Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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, 2001 Commission file number 0-22085
LORAL ORION, INC.
Delaware 52-1564318
- ------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 Hills Drive, Bedminster, NJ 07921
Telephone: (908) 470-2300
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
11 1/4% Senior Notes Due 2007
12 1/2% Senior Discount Notes Due 2007
10% Senior Notes Due 2006
Indicate by check mark whether the registrant: (1) 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 (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [Not Applicable]
The number of shares of common stock, par value $.01 per share of the registrant
outstanding as of December 31, 2001 was 100, all of which were owned, directly
or indirectly, by Loral Space & Communications Ltd.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I (1)(a)
AND (b) OF FORM 10-K AND IS THEREFORE FILING WITH THE REDUCED DISCLOSURE FORMAT
PURSUANT TO GENERAL INSTRUCTION I (2) OF FORM 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
None
1
PART I
ITEM 1. BUSINESS.
General
Loral Orion, Inc. ("we", "us", "Loral Orion" or the "Company"), more
recently known as Loral CyberStar, Inc., before it transferred its data services
business to another subsidiary of its parent, Loral Space & Communications Ltd.
("Loral") in December 2001 in connection with the Company's exchange offers, is
a provider of satellite-based communications services, providing fixed satellite
services, including video distribution and other satellite transmission
services.
Business Segment
Prior to December 21, 2001, the Company operated in two business segments:
Fixed Satellite Services and Data Services. On December 21, 2001, the Company,
in connection with exchange offers for its outstanding senior notes and senior
discount notes, transferred its data services business to a subsidiary of Loral.
Accordingly, it now operates in one segment, Fixed Satellite Services.
Loral Orion, through its ownership of three high power geostationary
satellites, and with agreements with Loral Skynet, a division of Loral SpaceCom
Corporation, a wholly owned subsidiary of Loral, provides transmission capacity
to cable and television programmers, news and information networks,
telecommunications companies, Internet service providers, ISPs and other
carriers for a variety of applications. The Company's customers include HBO,
Disney, Cable & Wireless and United Pan Europe Communications. A majority of
the Company's transmission capacity services consist of video services. The
Company generally offers transmission capacity services under long term
contracts and also offers occasional use services for periods of up to a few
hundred hours. Unless otherwise indicated, all transponder references for the
Company's satellites are in 36 MHz equivalents.
About 200 commercial geosynchronous satellites currently offer fixed
satellite services. The Company competes primarily with large fleet operators,
including PanAmSat Corporation, SES Global, Intelsat and Eutelsat. Large fleets
offer customers global or near-global coverage and in-orbit backup in case of a
satellite failure. The Company is a member of the Loral Global Alliance, whose
other members include Loral Skynet, Skynet do Brasil, Satelites Mexicanos, S.A
de C.V., Europe*Star Limited and Stellat S.N.C. The Loral Global Alliance, with
ten satellites currently and 15 expected by the end of 2003, enhances the
geographic reach, market presence and offerings of Loral Orion.
In providing fixed satellite services, the Company faces competition
from fiber optic cable and other terrestrial delivery systems. In some
applications, such as broadcast or point-to-multipoint transmission of video,
satellites are usually considerably more efficient. In other applications,
fiber may cost less, so that satellites compete on the basis of superior
reliability, or as a back-up service.
Telstar 11, 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, Arizona and in Europe as far east as Istanbul, Turkey.
Telstar 12, a high power satellite with 57 Ku-band transponders, commenced
operations in January 2000 and expands Loral Orion's European coverage and
extends coverage to portions of Russia, Latin America, the Middle East and South
Africa. Telstar 12 was launched in October 1999 into 15 degrees W.L.
Telstar 10/Apstar IIR, formerly known as Apstar IIR, a high power
satellite with 28 C-Band and 24 Ku-Band transponders, commenced operations in
December 1997 at 76.5 degrees E.L. and covers portions of Asia, Europe, Africa
and Australia, accounting for more than 75% of the world's population. Loral
Orion purchased all of Telstar 10/Apstar IIR's transponder capacity (other than
a single, reserved C-Band transponder) from APT Satellite Company in September
1999 to replace its Orion 3 satellite, which was lost in a launch failure in May
1999. Insurance proceeds from the launch failure covered most of the $273
million purchase price. APT has also given Loral Orion the right to provide
replacement satellites at this orbital location at the end of the satellite's
useful life, for which Loral Orion will be required to pay a fee to APT for the
right to use the orbital slot.
2
In March 2000, Loral Orion entered into an agreement with a subsidiary of
Loral to assign to the Loral subsidiary, pending regulatory approval, its
Ka-band orbital slots located at 89 degrees W.L., 81 degrees W.L., 78 degrees
E.L. and 47 degrees W.L. In connection with this transaction, Loral Orion also
agreed to transfer to the Loral subsidiary all agreements, including satellite
construction contracts, related to such slots. The total purchase price for the
slots and these agreements was $36.5 million, which was applied by Loral Orion
towards the last installment payment on Telstar 10/Apstar IIR. This assignment
was approved by the Federal Communications Commission on December 11, 2000.
Agreements with Loral Skynet and Loral
Loral Orion and Loral Skynet, entered into agreements (the "Loral Skynet
Agreements") effective January 1, 1999, whereby Loral Skynet provides to Loral
Orion (i) marketing and sales of satellite capacity services on the Loral Orion
satellite network and related billing and administration of customer contracts
for those services (the "Sales Services") and (ii) telemetry, tracking and
control services for the Loral Orion satellite network (the "Technical
Services", and together with the Sales Services, the "Services"). The Company
is charged Loral Skynet's costs for providing these services plus a 5 percent
administrative fee. Loral Orion believes it has achieved cost efficiencies in
connection with the Loral Skynet Agreements.
Beginning in 2002, Loral initiated the allocation of corporate management
expenses to its individual subsidiaries and divisions, including Loral Orion.
The allocation of these expenses is computed with respect to Loral Orion in a
manner consistent with Loral's other subsidiaries and divisions, using a fixed
formula based on three factors: employee payroll, revenues and assets. The
amount expected to be allocated to Loral Orion is estimated to be between
three and four million dollars for 2002.
Exchange Offers and Transfer of Data Business
In December 2001, the Company successfully completed exchange offers and
consent solicitations for $841,302,000 aggregate principal amount of 11.25%
senior notes due 2007 and 12.50% senior discount notes due 2007 in exchange for
$612,704,000 principal amount of the Company's new 10% senior notes due July
15, 2006, which new senior notes are guaranteed by Loral, together with
five-year warrants to purchase 6,042,986 shares of Loral's common stock at a
purchase price of $2.37 per share and $59,753 in cash paid to certain holders
of new senior notes in lieu of receipt of a principal amount of new senior
notes in a denomination other than an integral multiple of $1,000. The
exchange offers were part of a plan to reduce and refinance the Company's
indebtedness and to create a capital structure that is intended to permit the
Company to finance anticipated obligations with respect to its fixed satellite
services business. Approximately $36,627,000 principal amount of the original
senior notes and $49,071,000 principal amount of the senior discount notes
remain outstanding after consummation of the exchange offers.
In connection with the consummation of the exchange offers and consent
solicitations, Loral SpaceCom Corporation agreed to cancel its $79.7 million
intercompany note issued to it by the Company which ranked pari passu to senior
debt in exchange for the transfer of the Company's data services business to a
newly formed Loral subsidiary, and the issuance of a new note to Loral SpaceCom
Corporation in the principal amount of $29.7 million due 2006, having an
interest rate of 10% per annum payable in kind, subordinated to the Company's
new senior notes and guaranteed by Loral.
Summary Satellite Data
The following table presents a brief description of the Company's
satellite network. The Company is subject to regulation and licensing by the
U.S. Federal Communications Commission and other national telecommunications
regulatory bodies, and to the frequency coordination process of the
International Telecommunications Union, or ITU.
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. 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.
The Company's ability to provide satellite service in the geographic
regions noted below will be subject to technical constraints, international
coordination, local regulatory approval and any limitations on the scope of the
approval so obtained.
TELSTAR 10/APSTAR IIR TELSTAR 11 TELSTAR 12
-------------------------- ----------------------- ----------------------------
Region Covered......................... Asia and portions of Europe, SE Canada, U.S. Eastern U.S., SE Canada,
Europe, portions of Africa East of the Rockies and Europe, Russia, Middle
and Australia portions of Mexico East, North Africa, portions
of South America, portions
of Central America
Satellite Manufacturer................. Space Systems/Loral MMS Space Systems Space Systems/Loral
(subsidiary of Matra
Marconi Space)
Ku-Band Transponders (1)(2)............ 14@54 MHz 28@54 MHz 38@54 MHz
2@36 MHz 6@36 MHz
C-Band Transponders (1) (3)............ 25@36 MHz -- --
2@30 MHz
Usable Bandwidth (4)................... 1788 MHz 1728 MHz 2052 MHz
EIRP (5)............................... 44 - 52 dBW 47 - 52 dBW 47 - 50 dBW
30 - 37 dBW
for C-band returns
3
Total Prime Power (6).................. 8500 Watts 4500 Watts 7000 Watts
Expected End of Useful Life (7)........ 2012 2005 2015
Approximate Percentage of World
Population Covered by Satellite (8).... 75% 17.9% 27%
(1) Satellite transponders receive signals up from earth stations and then
convert, amplify and transmit the signals back down to other earth
stations.
(2) Ku-band frequencies are higher than C-band frequencies and are used
worldwide for commercial satellite communications.
(3) C-band frequencies minimize interference from atmospheric conditions such
as rain. C-band satellites share frequencies with terrestrial based
microwave systems and therefore require more on-ground coordination to
avoid interference problems and generally are lower power, requiring the
use of large earth stations to receive signals. A portion of Telstar
10/Apstar IIR is designed to transmit over C-band frequencies, since
Telstar 10/Apstar IIR covers areas of Asia where satellite signals
experience significant interference from rain during several months of the
year.
(4) Bandwidth is a measure of the transponder resource which determines the
information carrying capacity. The actual information carrying capacity of
a transponder is determined by a combination of the transponder's
bandwidth and radio-frequency ("RF") power.
(5) Equivalent isotropic radiated power ("EIRP") is a measure of the RF power
of each transponder. Smaller and less expensive earth terminal antennas
can be used with higher EIRP transponders.
(6) Total prime power is the total amount of power that is required to support
all of the communications and electronics functions of the satellite.
(7) The expected end of a satellite's in-orbit useful life is based on the
period during which the satellite's on board fuel permits proper station
keeping maneuvers for the satellite.
(8) The approximate percentages of world population covered or to be covered
by the Loral Orion satellites are not additive. In the aggregate, the
footprints of the Loral Orion satellites cover over approximately 85
percent of the world's population.
Employees
As of December 31, 2001, Loral Orion and its subsidiaries had no full time
employees. See Loral Skynet Agreements.
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, Loral 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,
4
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.
Financial Structure
We have substantial debt.
As of December 31, 2001, we had $709 million principal amount of senior
debt. Our 10% senior notes mature in 2006 and are guaranteed by Loral. In
addition, our 11.25% senior notes and 12.50% senior discount notes mature in
2007. Our ability to meet our debt service obligations will be dependent upon
our future performance, including our ability to sustain our revenues, which
will be subject to financial, business, competitive and other factors,
including factors beyond our control. There can be no assurance that we will be
able to generate sufficient cash flow to meet our debt service obligations with
respect to all of our outstanding indebtedness, if there was an uninsured loss
of one of our satellites or as a result of other factors beyond our control.For
the twelve months ended December 31, 2001, we had a deficiency of earnings to
cover fixed charges of approximately $106.7 million.
Our debt imposes restrictions and otherwise affects our ability to undertake
certain actions.
The indentures relating to our 10% senior notes contain restrictions,
which among other things, limit our ability to incur other indebtedness, create
liens, make investments, sell assets, pay dividends and engage in mergers and
acquisitions. In addition, the level of our indebtedness adversely affects:
o our ability to pay expenses and fund expenditures, which will be affected
by our need to use a substantial amount of our cash flow to service
existing indebtedness;
o our ability to raise additional debt; and
o our flexibility in planning for, or reacting to, changes to our business
and market conditions.
We have funding requirements.
We anticipate we will have additional requirements over the next three
years to fund the replacement of Telstar 11 which is expected to reach the end
of its useful life in 2005. To the extent that excess cash flow from our
satellites is not sufficient to meet these requirements, we will need to secure
funding from Loral, or raise additional financing to fund this requirement.
Sources of additional capital may include public or private debt, vendor
financing, equity financings or strategic investments. To the extent that we
seek to raise additional debt financing, the indenture relating to our 10%
senior notes limits the amount of such additional debt to $100 million for such
replacement satellite and prohibits us from using Telstar 11, Telstar 10/Apstar
IIR and Telstar 12 as collateral for indebtedness. If we are 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 our business.
