6,012)
Globalstar related impairment charges..................... 79,229
Changes in operating assets and liabilities, net of
acquisitions:
Due to (from) unconsolidated subsidiaries................. 11,850 (18,959) (44,520)
Accounts payable and other current liabilities............ (699) (29,083) 1,854
Accrued interest and preferred dividends.................. 2,294 13,859 (773)
Income taxes payable...................................... 2,518 2,175 (9,160)
Other..................................................... 4,794 728 (8,951)
----------- --------- ----------
Cash used in operating activities........................... (28,801) (15,316) (47,970)
----------- --------- ----------
Investing activities:
Proceeds from the sale of investments, net of expenses.... 97,137 246,868
Investment in affiliates.................................. (181,430) (250,794) (510,497)
Investments in unconsolidated subsidiaries................ (187,252) (340,979) (50,569)
----------- --------- ----------
Cash used in investing activities........................... (271,545) (591,773) (314,198)
----------- --------- ----------
Financing activities:
Proceeds from sale of common stock, net................... 601,816
(Issuance) repayment of note to unconsolidated
subsidiary.............................................. (14,211) 2,400
Proceeds from the issuance of 6% Series D preferred stock,
net..................................................... 388,204
Proceeds from the issuance of 9.5% senior notes, net...... 343,875
Proceeds from other stock issuances....................... 25,982 20,095 32,121
Preferred dividends....................................... (61,646) (44,728) (44,750)
----------- --------- ----------
Cash provided by financing activities....................... 352,540 305,031 591,587
----------- --------- ----------
Increase (decrease) in cash and cash equivalents............ 52,194 (302,058) 229,419
Cash and cash equivalents -- beginning of period............ 99,211 401,269 171,850
----------- --------- ----------
Cash and cash equivalents -- end of period.................. $ 151,405 $ 99,211 $ 401,269
=========== ========= ==========
Non-cash transactions:
Unrealized gain on available-for-sale securities.......... $ 22,937 $ 38,909 $ 32,988
=========== ========= ==========
Contributions to capital of receivables from
unconsolidated subsidiaries............................. $ 445,265
=========
Common stock issued to acquire Loral CyberStar............ $ 469,025
==========
Supplemental information:
Interest paid, net of capitalized interest................ $ 28,404 $ -- $ --
=========== ========= ==========
Taxes paid................................................ $ -- $ -- $ 8,586
=========== ========= ==========
See notes to financial statements.
S-4
103
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTE TO FINANCIAL STATEMENTS
1. Loral Space & Communications Ltd. ("Loral"), a Bermuda company, is a
holding company which is the ultimate parent of all Loral subsidiaries and is
the registrant of all Loral securities. The accompanying financial statements
reflect the financial position, results of operations and cash flows of Loral on
a separate company basis. All subsidiaries of Loral are reflected as investments
accounted for under the equity method of accounting. Accordingly intercompany
payables and receivables have not been eliminated. This condensed financial
information should be read in conjunction with the consolidated financial
statements of Loral, included in Loral's Annual Report on Form 10-K for the year
ended December 31, 2000.
Loral's significant transactions with its subsidiaries other than the
investment account and related equity in net loss of unconsolidated subsidiaries
are the management fee charged by Loral SpaceCom Corporation ("SpaceCom") to
Loral and intercompany payables and receivables resulting primarily from the
funding of the construction of satellites for the Fixed Satellite Services
segment. The note receivable, which was originally due from SpaceCom relating to
the Loral Skynet acquisition, has been assumed by Loral Space & Communications
Corporation ("LSC"). The note bears interest at 8.2% per annum with the final
due date being October 1, 2008. Interest payments are deferred until October 1,
2001, when LSC will begin to make semi-annual installments of $30 million on the
last day of April and October of each year until the note is paid in full.
No cash dividends were paid to Loral by its subsidiaries or its affiliates
during the years ended December 31, 2000, 1999, and 1998.