Operational Matters
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 some 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 launch failures may therefore result in uninsured economic
losses. Replacement of a lost satellite typically requires at least 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 failures, 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
5
expected life. 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. Satellites are carefully built and tested and have some redundant
components to save the satellite in case of a component failure. Due to the
failure of a primary component, one of our satellites is currently operating
using a back-up component. If this back-up component fails and the primary
component cannot be restored, this satellite could lose a significant amount
of capacity which, until replacement satellites are placed in-orbit, would
result in lost revenue and lost profits to the Company.
Repair of satellites in space is not feasible. Many factors affect the
useful life of our satellites including fuel consumption, the quality of
construction, degradation of solar panels and the durability of components.
Telstar 10/Apstar IIR has experienced operational problems with its solar
arrays.
Telstar 10/Apstar IIR has experienced minor losses of power from its
solar arrays. Although, to date, Telstar 10/Apstar IIR has not experienced any
degradation in performance, there can be no assurance that Telstar 10/Apstar
IIR 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, when in
the life of Telstar 10/Apstar IIR the loss occurred, and the number and type of
uses being made of transponders then in service. A complete or partial loss of
Telstar 10/Apstar IIR could result in a loss of revenues and profits. Based
upon information currently available, including design redundancies to
accommodate small power losses and the fact 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 our results of operations.
It may be difficult to obtain full insurance coverage for satellites that have
experienced problems in the past.
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, in
connection with the renewal of the insurance for the Telstar 10/Apstar IIR
satellite in October 2001, the insurance underwriters have excluded losses due
to solar array failures, since Telstar 10/Apstar IIR was manufactured by Space
Systems/Loral ("SS/L") and has the same solar array configuration as another
1300-class satellite manufactured by SS/L that recently experienced a solar
array failure. SS/L believes that this failure is an isolated event and does not
reflect a systemic problem in either the satellite design or manufacturing
process. Accordingly, we do not believe that this anomaly will affect Telstar
10/ Apstar IIR. We are currently in discussions with our insurers to remove
this exclusion from the Telstar 10/ Apstar IIR policy, in return for a
deductible for losses arising from electrical problems on the satellite's solar
arrays. There can be no assurance that these discussions will be successful. An
uninsured loss of a satellite will have a material adverse effect on our
consolidated financial position and our results of operations.
We are faced with increased costs due to the recent trend in the insurance
industry towards higher insurance premiums and shorter terms.
We, like others in the satellite industry, are faced with significantly
higher premiums on launch and in-orbit insurance and significantly shorter
coverage periods than those that have been available in the past, which was due
in part to the events of September 11, 2001. This development in the insurance
industry will increase our cost of doing business. We intend to pass on such
increased cost to our customers, although we cannot guarantee that
6
we will be able to do so. Insurance market conditions have historically been
cyclical in nature. While we anticipate that these conditions will improve in
the future, there can be no assurance that they will do so.
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, SES Global and newly privatized organizations such as
Intelsat and Eutelsat. Competition in this market may lower prices or result in
reduced satellite fleet utilization, which may have an adverse effect on our
consolidated financial position and our results of operations.
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
Telecommunication Union, or ITU, and the European Union. The following are some
strategically important activities which are regulated and could be adversely
affected by regulatory policies:
o the operation of our business in the U.S. and foreign markets;
o the launch of satellites; and
o the international service offered by our business operations.
Regulatory authorities in the various jurisdictions in which we operate
can modify, withdraw or impose charges or conditions upon, or deny or delay
action on applications for, 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 west longitude. 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 have an adverse effect on our
consolidated financial position and our results of operations.
We face risks in conducting business internationally.
A substantial portion of our revenue is generated from customers located
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. Almost all of our contracts with foreign
customers require payment in U.S. dollars, and customers in developing countries
could have difficulty obtaining U.S. dollars to pay us due to currency exchange
controls and other factors. Exchange rate fluctuations may adversely affect the
ability of our customers to pay us in U.S. dollars. If we need to pursue legal
remedies against our foreign business partners or customers, we may have to sue
them abroad where it could be difficult for us to enforce our rights.
Matters Relating To Holders Of Our 11.25% Senior Notes And 12.50% Senior
Discount Notes.
The rights of holders of our 11.25% senior notes and 12.50% senior discount
notes under their indentures have been substantially reduced.
In December 2001, as part of our exchange offers and consent
solicitations, the indentures for our 11.25% senior notes and 12.50% senior
discount notes were amended so as to remove substantially all of their
operating restrictions and events of default.
The market for our 11.25% senior notes and 12.50% senior discount notes is
limited.
Because the exchange offers and consent solicitations that we conducted in
December 2001 resulted in the tender and exchange of substantially all of our
11.25% senior notes and 12.50% senior discount notes then outstanding, the
market for the remaining notes is quite limited. Moreover, we cannot guarantee
that these notes will continue to be rated in the future.
7
ITEM 2. PROPERTIES.
Loral Orion does not own or lease office space. See Loral Skynet
Agreements.
ITEM 3. LEGAL PROCEEDINGS.
The Company is party to legal and regulatory proceedings incident to its
business. The Company does not believe that there are any material legal
proceedings pending or, to the knowledge of its management, threatened against,
the Company or its subsidiaries that would have a material effect on its
consolidated financial position or its results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Omitted pursuant to General Instruction I of Form 10-K.
8
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
All of the Company's outstanding common stock is owned, directly or
indirectly, by Loral Space & Communications Corporation, a wholly owned
subsidiary of Loral. Therefore, there is no public trading market for the
Company's common stock. The Company has never paid dividends on its common
stock. The Company's indenture relating to its 10% senior notes obligations
includes certain restrictions on the Company's ability to pay dividends or make
loans to its parent.
ITEM 6. SELECTED FINANCIAL DATA.
Omitted pursuant to General Instruction I of Form 10-K.
ITEM 7. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS.
Except for the historical information contained herein, the matters
discussed in the following Management's Narrative Analysis of Results of
Operations of Loral Orion, Inc. ("Loral Orion" 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 the factors and
conditions that could affect the outcome of forward-looking statements relate to
(i) the Company's financial structure, and (ii) operational matters. For a
detailed discussion of these factors and conditions, please refer to the section
of this Annual Report on Form 10-K titled "Certain Factors that May Affect
Future Results" beginning on page 5 and to the other periodic reports filed with
the SEC by Loral Orion. 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.
General
The principal business of Loral Orion, Inc. (the "Company" or "Loral
Orion"), more recently known as Loral CyberStar, Inc., is leasing 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"). Loral Skynet, a division of Loral SpaceCom Corporation,
which is a subsidiary of Loral Space & Communications Corporation, which is in
turn a subsidiary of Loral, manages the Company's continuing operations.
Prior to December 21, 2001, the Company operated in two business segments:
Fixed Satellite Services and Data Services. On December 21, 2001, the Company,
in connection with the exchange offers for its outstanding senior notes and
senior discount notes, transferred its data services business to a subsidiary of
Loral. Accordingly, it now operates in one segment, Fixed Satellite Services.
The Company's revenues from continuing operations are principally
generated from long-term contracts or occasional use services for transmission
capacity services.
9
The Company's historical consolidated balance sheets, statements of
operations and cash flows have been restated to account for the data services
segment as a discontinued operation.
No restrictions exist on the ability of any of the subsidiaries of Loral
Orion ("Subsidiary Guarantors") other than inconsequential subsidiaries, to pay
dividends or make other distributions to the Company, except to the extent
provided by law generally (e.g., adequate capital to pay dividends under state
corporate laws).
Critical accounting matters
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.
Depreciation is provided for on the straight-line method for satellites
over the estimated useful life of the satellite, which is determined by
engineering analyses performed at the in-service date and re-evaluated
periodically.
Realization of the net deferred tax assets is dependent on the Company's
ability to generate future taxable income and utilize tax planning strategies. A
valuation allowance has been recorded to reduce the deferred tax assets to the
amount that is more likely than not to be realized based on current estimates
and assumptions. The Company evaluates the valuation allowance on a quarterly
basis. Any resulting changes to the valuation allowance would result in an
adjustment to income in the period the determination is made.
Contingencies by their nature relate to uncertainties that require
management to exercise judgment both in assessing the likelihood that a
liability has been incurred as well as in estimating the amount of potential
loss, if any. The most important contingencies impacting our financial
statements are detailed below under Operational Matters.
Results of Operations
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 discusses the results of Loral Orion
for 2001, 2000 and 1999.
Operating Revenues from Continuing Operations (in millions):
Year ended December 31,
-------------------------------
2001 2000 1999
------- ------- -------
Fixed Satellite Services ................... $ 128.7 $ 109.4 $ 42.8
Eliminations (1) ........................... (19.8) (26.0) (7.1)
------- ------- -------
Operating revenues ......................... $ 108.9 $ 83.4 $ 35.7
======= ======= =======
10
EBITDA(2) (in millions):
Year ended December 31,
-------------------------------
2001 2000 1999
------- ------- -------
Fixed Satellite Services ................... $ 105.2 $ 81.9 $ 21.7
Eliminations (1) ........................... (19.8) (26.0) (7.1)
------- ------- -------
EBITDA ..................................... $ 85.4 $ 55.9 $ 14.6
======= ======= =======
- ----------
(1) Primarily represents sales to the Company's discontinued operation
(formerly the data services segment).
(2)EBITDA (which is equivalent to operating income (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 the Company's
operating results. However, EBITDA should not be construed as 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.
Revenues from continuing operations for 2001, 2000 and 1999, were $108.9
million, $83.4 million, and $35.7 million, respectively. These increases were
primarily due to the increased number of transponders leased and higher revenue
per transponder in 2001 and 2000 as compared to the respective prior year,
primarily resulting from the addition of two satellites to our fleet in the
latter part of 1999 (see below).
Cost of satellite services for continuing operations for 2001, 2000 and
1999, were $107.2 million, $104.6 million and $69.0 million, respectively. The
increase in 2000 as compared to 1999, was primarily due to increased
depreciation expense from Telstar 10/Apstar IIR acquired in September 1999 and
Telstar 12 which went into service in December 1999.
Selling, general and administrative expenses for continuing operations
2001, 2000 and 1999, were $10.8 million, $12.8 million and $12.5 million,
respectively. The decrease in 2001 as compared to 2000 was primarily due to a
reduction in marketing and promotions expenses.
Interest income for continuing operations for 2001, 2000 and 1999, was
$0.4 million, $2.8 million and $6.1 million, respectively. The decreases were
primarily due to a reduction in the balances held for investments for the
respective years. Interest expense for 2001, 2000 and 1999 was $98.3 million,
$97.2 million and $69.6 million, respectively. The increase in 2000 as compared
to 1999 was primarily due to the decrease in capitalized interest and interest
incurred on the note payable to Loral SpaceCom.
The Company is included in the consolidated U.S. federal income tax return
of Loral Space & Communications Corporation. Pursuant to a tax sharing agreement
for 2001 with Loral Space & Communications Corporation, the Company is entitled
to reimbursement for the use of its tax losses when such losses are utilized by
Loral Space & Communications Corporation. For the year ended December 31, 2001,
the Company recorded a current income tax benefit of approximately $8.8 million
under this tax sharing agreement (a receivable from Loral Space & Communications
Corporation) and a deferred tax provision of $4.5 million.
During December 2001, the Company recognized an extraordinary gain of
$26.2 million, net of taxes, related to the Company's debt exchanges.
11
The historical consolidated balance sheet, statements of operations and
cash flows have been restated for all periods presented to account for the data
services segment as a discontinued operation. The financial data presented for
the Company's data services segment reflects the historical sales and expenses
of the data services segment after elimination of intercompany transactions
with FSS. Discontinued operations include revenue for the data services segment
of $80.2 million, $103.8 million and $69.2 million for the period January 1,
2001 to December 21, 2001 and the years ended December 31, 2000 and 1999,
respectively. See Note 4 to the consolidated financial statements.
Results by Operating Segment
Fixed Satellite Service
Fixed Satellite Services revenue for 2001 was $128.7 million as compared
to $109.4 million in 2000 and $42.8 in 1999. EBITDA on the same basis was $105.2
million in 2001, or 82 percent of revenues, as compared to $81.9 million, or 75
percent of revenues in 2000 and $21.7 million, or 51 percent of revenues in
1999. These increases in EBITDA are primarily due to strong revenue growth from
the increased number of transponders leased and higher revenue per transponder
in 2001 and 2000 as compared to the respective prior year, primarily resulting
from the addition of two satellites to the Company's fleet in the latter part of
1999, without a corresponding increase in operating costs.
At December 31, 2001, the Company had an external contracted backlog
(representing future revenues under customer contracts) of approximately $576.0
million, as compared to $739.4 million at December 31, 2000. As of December 31,
2001, the average length of contracted backlog was approximately 5.5 years.
The reduction in total funded backlog resulted from contract terminations in
the third and fourth quarters of 2001, as well as de-bookings arising largely
from the restructuring of one customer contract in the second quarter of 2001,
which reduced the length of the lease agreement from 13 years to eight. In this
instance the Company received appropriate compensation in exchange for meeting
its customer's requirements and, accordingly, this de-booking did not have an
adverse impact on results of operations in 2001, nor is it expected to have an
adverse impact on near-term results of operations.
Other Matters
Operational Matters
Loral Orion anticipates it will have additional requirements over the next
three years to fund the replacement of Telstar 11 which is expected to reach the
end of its useful life in 2005. To the extent that excess cash flow from Loral
Orion's satellites is not sufficient to meet these requirements, Loral Orion
will need to secure funding from Loral, or raise additional financing to fund
this requirement. Sources of additional capital may include public or private
debt, vendor financing, equity financings or strategic investments. To the
extent that Loral Orion seeks to raise additional debt financing, its indenture
relating to the Company's 10% senior notes limits the amount of such additional
debt to $100 million for such replacement satellite and prohibits Loral Orion
from using Telstar 11, Telstar 10/Apstar IIR and Telstar 12 as collateral for
indebtedness.
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 Orion 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 Orion's behalf. As
part of this coordination effort, Loral Orion agreed to provide to Eutelsat four
54 MHz transponders on Telstar 12 for the life of the satellite and has 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 September 28, 1999, Loral Orion 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 Orion has full use of the transponders for the
remaining life of Telstar 10/Apstar IIR. Loral Orion also has the right to
provide replacement satellites upon the end of life of Telstar 10/Apstar IIR,
for which it will be required to pay a fee to APT for the right to use the
orbital slot.
Telstar 10/Apstar IIR has experienced minor losses of power from its solar
arrays. Although, to date, Telstar 10/Apstar IIR has not experienced any
degradation in performance, there can be no assurance that Telstar 10/Apstar IIR
will not experience additional power loss that could result in performance
degradation, including
12
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, when in the life of Telstar
10/Apstar IIR the loss occurred, and the number and type of uses being made of
transponders then in service. A complete or partial loss of Telstar 10/Apstar
IIR could result in a loss of revenues and profits. Based upon information
currently available, including design redundancies to accommodate small power
losses and the fact 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 our results of operations.
While the Company has in the past, consistent with industry practice,
typically obtained in-orbit insurance for its satellites, the Company cannot
guarantee that, upon a policy's expiration, the Company will be able to renew
the insurance on acceptable terms, especially on satellites that have, or that
are part of a family of satellites that have, experienced problems in the past.
For example, in connection with the renewal of the insurance for the Telstar
10/Apstar IIR satellite in October 2001, the insurance underwriters have
excluded losses due to solar array failures, since Telstar 10/Apstar IIR was
manufactured by Space Systems/Loral ("SS/L") and has the same solar array
configuration as another 1300-class satellite manufactured by SS/L that recently
experienced a solar array failure. SS/L believes that this failure is an
isolated event and does not reflect a systemic problem in either the satellite
design or manufacturing process. Accordingly, the Company does not believe that
this anomaly will affect Telstar 10/ Apstar IIR. Loral is currently in
discussions with the Company's insurers to remove this exclusion from the
Telstar 10/ Apstar IIR policy, in return for a deductible for losses arising
from electrical problems on the satellite's solar arrays. There can be no
assurance that these discussions will be successful. An uninsured loss of a
satellite will have a material adverse effect on the Company's consolidated
financial position and results of operations.
The Company, like others in the satellite industry, is faced with
significantly higher premiums on launch and in-orbit insurance and
significantly shorter coverage periods than those that have been available in
the past, which was due in part to the events of September 11, 2001. This
development in the insurance industry will increase the Company's cost of
doing business. The Company intends to pass on such increased cost to its
customers. There can be no assurance, however, that it will be able to do so.
Insurance market conditions have historically been cyclical in nature. While
the Company anticipates that these conditions will improve in the future, there
can be no assurance that they will.
Beginning in 2002, Loral initiated the allocation of corporate management
expenses to its individual subsidiaries and divisions, including Loral Orion.
The allocation of these expenses is computed with respect to Loral Orion in a
manner consistent with Loral's other subsidiaries and divisions, using a fixed
formula based on three factors: employee payroll, revenues and assets. The
amount expected to be allocated to Loral Orion is estimated to be between three
and four million dollars for 2002.
Exchange Offers
On December 21, 2001, Loral Orion completed exchange offers and consent
solicitations by issuing $613 million principal amount of new senior notes due
2006 guaranteed by Loral, in exchange for the extinguishment of $841 million
principal amount of Loral Orion senior notes due in 2007 and senior discount
notes due 2007 as discussed below. As part of the exchange, Loral issued to the
new note holders 6.04 million five-year warrants to purchase Loral common stock
at a price of $2.37 per share. The warrants were valued at $6.7 million using
the Black Scholes option pricing model with the following assumptions: stock
volatility, 75%, risk free interest rate, 4.36%, and no dividends during the
expected term, and is reflected in capital in excess of par value on the
consolidated balance sheet. After the exchange offers, principal amount of $37
million of the existing senior notes and principal amount of $49 million of the
existing senior discount notes remain outstanding at their original maturities
and interest rates.
The interest rate on the new senior notes is 10%, a reduction from the
11.25% interest rate on the existing senior notes and the 12.5% rate on the
existing senior discount notes. Interest is payable semi-annually on July 15 and
January 15, beginning July 15, 2002. As a result of the lower interest rate and
the $229 million reduction in principal amount of debt, Loral Orion's annual
cash interest payments will be reduced by approximately $39 million. Under U.S.
generally accepted accounting principles dealing with debt restructurings, the
Company recorded an after-tax extraordinary gain of $26 million on the exchange,
after expenses of $5 million. The carrying value of the new senior notes on the
balance sheet is $904 million, although the actual principal amount of the new
senior notes is $613 million. The difference between this carrying value and the
actual principal amount of the new senior notes will be amortized over the life
of the new senior notes, fully offsetting interest expense through maturity of
the new senior notes. The indenture relating to the new senior notes contains
13
limitations on Loral Orion and its subsidiaries, including, without limitation,
restrictions on Loral Orion's ability to pay dividends or make loans to Loral.
In connection with the consummation of the exchange offers, Loral SpaceCom
Corporation ("LSC"), cancelled its $79.7 million intercompany note issued
to it by Loral Orion which ranked pari passu to senior debt in exchange for the
transfer of the Company's data services business and the issuance of a new note
to LSC in the principal amount of $29.7 million due 2006, having an interest
rate of 10% per annum payable in kind, and subordinated to Loral Orion's new
senior notes. Loral Orion's data services business was transferred to a
newly-formed subsidiary of Loral, which assumed the name "Loral CyberStar, Inc".
In addition, as a result of the transfer of the Company's data services
business, the Company recognized capital contributions from Loral of $9.2
million, which represents the difference in the carrying value of the net assets
of the data services business and the $50.0 million portion of the net notes
cancelled by LSC and the expenses of the exchange offers in excess of $5
million.
Accounting Pronouncements
On January 1, 2001, the Company adopted SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS 133 requires
that all derivative instruments be recorded on the balance sheet at their fair
value. Changes in the fair value of derivatives that do not qualify, or are not
effective as hedges, must be recognized currently in earnings. There was no
effect on the Company due to adoption of this standard, as the Company had no
stand-alone or embedded derivatives at January 1, 2001, and as a matter of
policy does not currently enter into transactions involving derivative financial
instruments.
In September 2000, the FASB issued SFAS No. 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities ("SFAS
140"). SFAS 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 adopted the applicable
disclosure requirements of SFAS 140 in its consolidated financial statements for
the year ended December 31, 2000. The Company has determined that there was no
effect on the Company's consolidated financial position or results of operations
relating to the adoption of the other provisions of SFAS 140.
In June 2001, the FASB issued SFAS No. 141, Business Combinations ("SFAS
141") and SFAS No. 142, Goodwill and Other Intangible Assets ("SFAS 142"). SFAS
141 requires that all business combinations initiated after June 30, 2001, be
accounted for under the purchase method and addresses the initial recognition
and measurement of goodwill and other intangible assets acquired in a business
combination. SFAS 142 addresses the initial recognition and measurement of
intangible assets acquired outside of a business combination and the accounting
for goodwill and other intangible assets subsequent to their acquisition. SFAS
142 provides that intangible assets with finite useful lives be amortized and
that goodwill and intangible assets with indefinite lives not be amortized, but
will rather be tested at least annually for impairment. The Company will adopt
SFAS 142 on January 1, 2002. Upon adoption of SFAS 142, the Company will stop
the amortization of goodwill with a net carrying value of approximately $562
million at the date of adoption and annual amortization of approximately $16
million that resulted from business combinations completed prior to the
adoption of SFAS 141. Based on management's preliminary evaluation under the
new transitional impairment test in SFAS 142, the Company expects to record a
non-cash charge in the first quarter of 2002 to write-off a portion or all of
its goodwill. Any transitional impairment loss will be recognized as a change
in accounting principle.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations ("SFAS 143"). SFAS 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. It applies to legal
obligations associated with the retirement of long-lived assets that result from
the acquisition, construction, development and the normal operation of a
long-lived asset, except for certain obligations of lessees. The Company is
required to adopt SFAS 143 on January 1, 2003. The Company has not yet
determined the impact that the adoption of SFAS 143 will have on its results of
operations or its financial position.
14
In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets ("SFAS 144"). SFAS 144 addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. It supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and
reporting provisions of APB 30, Reporting the Results of Operations -- Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions, for the disposal of a
segment of a business. The Company is required to adopt SFAS 144 on January 1,
2002. The Company expects that there will be no effect on the Company's
consolidated financial position or results of operations relating to the
adoption of SFAS 144.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest
As of December 31, 2001, all of the Company's outstanding debt had fixed
interest rates.
As of December 31, 2001, the carrying value of the Company's long-term
debt was $1.0 billion and the fair value of such debt was $452 million. The fair
value of the Company's long-term debt is primarily based on quoted market
prices. The table below provides information about the carrying amount of the
Company's long-term debt obligations by fiscal year of maturity (in thousands).
For the Years Ended December 31,
------------------------------------------------------------
2002 2003 2004 2005 2006 Thereafter
------- ------- ------- ------- -------- ----------
Fixed rate debt .......... $49,449 $64,727 $64,899 $65,296 $678,443 $86,190
Weighted average fixed
interest rate ......... 10.21% 10.21% 10.22% 10.23% 10.24% 11.97%
Approximately $291 million of the difference between the carrying amount
and the fair value of the Company's long-term debt as of December 31, 2001 is
attributable to the accounting for the Loral Orion exchange offers (see above).
15
ITEM 8.