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.1 Restructuring, Financing and Distribution Agreement, dated
as of January 7, 1996, among Loral Corporation, Loral
Aerospace Holdings, Inc., Loral Aerospace Corp., Loral
General Partner, Inc., Loral Globalstar L.P., Loral
Globalstar Limited, the Registrant and Lockheed Martin
Corporation(1)
2.2 Amendment to Restructuring, Financing and Distribution
Agreement, dated as April 15, 1996(1)
2.3 Agreement for the Purchase and Sale of Assets dated as of
September 25, 1996 by and between AT&T Corp., as Seller, and
Loral Space & Communications Ltd., as Buyer(2)
2.4 First Amendment to Agreement for the Purchase and Sale of
Assets dated as of March 14, 1997 by and between AT&T Corp.,
as Seller, and Loral Space & Communications Ltd., as
Buyer(3)
2.5 Agreement and Plan of Merger dated as of October 7, 1997 by
and among Orion Network Systems, Inc., Loral Space &
Communications Ltd. and Loral Satellite Corporation(4)
2.6 First Amendment to Agreement and Plan of Merger dated as of
February 11, 1998 by and among Orion Network Systems, Inc.,
Loral Space & Communications Ltd. and Loral Satellite
Corporation(5)
2.7 Second Amendment to Agreement and Plan of Merger dated as of
March 20, 1998 by and among Orion Network Systems, Inc.,
Loral Space & Communications Ltd. and Loral Satellite
Corporation(12)
3.1 Memorandum of Association(1)
3.2 Memorandum of Increase of Share Capital(1)
3.3 Third Amended and Restated Bye-laws(18)
3.4 Schedule IV to the Third Amended and Restated Bye-laws(18)
4.1 Rights Agreement dated March 27, 1996 between the Registrant
and The Bank of New York, Rights Agent(1)
4.2 Indenture dated as of January 15, 1999 relating to
Registrant's 9 1/2% Senior Notes due 2006(14)
10.1 Shareholders Agreement dated as of April 23, 1996 between
Loral Corporation and the Registrant(1)
S-5
104
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.1.1 Amended Shareholders Agreement dated as of March 29, 2000
between the Registrant and Lockheed Martin Corporation(18)
10.2 Tax Sharing Agreement dated as of April 22, 1996 between
Loral Corporation, the Registrant, Lockheed Martin
Corporation and LAC Acquisition Corporation(1)
10.3 Exchange Agreement dated as of April 22, 1996 between the
Registrant and Lockheed Martin Corporation(1)
10.4 Amended and Restated Agreement of Limited Partnership of
Globalstar, L.P., dated as of January 26, 1999 among
Loral/Qualcomm Satellite Services, L.P., Globalstar
Telecommunications Limited, AirTouch Satellite Services,
Inc., Dacom Corporation, Dacom International, Inc., Hyundai
Corporation, Hyundai Electronics Industries Co., Ltd.,
Loral/DASA Globalstar, L.P., Loral Space & Communications
Ltd., San Giorgio S.p.A., TeleSat Limited, TE.S.AM and
Vodafone Satellite Services Limited(14)
10.4.1 Amendment dated as of December 8, 1999 to the Amended and
Restated Agreement of Limited Partnership of Globalstar,
L.P.(15)
10.4.2 Amendment dated as of February 1, 2000 to the Amended and
Restated Agreement of Limited Partnership of Globalstar,
L.P.(18)
10.5 Service Provider Agreements by and between Globalstar, L.P.
and each of Loral General Partner, Inc. and Loral/DASA
Globalstar, L.P.(8)
10.6 Contract between Globalstar, L.P. and Space Systems/Loral,
Inc.(8)