INDEPENDENT AUDITORS' REPORT
To the Stockholder of Loral Orion, Inc.:
We have audited the accompanying consolidated balance sheets of Loral
Orion, Inc. (formerly Loral CyberStar, Inc.) and its subsidiaries a wholly owned
subsidiary of Loral Space & Communications Corporation, as of December 31, 2001
and 2000 and the related consolidated statements of operations, stockholder's
equity and cash flows for each of the three years in the period ended December
31, 2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with 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 referred to above
present fairly, in all material respects, the consolidated financial position of
Loral Orion, Inc. and its subsidiaries as of December 31, 2001, and 2000, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2001 in conformity with accounting
principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
San Jose, California
March 5, 2002
16
Loral Orion, Inc. and Subsidiaries
(A wholly owned subsidiary of Loral Space & Communications Corporation)
Consolidated Balance Sheets
(in thousands, except par amounts)
December 31,
----------------------------
2001 2000
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 19,399 $ 2
Accounts receivable, net 13,568 13,556
Prepaid expenses and other current assets 11,204 5,570
Due from Loral companies 7,181 431
Net assets of discontinued operations -- 86,366
----------- -----------
Total current assets 51,352 105,925
Satellites and related equipment, net 579,910 655,583
Cost in excess of net assets acquired, net 562,201 577,710
Deferred tax assets 32,130 44,982
Other assets, net 21,668 20,793
----------- -----------
$ 1,247,261 $ 1,404,993
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt $ 49,449 $ 2,406
Accounts payable 3,390 3,701
Customer deposits 1,080 868
Deferred revenue 5,954 2,235
Interest payable 1,889 22,842
Due to Loral companies 2,376 4,038
Note payable to Loral SpaceCom -- 107,866
----------- -----------
Total current liabilities 64,138 143,956
Customer deposits 4,379 5,413
Deferred revenue 5,142 998
Long-term debt 959,555 997,991
Note payable to Loral SpaceCom 29,700 --
Commitments and contingencies (Note 3)
Stockholder's equity:
Common stock, $.01 par value; 1,000 shares authorized; 100
shares outstanding at December 31, 2001 and 2000 -- --
Paid-in capital 604,166 588,197
Retained deficit (419,819) (331,562)
----------- -----------
Total stockholder's equity 184,347 256,635
----------- -----------
$ 1,247,261 $ 1,404,993
=========== ===========
See notes to consolidated financial statements
17
Loral Orion, Inc. and Subsidiaries
(A wholly owned subsidiary of Loral Space & Communications Corporation)
Consolidated Statements of Operations
(in thousands)
Years ended December 31,
---------------------------------------
2001 2000 1999
--------- --------- ---------
Revenues from satellite services $ 108,945 $ 83,384 $ 35,721
Operating expenses:
Cost of satellite services 107,185 104,641 69,008
Selling, general and administrative expenses 10,796 12,827 12,488
--------- --------- ---------
Loss from operations (9,036) (34,084) (45,775)
--------- --------- ---------
Interest income 365 2,756 6,145
Interest expense (98,339) (97,164) (69,631)
Other income 288 285 100
--------- --------- ---------
Loss before income taxes, extraordinary gain and
discontinued operations (106,722) (128,207) (109,161)
Income tax (expense) benefit 4,347 (910) 10,429
--------- --------- ---------
Loss before extraordinary gain and
discontinued operations (102,375) (129,117) (98,732)
Extraordinary gain on debt exchanges, net of
tax provision of $8,336 26,205 -- --
--------- --------- ---------
Loss from continuing operations (76,170) (129,117) (98,732)
Loss from operations of discontinued
operations, net of tax provision (Note 2) (12,087) (8,301) (15,443)
--------- --------- ---------
Net loss $ (88,257) $(137,418) $(114,175)
========= ========= =========
See notes to consolidated financial statements
18
Loral Orion, Inc. and Subsidiaries
(A wholly owned subsidiary of Loral Space & Communications Corporation)
Consolidated Statements of Stockholder's Equity
(in thousands)
Total
Paid-in Retained Unearned Stockholder's
Common Stock Capital Deficit Compensation Equity
------------ ---------- ----------- ------------ ----------------
Balance at January 1, 1999 $ -- $ 481,791 $ (79,969) $(3,347) $ 398,475
Amortization of unearned compensation -- -- 1,543 1,543
Loral Space and Communications capital contribution 62,385 -- -- 62,385
Net loss -- (114,175) -- --
Comprehensive loss -- -- -- (114,175)
----- --------- --------- ------- ---------
Balance at December 31, 1999 544,176 (194,144) (1,804) 348,228
Amortization of unearned compensation -- -- 815 815
Stock option forfeitures (989) -- 989 --
Loral Space and Communications capital contribution 45,010 -- -- 45,010
Net loss -- (137,418) -- --
Comprehensive loss -- -- -- (137,418)
----- --------- --------- ------- ---------
Balance at December 31, 2000 588,197 (331,562) -- 256,635
Loral Space and Communications capital contributions 9,249 -- -- 9,249
Loral warrants issued in connection with debt
exchanges, net of expenses 6,720 -- -- 6,720
Net loss -- (88,257) -- --
Comprehensive loss -- -- -- (88,257)
----- --------- --------- ------- ---------
Balance at December 31, 2001 $ -- $ 604,166 $(419,819) $ -- $ 184,347
===== ========= ========= ======= =========
See notes to consolidated financial Statements
19
Loral Orion, Inc. and Subsidiaries
(A wholly owned subsidiary of Loral Space & Communications Corporation)
Consolidated Statements of Cash Flows
(in thousands)
Years ended December 31,
---------------------------------------
2001 2000 1999
--------- --------- ---------
Operating Activities
Loss from continuing operations $ (76,170) $(129,117) $ (98,732)
Non-cash items:
Extraordinary gain on debt exchanges, net of taxes (26,205) -- --
Deferred income tax provision 4,612 4,241 4,691
Depreciation and amortization 94,005 89,976 60,416
Provision for bad debts 3,460 1,070 2,009
Non-cash interest expense 39,609 37,074 33,758
Interest earned on restricted cash -- (3,518) (2,292)
Changes in operating assets and liabilities:
Accounts receivable (3,471) (5,432) (6,889)
Prepaid expenses and other current assets (5,634) 2,835 (6,925)
Other assets (3,217) 1,062 (11,303)
Accounts payable and interest payable (8,011) 2,786 5,628
Customer deposits (822) 1,220 4,261
Deferred revenue 7,861 1,265 (269)
Due from Loral companies (6,750) (430) --
Due to Loral companies 4,987 (51,260) (39,124)
--------- --------- ---------
Net cash provided by (used in) operating activities 24,254 (48,228) (54,771)
--------- --------- ---------
Net cash provided by (used in) discontinued operations 24,183 (43,482) 63,136
--------- --------- ---------
Investing Activities
Increase in restricted and segregated assets -- (64) (2,942)
Use and transfers from restricted and segregated cash -- 190,898 156,381
Property and equipment (579) (182,095) (292,945)
--------- --------- ---------
Net cash provided by (used in) investing activities (579) 8,739 (139,506)
--------- --------- ---------
Financing Activities
Proceeds from sale of orbital slots to Loral, net -- 34,260 --
Equity contributed by Loral 2,700 10,750 62,385
Increase (decrease) in note payable to Loral SpaceCom (28,166) 35,752 74,114
Repayment of notes payable (664) (1,398) (1,223)
Payment of satellite incentive obligation (2,331) (280) (246)
--------- --------- ---------
Net cash provided by (used in) financing activities (28,461) 79,084 135,030
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 19,397 (3,887) 3,889
Cash and cash equivalents at beginning of period 2 3,889 --
--------- --------- ---------
Cash and cash equivalents at end of period $ 19,399 $ 2 $ 3,889
========= ========= =========
Non-cash activities:
Exchange of senior notes and senior discount
notes for new 10% senior notes and 6.04 million Loral
warrants $ 910,600 $ -- $ --
========= ========= =========
Exchange of data services business for reduction in
note payable to Loral SpaceCom $ 50,000 $ -- --
========= ========= =========
Supplemental information:
Interest paid, net of capitalized interest $ 57,602 $ 51,879 $ 31,877
========= ========= =========
Taxes paid $ 43 $ 134 $ --
========= ========= =========
See notes to consolidated financial statements
20
Loral Orion, Inc. and Subsidiaries
(A wholly owned subsidiary of Loral Space & Communications Corporation)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS
The principal business of Loral Orion, Inc. (the "Company" or "Loral
Orion"), more recently known as Loral CyberStar, Inc., is providing fixed
satellite services, including video distribution and other satellite
transmission services by leasing 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"). Loral
Skynet, a division of Loral SpaceCom Corporation, which is a subsidiary of Loral
Space & Communications Corporation, which is in turn a subsidiary of Loral Space
& Communications Ltd. ("Loral"), manages the Company's business. Prior to
December 21, 2001, the Company operated in two business segments: Fixed
Satellite Services and Data Services. On December 21, 2001, the Company, in
connection with an exchange offer for its outstanding senior notes and senior
discount notes (notes 4 and 9), transferred its data services business to a
subsidiary of Loral. Accordingly, the Company now operates in one segment,
Fixed Satellite Services ("FSS").
21
Loral Orion, Inc. and Subsidiaries
(A wholly owned subsidiary of Loral Space & Communications Corporation)
Notes to Consolidated Financial Statements
(continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation Policy
The consolidated financial statements include the accounts of Loral Orion
and its wholly-owned subsidiaries. All intercompany transactions have been
eliminated.
Cash and Cash Equivalents
Loral Orion considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
Concentration of Credit Risk
Financial instruments which potentially subject Loral Orion to
concentrations of credit risk consist principally of cash and cash equivalents
and accounts receivable. The Company's cash and cash equivalents are maintained
with high-credit-quality financial institutions. The company does not require
collateral against its receivables; however, 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.
As of December 31, 2001 and 2000, accounts receivable was reduced by an
allowance for doubtful accounts of $1.3 million and $1.8 million, respectively.
22
Loral Orion, Inc. and Subsidiaries
(A wholly owned subsidiary of Loral Space & Communications Corporation)
Notes to Consolidated Financial Statements
(continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Satellites and Related Equipment
Satellites and related equipment consist of the following (in thousands):
December 31,
---------------------------
2001 2000
--------- ---------
Satellites and related equipment, including
satellite transponder rights of
$273 million............................. 796,118 795,539
--------- ---------
Less accumulated depreciation and
amortization............................. (216,208) (139,956)
--------- ---------
Total satellite and related equipment, net . $ 579,910 $ 655,583
========= =========
Satellites and related equipment is recorded at cost. Depreciation and
amortization expense for the years ended December 31, 2001, 2000 and 1999 was
$76.2 million, $71.4 million, and $41.6 million respectively. Accumulated
depreciation and amortization at December 31, 2001 and 2000 includes $47.4
million and $26.4 million, respectively, related to the Company's rights to
transponders for the remaining life of Telstar 10/Apstar IIR. Depreciation
expense is calculated using the straight-line method over the estimated original
useful lives of 10.5 - 16.5 years.
Costs incurred in connection with the construction and successful
deployment of satellites and related equipment are capitalized. Such costs
include direct contract costs, allocated indirect costs, launch costs, launch
insurance, construction period interest and the present value of satellite
incentive payments. Loral Orion began depreciating the Telstar 11 and Telstar 12
satellites over their estimated useful life commencing on the date of
operational delivery in orbit, January 1995 and December 1999, respectively.
Satellite lives are re-evaluated periodically. Capitalized interest for 2001,
2000, and 1999, was zero, zero and $20.3 million, respectively.
In September, 1999, Loral Orion 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 Orion has full use of the transponders for the
remaining life of Telstar 10/Apstar IIR. Loral Orion has the right to provide
replacement satellites upon the end of life of Telstar 10/Apstar IIR, for which
it will be required to pay a fee to APT for the right to use the orbital slot.
Satellites in-orbit are either leased by customers or held for lease by
the Company. Future minimum lease receipts due from customers under long-term
operating leases for transponder capacity on satellites in-orbit as of December
31, 2001 are as follows (in thousands):
2002 ................................................ $111,262
2003 ................................................ 77,312
2004 ................................................ 59,964
2005 ................................................ 54,792
2006 ................................................ 49,247
Thereafter .......................................... 225,583
--------
$578,160
========
23
Loral Orion, Inc. and Subsidiaries
(A wholly owned subsidiary of Loral Space & Communications Corporation)
Notes to Consolidated Financial Statements
(continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cost in Excess of Net Assets Acquired
Cost in excess of net assets acquired resulted from the acquisition of
the Company by Loral in March 1998 ("the Merger") and amounted to $620.4
million, which is being amortized over 40 years using the straight-line method.
Accumulated amortization relating to cost in excess of net assets acquired at
December 31, 2001 and 2000 was $58.2 million and $42.7 million, respectively.
See Accounting Pronouncements.
Valuation of Long-Lived Assets and Cost in Excess of Net Assets Acquired
The carrying value of the Company's long-lived assets, including 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. Fair value is
determined based on quoted market values, discounted cash flows or appraisals,
as appropriate in the circumstances. See Accounting Pronouncements.
Other Assets
Intangible assets are primarily amortized over the remaining useful life
of Telstar 11, which was approximately 6.75 years at the date of the Merger.
The Company amortizes FCC license application costs related to Telstar 11 and
Telstar 12 over the estimated useful lives of the satellites. Accumulated
amortization relating to other assets at December 31, 2001 and 2000 was $10.9
million and $8.6 million, respectively.
Revenue Recognition
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.
24
Loral Orion, Inc. and Subsidiaries
(A wholly owned subsidiary of Loral Space & Communications Corporation)
Notes to Consolidated Financial Statements
(continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
The benefit (provision) for income taxes on the loss before income taxes,
extraordinary gain and discontinued operations 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):
Year ended December 31,
-----------------------
2001 2000 1999
-------- -------- --------
Tax benefit at U.S. statutory ........................ $ 37,353 $ 44,872 $ 38,206
Federal income tax rate ........................... (35%) (35%) (35%)
Permanent adjustments which
change statutory amount:
Non-deductible amortization of cost in excess of
net assets acquired ............................... (5,428) (5,428) (5,411)
Valuation allowance established for carry-forward
of current year tax loss ............................. (27,578) (40,354) (22,366)
-------- -------- --------
Net income tax benefit (provision) ................... $ 4,347 $ (910) $ 10,429
======== ======== ========
In 2001, the Company is included in the U.S. federal income tax return for
Loral Space & Communications Corporation. Pursuant to a tax sharing agreement
for 2001 with Loral Space & Communications Corporation, the Company is entitled
to reimbursement for the use of its tax losses to the extent such losses are
utilized by Loral Space & Communications Corporation. For the year ended
December 31, 2001, the Company recorded a current income tax benefit of
approximately $8.8 million related to this tax sharing agreement and a deferred
tax provision of approximately $4.5 million, resulting in a net tax benefit of
approximately $4.3 million. The tax benefit for 2001 excludes (a) an additional
deferred tax provision of $8.3 million under the tax sharing agreement related
to the extraordinary gain on debt exchanges and (b) a current tax benefit of
$0.1 million under the tax sharing agreement and a current foreign tax
provision of $1.1 million related to discontinued operations.
In 2000, the Company was included in the U.S. federal income tax return
for Loral Space & Communications Corporation. Pursuant to a tax sharing
agreement for 2000 with Loral Space & Communications Corporation, the Company
was entitled to reimbursement for the use of its tax losses to the extent such
losses were utilized by Loral Space & Communications Corporation. For the year
ended December 31, 2000, the Company recorded a current income tax benefit of
approximately $3.3 million related to this tax sharing agreement and a deferred
tax provision of approximately $4.2 million, resulting in a net tax provision
of approximately $0.9 million. The net tax provision for 2000 excludes a
current foreign tax provision of $0.2 million related to discontinued
operations.
In 1999, the Company was included in the U.S. federal income tax return
for Loral Space & Communications Corporation. Pursuant to a tax sharing
agreement for 1999 with Loral Space & Communications Corporation, the Company
was entitled to reimbursement for the use of its tax losses to the extent such
losses were utilized by Loral Space & Communications Corporation. For the year
ended December 31, 1999, the Company recorded a current income tax benefit of
approximately $15.1 million related to this tax sharing agreement and a deferred
tax provision of approximately $4.7 million, resulting in a net tax benefit of
approximately $10.4 million. The net tax benefit for 1999 excludes a
current foreign tax provision of $0.1 million related to discontinued
operations.
25
Loral Orion, Inc. and Subsidiaries
(A wholly owned subsidiary of Loral Space & Communications Corporation)
Notes to Consolidated Financial Statements
(continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company recognizes deferred tax assets and liabilities for the
expected future consequences of temporary differences between financial
reporting and tax bases of assets and liabilities using enacted tax rates in
effect at the end of the year.
Following is a summary of the components of the net deferred income tax
asset at December 31, 2001 and 2000 (in thousands):
December 31,
----------------------------
2001 2000
--------- ---------
Net operating loss carryforwards ......... $ 79,096 $ 161,429
Premium on Senior Notes .................. 191,121 111,528
Amortization of intangibles .............. (1,716) (2,457)
Depreciation ............................. (69,302) (55,326)
Other .................................... 3,007 5,002
--------- ---------
Subtotal ................................. 202,206 220,176
Less valuation allowance ................. (170,076) (175,194)
--------- ---------
Net deferred income tax asset ............ $ 32,130 $ 44,982
========= =========
At December 31, 2001, the Company had approximately $293 million in net
operating loss carryforwards which expire at varying dates from 2011 through
2020. Pursuant to its tax sharing agreement with Loral Space & Communications
Corporation, the Company has received cumulative reimbursements of $32 million
as of December 31, 2001, for the partial use of these net operating loss
carryforwards. Due to uncertainties regarding its ability to realize the
remaining benefits from these net operating loss carryforwards and certain other
net deferred tax assets, the Company established a valuation allowance against
its net deferred tax assets of $170 million at December 31, 2001, $175 million
at December 31, 2000 and $131 million at December 31, 1999.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 amounts of revenues and expenses
reported for the period. Significant estimates include the estimated useful
lives of the company's satellites and the amortization period of costs in excess
of net assets. Actual results could differ from those estimates.
Comprehensive Loss
During the periods presented, comprehensive loss from continuing
operations was the same as net loss. Cumulative translation losses attributable
to discontinued operations were $0.4 million, $0.6 million and $1.4 million, in
2001, 2000 and 1999, respectively.
26
Loral Orion, Inc. and Subsidiaries
(A wholly owned subsidiary of Loral Space & Communications Corporation)
Notes to Consolidated Financial Statements
(continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounting Pronouncements
On January 1, 2001, the Company adopted SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS 133 requires
that all derivative instruments be recorded on the balance sheet at their fair
value. Changes in the fair value of derivatives that do not qualify, or are not
effective as hedges, must be recognized currently in earnings. There was no
effect on the Company due to adoption of this standard, as the Company had no
stand-alone or embedded derivatives at January 1, 2001, and as a matter of
policy does not currently enter into transactions involving derivative financial
instruments.
In September 2000, the FASB issued SFAS No. 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities ("SFAS
140"). SFAS 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 adopted the applicable
disclosure requirements of SFAS 140 in its consolidated financial statements for
the year ended December 31, 2000. The Company has determined that there was no
effect on the Company's consolidated financial position or results of operations
relating to the adoption of the other provisions of SFAS 140.
In June 2001, the FASB issued SFAS No. 141, Business Combinations ("SFAS
141") and SFAS No. 142, Goodwill and Other Intangible Assets ("SFAS 142"). SFAS
141 requires that all business combinations initiated after June 30, 2001, be
accounted for under the purchase method and addresses the initial recognition
and measurement of goodwill and other intangible assets acquired in a business
combination. SFAS 142 addresses the initial recognition and measurement of
intangible assets acquired outside of a business combination and the accounting
for goodwill and other intangible assets subsequent to their acquisition. SFAS
142 provides that intangible assets with finite useful lives be amortized and
that goodwill and intangible assets with indefinite lives not be amortized, but
will rather be tested at least annually for impairment. The Company will adopt
SFAS 142 on January 1, 2002. Upon adoption of SFAS 142, the Company will stop
the amortization of goodwill with a net carrying value of approximately $562
million at the date of adoption and annual amortization of approximately $16
million that resulted from business combinations completed prior to the
adoption of SFAS 141. Based on management's preliminary evaluation under the
new transitional impairment test in SFAS 142, the Company expects to record a
non-cash charge in the first quarter of 2002 to write-off a portion or all of
its goodwill. Any transitional impairment loss will be recognized as a change
in accounting principle.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations ("SFAS 143"). SFAS 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. It applies to legal
obligations associated with the retirement of long-lived assets that result from
the acquisition, construction, development and the normal operation of a
long-lived asset, except for certain obligations of lessees. The Company is
required to adopt SFAS 143 on January 1, 2003. The Company has not yet
determined the impact that the adoption of SFAS 143 will have on its results of
operations or its financial position.
In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets ("SFAS 144"). SFAS 144 addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. It supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and
reporting provisions of APB 30, Reporting the Results of Operations -- Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and
27
Loral Orion, Inc. and Subsidiaries
(A wholly owned subsidiary of Loral Space & Communications Corporation)
Notes to Consolidated Financial Statements
(continued)
Transactions, for the disposal of a segment of a business. The Company is
required to adopt SFAS 144 on January 1, 2002. The Company expects that there
will be no effect on the Company's consolidated financial position or results of
operations relating to the adoption of SFAS 144.
Reclassifications
Certain prior year amounts have been reclassified to conform to the
current year presentation. In addition, the Company's historical consolidated
balance sheets, statements of operations and cash flows have been restated to
account for the data services segment as a discontinued operation.
3. COMMITMENTS AND CONTINGENCIES
In November 1995, a component on Telstar 11 malfunctioned,
resulting in a 2-hour service interruption. The malfunctioning component
supported nine transponders serving the European portion of Telstar 11's
footprint. Full service was restored using a back-up component. If that back-up
component fails, Telstar 11 would lose a significant amount of usable capacity.
In such event, while the Company would be entitled to insurance proceeds of
approximately $195 million as of December 31, 2001, and could lease replacement
capacity and function as a reseller with respect to such capacity, the loss of
capacity would have a material adverse effect on the Company.
Telstar 12 was launched in October 1999 into 15 degrees W.L., and
commenced operations in January 2000. Although Telstar 12 was originally
intended to operate at 12 degrees W.L., Loral Orion reached an agreement with
Eutelsat to operate Telstar 12 at 15 degrees W.L. while Eutelsat continued 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 Orion's behalf. As part of this coordination effort Loral
Orion agreed to provide to Eutelsat four transponders on Telstar 12 for the life
of the satellite and has retained risk of loss. 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, the Company
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.
Telstar 10/Apstar IIR has experienced minor losses of power from its solar
arrays. Although, to date, Telstar 10/Apstar IIR has not experienced any
degradation in performance, there can be no assurance that Telstar 10/Apstar IIR
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, when in the
life of Telstar 10/Apstar IIR the loss occurred, and the number and type of uses
being made of transponders then in service. A complete or partial loss of
Telstar 10/Apstar IIR could result in a loss of revenues and profits. Based upon
information currently available, including design redundancies to accommodate
small power losses and the fact 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 its
consolidated financial position or its results of operations.
While the Company has in the past, consistent with industry practice,
typically obtained in-orbit insurance for its satellites, the Company cannot
guarantee that, upon a policy's expiration, the Company will be able to renew
the insurance on acceptable terms, especially on satellites that have, or that
are part of a family of satellites that have experienced problems in the past.
For example, in connection with the renewal of the insurance for the Telstar
10/Apstar IIR satellite in October 2001, the insurance underwriters have
excluded losses due to solar array failures, since Telstar 10/Apstar IIR was
manufactured by Space Systems/Loral ("SS/L") and has the same solar array
configuration as another 1300-class satellite manufactured by SS/L that recently
experienced a solar array failure. SS/L believes that this failure is an
isolated event and does not reflect a systemic problem in either the satellite
design or manufacturing process. Accordingly, the Company does not believe that
this anomaly will affect Telstar 10/ Apstar IIR. Loral is currently in
discussions with the Company's insurers to remove this exclusion from the
Telstar 10/ Apstar IIR policy in return for a deductible for losses arising
from electrical problems on the satellite's solar arrays. There can be no
assurance that these discussions will be successful. An uninsured loss of a
satellite will have a material adverse effect on the Company's consolidated
financial position and its results of operations.
Loral Orion anticipates it will have additional requirements over the next
three years to fund the replacement of Telstar 11 which is expected to reach the
end of its useful life in 2005. To the extent that excess cash flow from Loral
Orion's satellites is not sufficient to meet these requirements, Loral Orion
will need to secure funding from Loral, or raise additional financing to fund
this requirement. Sources of additional capital may include public or private
debt, vendor financing, equity financings or strategic investments. To the
extent that Loral Orion seeks to raise additional debt financing, its indenture
relating to the Company's 10% senior notes limits the amount of such additional
debt to $100 million for such replacement satellite and
28
Loral Orion, Inc. and Subsidiaries
(A wholly owned subsidiary of Loral Space & Communications Corporation)
Notes to Consolidated Financial Statements
(continued)
prohibits Loral Orion from using Telstar 11, Telstar 10/Apstar IIR and Telstar
12 as collateral for indebtedness.
The Company is party to various litigation arising in the normal course of
its operations. In the opinion of management, the ultimate liability for these
matters, if any, will not have a material adverse effect on the Company's
financial position or results of operations.
4. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
December 31,
--------------------------
2001 2000
---------- -----------
10.00% senior notes due 2006 (principal amount $613
million at December 31, 2001) .................................................. $ 903,738 $ --
11.25% senior notes due 2007 (principal amount $37 million and $443 million at
December 31, 2001 and 2000,
respectively) .................................................................. 40,385 495,377
12.5% senior discount notes due 2007 (principal amount at
maturity $49 million and $484 million and accreted principal
amount $49 million and $427 million at December 31, 2001
and 2000,respectively) ......................................................... 54,696 491,841
Note payable - TT&C Facility ...................................................... -- 2,331
Satellite incentive obligations ................................................... 10,185 10,848
---------- -----------
Total debt .................................................................. 1,009,004 1,000,397
Less, current portion ............................................................. 49,449 2,406
---------- -----------
Long-term debt .............................................................. $ 959,555 $ 997,991
========== ===========
Aggregate annual maturities of the carrying value of long-term debt,
including unamortized deferred amounts on senior notes, consist of the following
(in thousands):
2002 ............................................... $ 49,449
2003 ............................................... 64,727
2004 ............................................... 64,899
2005 ............................................... 65,296
2006 ............................................... 678,443
Thereafter ......................................... 86,190
----------
$1,009,004
==========
On December 21, 2001, Loral Orion completed exchange offers and consent
solicitations by issuing $613 million principal amount of new senior notes due
2006 ("New Senior Notes") guaranteed by Loral, in exchange for the
29
extinguishment of $841 million principal amount of Loral Orion senior notes due
2007 and senior discount notes due 2007 as discussed below. As part of the
exchange, Loral issued to the New Senior Note holders 6.04 million five-year
warrants to purchase Loral common stock at a price of $2.37 per share. The
warrants were valued at $6.7 million using the Black Scholes option pricing
model with the following assumptions: stock volatility, 75%, risk free interest
rate, 4.36%, and no dividends during the expected term and is reflected in
capital in excess of par value on the consolidated balance sheet. After the
exchange offers, principal amount of $37 million of the existing senior notes
and principal amount of $49 million of the existing senior discount notes remain
outstanding at their original maturities and interest rates.