10.7 1996 Stock Option Plan(1)++
10.7.1 Amendment to 1996 Stock Option Plan(14)++
10.7.2 2000 Stock Option Plan(19)++
10.7.3 Amendment No. 1 to 2000 Stock Option Plan+++
10.7.4 Amendment No. 2 to 2000 Stock Option Plan+++
10.8 Common Stock Purchase Plan for Non-Employee Directors(1)++
10.9 Employment Agreement between the Registrant and Bernard L.
Schwartz(1)++
10.9.1 Amendment dated as of March 1, 1998 to Employment Agreement
between the Registrant and Bernard L. Schwartz(12)++
10.9.2 Amendment dated as of July 18, 2000 to Employment Agreement
between the Registrant and Bernard L. Schwartz+++
10.10 Registration Rights Agreement dated as of August 9, 1996
among Loral Space & Communications Ltd., Lehman Brothers
Capital Partners II, L.P., Lehman Brothers Merchant Banking
Portfolio Partnership L.P., Lehman Brothers Offshore
Investment Partnership L.P. and Lehman Brothers Offshore
Investment Partnership-Japan L.P.(9)
10.11 Registration Rights Agreement dated November 6, 1996
relating to the Registrant's 6% Convertible Preferred
Equivalent Obligations due 2006(6)
10.12 Registration Rights Agreement (Series C Preferred Stock)
dated as of March 31, 1997 between Loral Space &
Communications Ltd. and Finmeccanica S.p.A. and dated as
June 23, 1997 among Loral Space & Communications Ltd.,
Aerospatiale SNI and Alcatel Espace(10)
10.13 Registration Rights Agreement (Common Stock) dated as of
June 23, 1997 among Loral Space & Communications Ltd.,
Aerospatiale SNI and Alcatel Espace(10)
10.14 Alliance Agreement dated as of June 23, 1997 among Loral
Space & Communications Ltd., Aerospatiale SNI, Alcatel
Espace and Finmeccanica S.p.A.(10)
S-6
105
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.15 Principal Stockholder Agreement dated as of October 7, 1997
among Loral Space & Communications Ltd., Loral Satellite
Corporation, Orion Network Systems, Inc. and certain Orion
stockholders signatory thereto(4)
10.16 Amended and Restated Credit and Participation Agreement,
dated as of November 14, 1997, among Loral SpaceCom
Corporation, Space Systems/Loral, Inc., the Banks parties
thereto, Bank of America National Trust and Savings
Association, as Administrative Agent, and Istituto Bancario
San Paolo di Torino S.p.A, individually and as Italian
Export Financing and Arranger and as Selling Bank(11)
10.16.1 First Amendment dated as of May 7, 1998 to and of the
Amended and Restated Credit and Participation Agreement,
dated as of November 14, 1997, among Loral SpaceCom
Corporation, Space Systems/Loral, Inc. and, the banks
parties thereto(14)
10.16.2 Second Amendment dated as of September 4, 1998 to and of the
Amended and Restated Credit Agreement dated as of November
14, 1997, among Loral SpaceCom Corporation, Space
Systems/Loral, Inc. and the banks parties thereto.(18)
10.16.3 Third Amendment dated as of July 12, 1999 to and of the
Amended and Restated Credit Agreement dated as of November
14, 1997, among Loral SpaceCom Corporation, Space
Systems/Loral, Inc. and the banks parties thereto.(18)
10.16.4 Fourth Amendment dated as of November 10, 1999 to and of the
Amended and Restated Credit Agreement dated as of November
14, 1997, among Loral SpaceCom Corporation, Space Systems/
Loral, Inc. and the banks parties thereto.(18)
10.16.5 Fifth Amendment dated as of December 15, 2000 to and of the
Amended and Restated Credit Agreement dated as of November
14, 1997, among Loral SpaceCom Corporation, Space Systems/
Loral, Inc. and the banks parties thereto.+
10.17 Agreement of Limited Partnership of CyberStar, L.P. dated as
of June 30, 1997(12)
10.18 Purchase and Sale Agreement dated November 17, 1997 between
the Federal Government of the United Mexican States and
Corporativo Satelites Mexicanos, S.A. de C.V. for the
purchase and sale of the capital stock of Satelites
Mexicanos, S.A. de C.V. (English translation of Spanish
original)(12)
10.19 Amended and Restated Membership Agreement dated and
effective as of August 21, 1998 among Loral Satmex Ltd. and
Ediciones Enigma, S.A. de C.V. and Firmamento Mexicano, S.
de R.L. de C.V.(14)
10.20 Letter Agreement dated December 29, 1997 between Loral Space
& Communications Ltd., Telefonica Autrey S.A. de C.V.,
Donaldson, Lufkin & Jenrette Securities Corporation, Lehman
Brothers Inc. and Lehman Commercial Paper Inc. and related
Agreement between the Federal Government of United Mexican
States, Telefonica Autrey, S.A. de C.V., Ediciones Enigma,
S.A. de C.V., Loral Space & Communications Ltd., Loral
Satmex Ltd. and Servicios Corporativos Satelitales, S.A. de
C.V.(12)
10.21 Shareholders Agreement dated December 7, 1998 by and among
Alcatel SpaceCom, Loral Space & Communications Ltd., Dr.
Jurgen Schulte-Hillen and EuropeStar Limited(14)
10.22 Registration Rights Agreement dated as of January 21, 1999
relating to Registrant's 9 1/2% Senior Notes due 2006(14)
10.23 Lease Agreement dated as of August 18, 1999 by and between
Loral Asia Pacific Satellite (HK) Limited and APT Satellite
Company Limited(17)
10.24 Registration Rights Agreement dated as of February 18, 2000
relating to Registrant's 6% Series D Convertible Redeemable
Preferred Stock due 2007(18)
S-7
106
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.25 Fee Agreement dated as of April 19, 1996 by and among
Globalstar, Globalstar Telecommunications Limited, Loral
Corporation, Loral Space & Communications Ltd., Qualcomm
Limited Partner, Inc., Space Systems/Loral, Inc. and DASA
Globalstar Limited Partner, Inc.(20)
10.26 Intercreditor Agreement dated as of April 19, 1996 by and
among Globalstar, Globalstar Telecommunications Limited,
Loral Corporation, Loral Space & Communications Ltd.,
Qualcomm Limited Partner, Inc., Space Systems/Loral, Inc.
and DASA Globalstar Limited Partner, Inc.(20)
10.27 Credit Agreement dated as of November 17, 2000 by and among
Loral Satellite, Inc., Bank of America, National
Association, Bank of America Securities LLC, Credit Lyonnais
and Lehman Commercial Paper, Inc.(21)
10.28 Guarantee dated as of November 17, 2000 made by Loral Space
& Communications Ltd.(21)
10.29 Assignment, Amendment and Release Agreement dated as of
November 17, 2000 by and among the lenders parties to the
Globalstar Credit Agreement, Loral Satellite, Inc., Loral
Satcom Ltd., Loral Space & Communications Ltd., Loral Space
& Communications Corporation, Globalstar, L.P. and Bank of
America, National Association(21)
10.30 Amended and Restated Collateral Agreement dated as of
November 17, 2000 by and among Loral Satellite, Inc. and
Bank of America, National Association(21)
10.31 Form of Employment Protection Agreement+++
12 Statement Re: Computation of Ratios+
21 List of Subsidiaries of the Registrant+
23 Consent of Deloitte & Touche LLP+
99.1 Consolidated Financial Statements of Globalstar, L.P. and
Independent Auditors' Report(13)
- ---------------
(1) Incorporated by reference from the Registrant's Registration Statement on
Form 10 (No. 1-14180).
(2) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on September 27, 1996.
(3) Incorporated by reference from the Registrant's Current Report on Form 8-K
on March 28, 1997.
(4) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on October 10, 1997.
(5) Incorporated by reference from the Registrant's Registration Statement on
Form S-4 filed on February 17, 1998 (File No. 333-46407).
(6) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the nine month period ended December 31, 1996.
(7) Incorporated by reference from the Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 filed by Globalstar Telecommunications
Limited (File No. 0-25456).
(8) Incorporated by reference from the Registration Statement on Form S-1 of
Globalstar Telecommunications Limited (File No. 33-86808).
(9) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on August 13, 1996.
(10) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on July 8, 1997.
(11) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on December 9, 1997.
(12) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997.
(13) Incorporated by reference from the Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 filed by Globalstar Telecommunications
Limited and Globalstar, L.P. (File No. 0-25456).
(14) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998.
S-8
107
(15) Incorporated by reference from the Current Report on Form 8-K filed on
December 21, 1999 by Globalstar Telecommunications Limited and Globalstar,
L.P.
(16) Incorporated by reference from Registrant's Current Report on Form 8-K
filed on August 6, 1999.
(17) Incorporated by reference from Registrant's Current Report on Form 8-K
filed on August 23, 1999.
(18) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1999.
(19) Incorporated by reference from Registrant's Current Report on Form 8-K
filed on May 3, 2000.
(20) Incorporated by reference from Registrant's Current Report on Form 8-K
filed on July 7, 2000.
(21) Incorporated by reference from Registrant's Current Report on Form 8-K
filed on November 20, 2000.
+ Filed herewith.
++ Management compensation plan.
(b) Reports on Form 8-K.
DATE OF REPORT DESCRIPTION
-------------- -----------
November 17, 2000 Item 5 -- Other Events $500 Million Secured Credit Agreement
S-9