30
Loral Orion, Inc. and Subsidiaries
(A wholly owned subsidiary of Loral Space & Communications Corporation)
Notes to Consolidated Financial Statements
(continued)
4. LONG-TERM DEBT (CONTINUED)
The interest rate on the New Senior Notes is 10%, a reduction from the
11.25% interest rate on the existing senior notes and the 12.5% rate on the
existing senior discount notes. Interest is payable semi-annually on July 15 and
January 15, beginning July 15, 2002. As a result of the lower interest rate and
the $229 million reduction in principal amount of debt, Loral Orion's annual
cash interest payments will be reduced by approximately $39 million. Under U.S.
generally accepted accounting principles dealing with debt restructurings, the
Company recorded an after-tax extraordinary gain of $26 million on the exchange,
after expenses of $5 million. The carrying value of the New Senior Notes on the
balance sheet is $904 million, although the actual principal amount of the New
Senior Notes is $613 million. The difference between this carrying value and the
actual principal amount of the New Senior Notes will be amortized over the life
of the New Senior Notes, fully offsetting interest expense through maturity of
the New Senior Notes. The indenture relating to the New Senior Notes contains
limitations on Loral Orion and its subsidiaries, including, without limitation,
restrictions on Loral Orion's ability to pay dividends or make loans to Loral.
In connection with the consummation of the exchange offer, Loral SpaceCom
Corporation("LSC") a subsidiary of Loral, canceled its $79.7 million
intercompany note issued to it by Loral Orion which ranked pari passu to senior
debt in exchange for the transfer of Loral Orion's data services business(see
Note 9) and the issuance of a new note to LSC in the principal amount of $29.7
million due 2006, having an interest rate of 10% per annum payable in kind,
subordinated to Loral Orion's New Senior Notes. Loral Orion's data services
business was transferred to a newly-formed subsidiary of Loral (see Note 9),
which assumed the name "Loral CyberStar, Inc". In addition, as a result of the
transfer of the Company's data services business, the Company recognized capital
contributions from Loral of $9.2 million, which represents the difference in the
carrying value of the net assets of the data services business and the $50.0
million portion of net notes cancelled by LSC and the expenses of the exchange
offer in excess of $5 million.
The Loral Orion senior notes are due in 2007 and pay interest
semi-annually on January 15 and July 15 of each year. The senior discount notes
are due in 2007 and pay interest semi-annually commencing on July 15, 2002. The
accreted principal value of the senior discount notes was $49 million and $427
million as of December 31, 2001 and 2000, respectively. Along with the original
issuance of each senior note and senior discount note, one warrant was
originally issued to purchase shares of common stock. In connection with the
Merger, each warrant was converted so that it could purchase shares of Loral
common stock. As of December 31, 2001, exercisable warrants for 68,045 shares
of Loral common stock at an exercise price of $0.02 per share under the Loral
Orion senior notes and 126,359 shares of Loral common stock at an exercise
price of $0.03 per share under the Loral Orion senior discount notes are yet to
be exercised.
In connection with the Merger, the carrying value of the
senior notes and senior discount notes were increased to reflect a fair value
adjustment 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.
31
Loral Orion, Inc. and Subsidiaries
(A wholly owned subsidiary of Loral Space & Communications Corporation)
Notes to Consolidated Financial Statements
(continued)
4. LONG-TERM DEBT (CONTINUED)
Loral and Loral Asia Pacific Satellite (HK) Limited ("Loral HK Sub") have
unconditionally guaranteed, and the Company's future restricted subsidiaries
will unconditionally guarantee, the New Senior Notes, on a joint and several
basis. Loral HK Sub continues to provide a guarantee to the senior notes and
senior discount notes that remain outstanding.
No restrictions exist on the ability of Loral HK Sub and the Company's
future restricted subsidiaries, to pay dividends or make other distributions to
Loral Orion, except to the extent provided by law generally (e.g., adequate
capital to pay dividends under state corporate laws).
Satellite Incentive Obligations -- The obligations relating to satellite
performance have been recorded at the present value (discounted at 12 percent,
the Company's estimated incremental borrowing rate for unsecured financing at
the date of the obligations)of the required payments through 2007.
5. FAIR VALUES OF FINANCIAL INSTRUMENTS
Other than amounts due under the New Senior Notes, senior notes and senior
discount notes, the Company believes that the carrying amounts reported in the
balance sheets of its other financial assets and liabilities approximates their
fair value at December 31, 2001 and 2000. The fair value of the Company's New
Senior Notes, senior notes and senior discount notes was estimated based on
quoted market prices, and at December 31, 2001 was approximately $452 million
and at December 31, 2000 was approximately $271 million.
6. SEGMENTS
The Company has presented the results of its previously reported data
services segment as a discontinued operation (see Notes 4 and 9). As a result,
the Company's continuing operations are organized and operate in one business
segment: Fixed Satellite Services(see Note 1). The Company's segment information
has been restated to reflect the results of such transactions. In evaluating
financial performance, management uses revenues and earnings before interest,
taxes and depreciation ("EBITDA") as the measure of profit or loss. Revenues
before elimination of intercompany revenues from its discontinued operations
and other eliminations totaled $128.7 million, $109.4 million and $42.8 million
for the years ended December 31, 2001, 2000, and 1999, respectively. EBITDA on
the same basis totaled $105.2 million, $81.9 million and $21.7 million for the
years ended December 31, 2001, 2000 and 1999, respectively. EBITDA (which is
equivalent to operating income (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 the Company's operating results. However, EBITDA
should not be construed as 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.
32
Loral Orion, Inc. and Subsidiaries
(A wholly owned subsidiary of Loral Space & Communications Corporation)
Notes to Consolidated Financial Statements
(continued)
6. SEGMENTS (CONTINUED)
33
Loral Orion, Inc. and Subsidiaries
(A wholly owned subsidiary of Loral Space & Communications Corporation)
Notes to Consolidated Financial Statements
(continued)
6. SEGMENTS (CONTINUED)
With the exception of the Company's satellites in orbit, the Company's
long-lived assets are primarily located in the United States.
The following summarizes the Company's domestic and foreign revenues (in
thousands):
Year ended December 31,
-----------------------
2001 2000 1999
--------- --------- -------
Revenues from unaffiliated customers:
United States ........................... $ 61,216 $46,157 $20,984
Taiwan .................................. 9,537 -- 450
The Netherlands ......................... 9,239 6,284 251
China ................................... 7,511 12,886 367
Singapore ............................... 6,139 5,861 1,023
Germany ................................. 5,781 3,660 1,851
United Kingdom .......................... 4,133 3,898 3,999
Other foreign ........................... 5,389 4,638 6,796
-------- ------- -------
Total revenue ............................. $108,945 $83,384 $35,721
======== ======= =======
34
Loral Orion, Inc. and Subsidiaries
(A wholly owned subsidiary of Loral Space & Communications Corporation)
Notes to Consolidated Financial Statements
(continued)
7. RELATED PARTY TRANSACTIONS
Due from Loral companies consist of the following (in thousands):
December 31,
-------------------
2001 2000
------ ------
Due from Loral Space and Communications Corp. ........ $6,728 $ --
Due from Space Systems/Loral ......................... 353
Due from Loral Cyberstar ............................. 374 --
Due from CyberStar L.P. .............................. 79 78
------ ------
$7,181 $ 431
====== ======
Due to Loral companies consist of the following (in thousands):
December 31,
-------------------
2001 2000
------ ------
Due to Space Systems/Loral ........................... $ 9 $ --
Due to Loral Skynet .................................. 1,336 4,038
Due to Loral Space and Communications Ltd. ........... 1,031 --
------ ------
$2,376 $4,038
====== ======
Loral Orion obtained financing (via an intercompany note from Loral
SpaceCom) to complete the construction of its satellite fleet and meet its
operating requirements. At December 31, 2001, $29.7 million was outstanding,
which is reflected on the balance sheet as a subordinated note payable to Loral
SpaceCom (see Note 4). Borrowings and accrued interest from Loral SpaceCom
totaled $107.9 million at December 31, 2000.
Loral Orion and Loral Skynet have entered into agreements (the "Loral
Skynet Agreements") effective January 1, 1999, whereby Loral Skynet provides to
Loral Orion (i) marketing and sales of satellite capacity services on the Loral
Orion satellite network and related billing and administration of customer
contracts for those services (the "Sales Services") and (ii) telemetry, tracking
and control services for the Loral Orion satellite network (the "Technical
Services", and together with the Sales Services, the "Services"). Loral Orion is
charged Loral Skynet's costs for providing these services plus a 5 percent
administrative fee, which amounted to $9.1 million for 2001, $21.4 million for
2000 and $18.7 for 1999.
Space Systems/Loral ("SS/L"), a subsidiary of Loral SpaceCom, built the
Company's Telstar 12 satellite that was launched in October 1999. The Company
made payments to SS/L during 2001, 2000 and 1999 totaling approximately $8.1
million, $9.8 million and $98.3 million, respectively, for construction, launch
and insurance costs.
In December 1999, in connection with a contractual arrangement between
SS/L and one of SS/L's customers, Loral Orion agreed to lease to SS/L the
capacity of three transponders on Telstar 10/Apstar IIR through the end of its
life. Under this arrangement, Loral Orion recorded revenue of $4.2 million and
$4.4 million in 2001 and 2000, respectively. Under another arrangement with
SS/L, Loral Orion recorded revenue of $2.5 million in 2001 related to
transponder capacity for another customer.
35
Loral Orion, Inc. and Subsidiaries
(A wholly owned subsidiary of Loral Space & Communications Corporation)
Notes to Consolidated Financial Statements
(continued)
8. RELATED PARTY TRANSACTIONS (CONTINUED)
On March 24, 2000, Loral Orion entered into an agreement with a subsidiary
of Loral to assign to the Loral subsidiary, pending regulatory approval, its
Ka-band orbital slots located at 89 degrees N.L., 81 degrees W.L., 78 degrees
E.L. and 47 degrees W.L. In connection this transaction, Loral Orion also agreed
to transfer to the Loral subsidiary all agreements, including satellite
construction contracts, related to such slots. The total purchase price for the
slots and these agreements was $36.5 million, which was applied by Loral Orion
toward the last installment payment on Telstar 10/Apstar IIR In connection with
the sale, the Company recorded a gain of approximately $34 million. Since the
sale was to a subsidiary of Loral, the gain was credited directly to equity.
This assignment was approved by the Federal Communications Commission on
December 11, 2000.
9. DISCONTINUED OPERATIONS
The historical consolidated balance sheet, statements of operations and
cash flows have been restated for all periods presented to account for the data
services segment as a discontinued operation. The financial data presented for
the Company's data services segment reflects the historical sales and expenses
of the data services segment after elimination of intercompany transactions with
FSS. Discontinued operations include revenue for the data services segment of
$80.2 million, $103.8 million and $69.2 million for the period January 1, 2001
to December 21, 2001 and the years ended December 31, 2000 and 1999,
respectively. See Note 4.
The data services segment began leasing transponder capacity from Loral
Skynet in 2000. Amounts incurred for transponder capacity leased from Loral
Skynet totaled $3.0 million and $4.5 million in 2001 and 2000 respectively,
and are included in the results of discontinued operations (see Note 4).
10. FINANCIAL INFORMATION FOR THE ISSUER'S PARENT, GUARANTORS AND OTHER
SUBSIDIARIES
In December 2001, Loral Orion (the "Parent Company") issued New Senior
Notes in an exchange offer (see Note 4) which are fully and unconditionally
guaranteed, on a joint and several basis, by the Parent Company and one of its
wholly-owned subsidiaries (the "Guarantor Subsidiary") and Loral ("Issuer's
Parent"). The Company's remaining original senior notes and senior discount
notes are fully and unconditionally guaranteed on a joint and several basis by
the Parent Company, the Guarantor subsidiary and substantially all of the other
wholly-owned subsidiaries in existence through December 21, 2001 (the "Other
Subsidiaries").
Presented below is condensed consolidating financial information for the
Parent Company, Issuer's Parent, the Guarantor Subsidiary and the Other
Subsidiaries for the years ended December 31, 2001, 2000 and 1999. The Other
Subsidiaries were part of the Company's data services segment which was
transferred on December 21, 2001 to a subsidiary of Loral (see Note 4) and have
been accounted for as a discontinued operation. The condensed consolidating
financial information has been presented to show the nature of assets held,
results of operations and cash flows of the Parent Company, Issuer's Parent,
Guarantor Subsidiary and Other Subsidiaries.
The supplemental condensed consolidating financial information reflects
the investments of the Parent Company in the Guarantor Subsidiary and the
Other Subsidiaries using the equity method of accounting. The Company's
significant transactions with its subsidiaries other than the investment account
and related equity in net loss of unconsolidated subsidiaries are the
intercompany payables and receivables between its subsidiaries. The note payable
due to Loral SpaceCom, bears interest at 10% per annum. All principal and
interest is due at maturity on July 30, 2006.
36
Loral Orion, Inc. and Subsidiaries
(A wholly owned subsidiary of Loral Space & Communications Corporation)
Notes to consolidated Financial Statements
(continued)
10. FINANCIAL INFORMATION FOR ISSUER'S PARENT, GUARANTORS AND OTHER
SUBSIDIARIES -- (Continued)
LORAL ORION, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2001
(in thousands)
PARENT ISSUER'S GUARANTOR OTHER
COMPANY PARENT SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ------------- ------------ ------------
Current assets:
Cash and cash equivalents.............. $ 19,399 $ 46,068 $ -- $ -- $ (46,068) $ 19,399
Accounts receivable, net............... 13,071 -- 497 -- -- 13,568
Prepaid expenses and other current
assets............................... 6,053 265 5,151 -- (265) 11,204
---------- ---------- ------- --------- ----------- ----------
Total current assets............ 38,523 46,333 5,648 -- (46,333) 44,171
Property, plant and equipment, net....... 354,196 -- 225,714 -- -- 579,910
Costs in excess of net assets acquired,
net.................................... 562,201 -- -- -- -- 562,201
Notes (payable) receivable from
unconsolidated subsidiaries.............. (29,700) 200,000 -- -- (200,000) (29,700)
Due to (from) unconsolidated
subsidiaries........................... (62,961) 12,915 72,978 -- (18,127) 4,805
Investments in unconsolidated
subsidiaries........................... 297,349 1,432,614 (271,698) -- (1,458,265) --
Investments in and advances to
affiliates............................. -- 77,061 -- -- (77,061) --
Deferred tax assets...................... 32,130 -- -- -- -- 32,130
Other assets, net........................ 20,836 6,632 832 -- (6,632) 21,668
---------- ---------- ------- --------- ----------- ----------
$1,212,574 $1,775,555 $33,474 $ -- $(1,806,418) $1,215,185
========== ========== ======= ========= =========== ==========
Current liabilities:
Current portion of long-term debt...... $ 49,449 $ -- $ -- $ -- $ -- $ 49,449
Accounts payable....................... 2,677 1,357 713 -- (1,357) 3,390
Customer advances...................... 952 -- 128 -- -- 1,080
Accrued interest and preferred
dividends............................ 1,889 22,543 -- -- (22,543) 1,889
Deferred revenue....................... 5,719 -- 235 -- -- 5,954
Income taxes payable................... -- 7,939 -- -- (7,939) --
Deferred tax liabilities............... -- 21,222 -- -- (21,222) --
---------- ---------- ------- --------- ----------- ----------
Total current liabilities....... 60,686 53,061 1,076 -- (53,061) 61,762
Deferred tax liabilities................. -- 21,626 5,214 -- (26,840) --
Long-term liabilities.................... 7,986 -- 1,533 -- 2 9,521
Long-term debt........................... 959,555 350,000 -- -- (350,000) 959,555
Shareholders' equity:
6% Series C convertible redeemable
preferred stock...................... -- 485,371 -- -- (485,371) --
6% Series D convertible redeemable
preferred stock...................... -- 296,529 -- -- (296,529) --
Common stock, par value $.01........... -- 3,368 -- -- (3,368) --
Paid-in capital........................ 604,166 2,771,964 -- -- (2,771,964) 604,166
Treasury stock, at cost................ -- (3,360) -- -- 3,360 --
Unearned compensation.................. -- (81) -- -- 81 --
Retained deficit....................... (419,819) (2,223,710) 25,651 -- 2,198,059 (419,819)
Accumulated other comprehensive
income............................... -- 20,787 -- -- (20,787) --
---------- ---------- ------- --------- ----------- ----------
Total stockholder's equity...... 184,347 1,350,868 25,651 -- (1,376,519) 184,347
---------- ---------- ------- --------- ----------- ----------
$1,212,574 $1,775,555 $33,474 $ -- $(1,806,418) $1,215,185
========== ========== ======= ========= =========== ==========
37
Loral Orion, Inc. and Subsidiaries
(A wholly owned subsidiary of Loral Space & Communications Corporation)
Notes to Consolidated Financial Statements
(continued)
10. FINANCIAL INFORMATION FOR ISSUER'S PARENT, GUARANTORS AND OTHER
SUBSIDIARIES -- (Continued)
LORAL ORION, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2001
(IN THOUSANDS)
PARENT ISSUER'S GUARANTOR OTHER
COMPANY PARENT SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ------------- ------------ ------------
Revenues from satellite services.......... $ 96,623 $ -- $51,461 $ -- $(39,139) $ 108,945
--------- --------- ------- ---------- -------- ----------
Total revenues................... 96,623 -- 51,461 -- (39,139) 108,945
Costs of satellite services............... 119,917 -- 26,407 -- (39,139) 107,185
Selling, general and administrative
expenses................................ 10,796 1,243 -- -- (1,243) 10,796
Management fee expense.................... -- 36,730 -- -- (36,730) --
--------- --------- ------- ---------- -------- ----------
Operating income (loss)................... (34,090) (37,973) 25,054 -- 37,973 (9,036)
Interest and investment income............ 644 23,238 9 -- (23,238) 653
Interest expense.......................... (98,310) (37,629) (29) -- 37,629 (98,339)
--------- --------- ------- ---------- -------- ----------
(Loss) income before income taxes, equity
in net loss of unconsolidated
subsidiaries and affiliates,
extraordinary gain, and discontinued
operations.............................. (131,756) (52,364) 25,034 -- 52,364 (106,722)
Income tax benefit (provision)............ 13,109 (6,315) (8,762) -- 6,315 4,347
--------- --------- ------- ---------- -------- ----------
(Loss) income before equity in net loss of
unconsolidated subsidiaries and
affiliates, extraordinary gain,
and discontinued operations............. (118,647) (58,679) 16,272 -- 58,679 (102,375)
Equity in net loss of unconsolidated
subsidiaries, net of tax benefit........ 16,272 (66,128) -- -- 49,856 --
Equity in net loss of affiliates, net of
taxes................................... -- (71,653) -- -- 71,653 --
--------- --------- ------- ---------- -------- ----------
(Loss) income before extraordinary gain,
and discontinued operations............. (102,375) (196,460) 16,272 -- 180,188 (102,375)
Extraordinary gain on debt exchanges, net
of taxes................................ 26,205 -- -- -- -- 26,205
--------- --------- ------- ---------- -------- ----------
(Loss) income from continuing
operations.............................. (76,170) (196,460) 16,272 -- 180,188 (76,170)
Loss from operations of discontinued
operations, net of taxes................ (7,765) -- -- (4,322) -- (12,087)
--------- --------- ------- ---------- -------- ----------
Net (loss) income ........................ $ (83,935) $(196,460) $16,272 $ (4,322) $180,188 $ (88,257)
========= ========= ======= ========== ======== ==========
38
Loral Orion, Inc. and Subsidiaries
(A wholly owned subsidiary of Loral Space & Communications Corporation)
Notes to Consolidated Financial Statements
(continued)
10. FINANCIAL INFORMATION FOR ISSUER'S PARENT, GUARANTORS AND OTHER
SUBSIDIARIES -- (Continued)
LORAL ORION, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2001
(IN THOUSANDS)
PARENT ISSUER'S GUARANTOR OTHER
COMPANY PARENT SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- --------- ---------- ------------- ------------ ------------
Operating activities:
Loss income from continuing operations...... $(76,170) $(196,460) $16,272 $ -- $180,188 $ (76,170)
Non-cash items:
Extraordinary gain on debt exchanges, net
of taxes................................ (26,205) -- -- -- -- (26,205)
Equity in net loss of affiliates, net of
taxes................................... -- 71,653 -- -- (71,653) --
Equity in net loss of unconsolidated
subsidiaries, net of taxes.............. (16,272) 66,128 -- -- (49,856) --
Deferred taxes............................ 4,516 5,905 6,517 96 (12,422) 4,612
Depreciation and amortization............. 72,992 -- 21,013 -- 94,005
Non-cash interest expense................. 39,609 -- -- -- -- 39,609
Provision for bad debt.................... 3,460 -- -- -- -- 3,460
Changes in operating assets and liabilities,
net of acquisitions:
Accounts receivable, net.................... (4,676) -- 1,205 -- -- (3,471)
Other current assets........................ (2,083) -- (2,756) -- (795) (5,634)
Deposits.................................... 863 -- (863) -- -- --
Due to (from) unconsolidated subsidiaries... 29,721 6,075 (38,795) -- 1,236 (1,763)
Other assets................................ (2,889) -- (329) -- 1 (3,217)
Accounts payable............................ (8,011) 96 -- -- (96) (8,011)
Accrued expenses and other current
liabilities............................... 2,166 (2,538) (2,166) -- 2,538 --
Customer advances........................... (724) -- (98) -- -- (822)
Income taxes payable........................ -- 402 -- -- (402) --
Long-term liabilities....................... 7,861 -- -- -- -- 7,861
Other....................................... -- 918 -- -- (918) --
-------- --------- ------- --------- -------- ---------
Net cash provided by (used in) operating
activities.................................. 24,158 (47,821) -- 96 47,821 24,254
Net cash provided by (used in) discontinued
operations.................................. 24,279 -- -- (96) -- 24,183
-------- --------- ------- --------- -------- ---------
Investing activities:
Capital expenditures........................ (579) -- -- -- -- (579)
Investments in and advances to affiliates... -- (19,668) -- -- 19,668 --
Investments in and advances to
unconsolidated subsidiaries............... -- (2,102) -- -- 2,102 --
-------- --------- ------- --------- -------- ---------
Net cash (used in) provided by investing
activities.................................. (579) (21,770) -- -- 21,770 (579)
-------- --------- ------- --------- -------- ---------
Financing activities:
Repayments of other long-term obligations... (2,995) -- -- -- -- (2,995)
Preferred dividends......................... -- (52,218) -- -- 52,218 --
Proceeds from other stock issuances......... -- 16,472 -- -- (16,472) --
Repayment of note due to Loral SpaceCom..... (28,166) -- -- -- -- (28,166)
Equity contributed by Loral................. 2,700 -- -- -- -- 2,700
-------- --------- ------- --------- -------- ---------
Net cash (used in) provided by financing
activities.................................. (28,461) (35,746) -- -- 35,746 (28,461)
-------- --------- ------- --------- -------- ---------
Increase (decrease) in cash and cash
equivalents................................. 19,397 (105,337) -- -- 105,337 19,397
Cash and cash equivalents -- beginning of
period...................................... 2 151,405 -- -- (151,405) 2
-------- --------- ------- --------- -------- ---------
Cash and cash equivalents -- end of period.... $ 19,399 $ 46,068 $ -- $ $(46,068) $ 19,399
======== ========= ======= ========= ======== =========
39
Loral Orion, Inc. and Subsidiaries
(A wholly owned subsidiary of Loral Space & Communications Corporation)
Notes to Consolidated Financial Statements
(continued)
10. FINANCIAL INFORMATION FOR ISSUER'S PARENT, GUARANTORS AND OTHER
SUBSIDIARIES -- (Continued)
LORAL ORION, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2000
(IN THOUSANDS)
PARENT ISSUER'S GUARANTOR OTHER
COMPANY PARENT SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ----------- ---------- ------------- ------------ ------------
Current assets:
Cash and cash equivalents.................. $ 2 $ 151,405 $ -- $ -- $ (151,405) $ 2
Accounts receivable, net................... 11,854 -- 1,702 -- -- 13,556
Prepaid expenses and other current
assets................................... 3,175 1,965 2,395 -- (1,965) 5,570
Net assets of discontinued operations...... 60,001 -- -- 26,365 -- 86,366
---------- ----------- --------- ----------- ----------- -----------
Total current assets................. 75,032 153,370 4,097 26,365 (153,370) 105,494
Property, plant and equipment, net.......... 408,857 -- 246,726 -- -- 655,583
Costs in excess of net assets acquired,
net........................................ 577,710 -- -- -- -- 577,710
Notes (payable) receivable from
unconsolidated subsidiaries................ (107,866) 200,000 -- -- (200,000) (107,866)
Due to (from) unconsolidated subsidiaries... (39,093) 12,264 33,388 -- (10,166) (3,607)
Investments in unconsolidated
subsidiaries............................... 307,442 1,505,870 (271,698) -- (1,541,614) --
Investments in and advances to affiliates... -- 129,046 -- -- (129,046) --
Deferred tax assets......................... 44,982 -- 2,098 -- (2,098) 44,982
Other assets................................ 20,290 6,658 503 -- (6,658) 20,793
---------- ----------- --------- ----------- ----------- -----------
$1,287,354 $ 2,007,208 $ 15,114 $ 26,635 $(2,042,952) $ 1,293,089
========== =========== ========= =========== =========== ===========
Current liabilities:
Current portion of long-term debt.......... $ 2,406 $ -- $ -- $ -- $ -- $ 2,406
Accounts payable........................... 3,701 1,259 -- -- (1,259) 3,701
Customer advances.......................... 642 -- 226 -- -- 868
Accrued interest and preferred dividends... 22,842 25,081 -- -- (25,081) 22,842
Other current liabilities.................. (879) -- 3,114 -- -- 2,235
Income taxes payable....................... -- 7,537 -- -- (7,537) --
Deferred tax liabilities................... -- 15,317 -- -- (15,317) --
---------- ----------- --------- ----------- ----------- -----------
Total current liabilities............ 28,712 49,194 3,340 -- (49,194) 32,052
Deferred tax liabilities.................... -- 21,626 -- -- (21,626) --
Long-term liabilities....................... 4,016 -- 2,395 -- -- 6,411
Long-term debt.............................. 997,991 350,000 -- -- (350,000) 997,991
Shareholders' equity:
6% Series C convertible redeemable
preferred stock.......................... -- 665,809 -- -- (665,809) --
6% Series D convertible redeemable
preferred stock.......................... -- 388,204 -- -- (388,204) --
Common stock, par value $.01............... -- 2,983 -- -- (2,983) --
Paid-in capital............................ 588,197 2,448,519 -- -- (2,448,519) 588,197
Treasury stock, at cost.................... -- (3,360) -- -- 3,360 --
Unearned compensation...................... -- (148) -- -- 148 --
Retained deficit........................... (331,562) (1,946,507) 9,379 26,365 1,910,763 (331,562)
Accumulated other comprehensive income..... -- 30,888 -- -- (30,888) --
---------- ----------- --------- ----------- ----------- -----------
Total stockholder's equity........... 256,635 1,586,388 9,379 26,365 (1,622,132) 256,635
---------- ----------- --------- ----------- ----------- -----------
$1,287,354 $ 2,007,208 $ 15,114 $ 26,365 $(2,042,952) $1,293,089
========== =========== ========= =========== =========== ===========
40
Loral Orion, Inc. and Subsidiaries
(A wholly owned subsidiary of Loral Space & Communications Corporation)
Notes to Consolidated Financial Statements
(continued)
10. FINANCIAL INFORMATION FOR ISSUER'S PARENT, GUARANTORS AND OTHER
SUBSIDIARIES -- (Continued)
LORAL ORION, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000
(IN THOUSANDS)
PARENT ISSUER'S GUARANTOR OTHER
COMPANY PARENT SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ----------- ------------- ------------- ------------ ------------
Revenues from satellite
services..................... $ 66,609 $ -- $ 42,084 $ -- $ (25,309) $ 83,384
--------- ----------- ------------- ---------- ------------ -----------
Total revenues........ 66,609 -- 42,084 -- (25,309) 83,384
Costs of satellite services.... 103,961 -- 25,989 -- (25,309) 104,641
Selling, general and
administrative expenses...... 12,437 1,197 390 -- (1,197) 12,827
Management fee expense......... -- 64,601 -- -- (64,601) --
--------- ----------- ------------- ---------- ------------ -----------
Operating income (loss)........ (49,789) (65,798) 15,705 -- 65,798 (34,804)
Interest and investment
income....................... 2,961 74,977 80 -- (74,977) 3,041
Interest expense............... (97,155) (29,435) (9) -- 29,435 (97,164)
Gain on investments, net....... -- 69,706 -- -- (69,706) --
--------- ----------- ------------- ---------- ------------ -----------
(Loss) income before income
taxes, equity in net loss of
unconsolidated subsidiaries
and affiliates, Globalstar
related impairment charges
and discontinued operations.. (143,983) 49,450 15,776 -- (49,450) (128,207)
Income tax benefit
(provision).................. 4,614 (15,949) (5,524) -- 15,949 (910)
--------- ----------- ------------- ---------- ------------ -----------
(Loss) income before equity in
net loss of unconsolidated
subsidiaries and affiliates,
Globalstar related impairment
charges and discontinued
operations................... (139,369) 33,501 10,252 -- (33,501) (129,117)
Equity in net loss of
unconsolidated subsidiaries,
net of tax benefit........... 10,252 (700,187) -- -- 689,935 --
Equity in net loss of
affiliates, net of taxes..... -- (723,763) -- -- 723,763 --
Globalstar related impairment
charges, net of tax
benefit...................... -- (79,229) -- -- 79,229 --
--------- ----------- ------------- ---------- ------------ -----------
(Loss) income from continuing
operations................... (129,117) (1,469,678) 10,252 -- 1,459,426 (129,117)
Loss from operations of
discontinued operations, net
of taxes..................... (2,019) -- -- (6,282) -- (8,301)
--------- ----------- ------------- ---------- ------------ -----------
Net (loss) income ............. $(131,136) $(1,469,678) $ 10,252 $ (6,282) $ 1,459,426 $ (137,418)
========= =========== ============= ========== ============ ===========
41
Loral Orion, Inc. and Subsidiaries
(A wholly owned subsidiary of Loral Space & Communications Corporation)
Notes to Consolidated Financial Statements
(continued)
10. FINANCIAL INFORMATION FOR ISSUER'S PARENT, GUARANTORS AND OTHER
SUBSIDIARIES -- (Continued)
LORAL ORION, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2000
(IN THOUSANDS)
PARENT ISSUER'S GUARANTOR OTHER
COMPANY PARENT SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ----------- ---------- ------------- ------------ ------------
Operating activities:
(Loss) income from continuing
operations............................. $(129,117) $(1,469,678) $ 10,252 $ -- $1,459,426 $(129,117)
Non-cash items:
Equity in net loss of affiliates, net of
taxes.................................. -- 723,763 -- -- (723,763) --
Equity in net loss of unconsolidated
subsidiaries, net of taxes............. (10,252) 700,187 -- -- (689,935) --
Deferred taxes........................... 4,241 13,604 364 -- (13,968) 4,241
Depreciation and amortization............ 68,963 -- 21,013 -- -- 89,976
Non-cash interest expense................ 37,074 -- -- -- -- 37,074
Non-cash interest and investment
income................................. (3,518) (25,821) -- -- 25,821 (3,518)
Gain on investments, net................. -- (70,842) -- -- 70,842 --
Globalstar related impairment charges,
net of taxes........................... -- 79,229 -- -- (79,229) --
Satellite purchase price payable......... 180,755 -- (180,755) -- -- --
Provision for bad debt................... 1,070 -- -- -- -- 1,070
Accounts receivable, net................... (5,403) -- (29) -- -- (5,432)
Prepaid Expenses and other current
assets................................... 2,344 -- 491 -- -- 2,835
Deposits................................... (110) -- 110 -- -- --
Due to (from) unconsolidated
subsidiaries............................. (18,217) 11,850 (36,629) 2,792 (11,486) (51,690)
Other assets............................... 1,467 -- (405) -- -- 1,062
Accounts payable........................... 2,786 (699) -- -- 699 2,786
Accounts payable, accrued expenses and
other current liabilities................ (1,885) 2,294 1,885 -- (2,294) --
Customer advances.......................... 2,127 -- (907) -- -- 1,220
Income taxes payable....................... -- 2,518 -- -- (2,518)
Deferred revenue........................... 1,265 -- -- -- -- 1,265
Other...................................... -- 4,794 -- -- (4,794)
--------- ----------- --------- --------- ---------- ---------
Net cash provided by (used in) operating
activities................................. 133,590 (28,801) (184,610) 2,792 28,801 (48,228)
Net cash used in discontinued operations.... (40,690) -- -- (2,792) -- (43,482)
--------- ----------- --------- --------- ---------- ---------
Investing activities:
Capital expenditures....................... (182,095) -- -- -- -- (182,095)
Investments in and advances to
affiliates............................... -- (181,430) -- -- 181,430 --
Investments in and advances to
unconsolidated affiliates................ -- (187,252) -- -- 187,252 --
Proceeds from the sales of investments..... -- 97,137 -- -- (97,137) --
(Increase) decrease in restricted and
segregated cash.......................... (64) -- -- -- -- (64)
Use and transfer of restricted and
segregated cash.......................... 190,898 -- -- -- -- 190,898
--------- ----------- --------- --------- ---------- ---------
Net cash (used in) provided by investing
activities................................. 8,739 (271,545) -- -- 271,545 8,739
--------- ----------- --------- --------- ---------- ---------
Financing activities:
Repayments of other long-term
obligations.............................. (1,678) -- -- -- -- (1,678)
Preferred dividends........................ -- (61,646) -- -- 61,646 --
Proceeds from other stock issuances........ -- 25,982 -- -- (25,982) --
Proceeds from the issuance of 6% Series D
preferred stock, net..................... -- 388,204 -- -- (388,204) --
Proceeds from sale of orbital slots to
Loral, net............................... 34,260 -- -- -- -- 34,260
Equity Contribution from Loral............. 10,750 -- -- -- -- 10,750
Increase in note payable to SpaceCom....... 35,752 -- -- -- -- 35,752
Capital contributions from Loral
CyberStar................................ (180,755) -- 180,755 -- -- --
--------- ----------- --------- --------- ---------- ---------
Net cash (used in) provided by financing
activities................................. (101,671) 352,540 180,755 -- (352,540) 79,084
--------- ----------- --------- --------- ---------- ---------
Increase (decrease) in cash and cash
equivalents................................ (32) 52,194 (3,855) -- (52,194) (3,887)
Cash and cash equivalents -- beginning of
period..................................... 34 99,211 3,855 -- (99,211) 3,889
--------- ----------- --------- --------- ---------- ---------
Cash and cash equivalents -- end of
period..................................... $ 2 $ 151,405 $ -- $ -- $ (151,405) $ 2
========= =========== ========= ========= ========== =========
42
Loral Orion, Inc. and Subsidiaries
(A wholly owned subsidiary of Loral Space & Communications Corporation)
Notes to Consolidated Financial Statements
(continued)
10. FINANCIAL INFORMATION FOR ISSUER'S PARENT, GUARANTORS AND OTHER
SUBSIDIARIES -- (Continued)
LORAL ORION, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
PARENT ISSUER'S GUARANTOR OTHER
COMPANY PARENT SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- --------- ---------- ------------- ------------ ------------
Revenues from satellite services... $ 30,110 $ -- $ 5,611 $ -- -- 35,721
--------- --------- ------- ---------- --------- ----------
Total revenues............ 30,110 -- 5,611 -- -- 35,721
Costs of satellite services........ 62,322 -- 6,686 -- -- 69,008
Selling, general and administrative
expenses......................... 11,992 (1,244) 268 -- 1,472 12,488
Management fee expense............. -- 43,352 -- -- (43,352) --
--------- --------- ------- ---------- --------- ----------
Operating income (loss)............ (44,204) (42,108) (1,343) -- 41,880 (45,775)
Interest and investment income..... 6,245 67,037 -- -- (67,037) 6,245
Interest expense................... (69,631) -- -- -- -- (69,631)
--------- --------- ------- ---------- --------- ----------
(Loss) income before income taxes,
equity in net loss of
unconsolidated subsidiaries and
affiliates and discontinued
operations....................... (107,590) 24,929 (1,343) -- (25,157) (109,161)
Income tax benefit (provision)..... 9,959 (13,150) 470 -- 13,150 10,429
--------- --------- ------- ---------- --------- ----------
(Loss) income before equity in net
loss of unconsolidated
subsidiaries and affiliates and
discontinued operations ......... (97,631) 11,779 (873) -- (12,007) (98,732)
Equity in net loss of
unconsolidated subsidiaries, net
of tax benefit................... (873) (62,060) -- -- 62,933 --
Equity in net loss of affiliates,
net of taxes..................... -- (151,635) -- -- 151,635 --
--------- --------- ------- ---------- --------- ----------
Loss from continuing operations.... (98,504) (201,916) (873) -- 202,561 (98,732)
Loss from operations of
discontinued operations, net of
taxes............................ 9,118 -- -- (24,561) -- (15,443)
--------- --------- ------- ---------- --------- ----------
Net loss income ................... $ (89,386) $(201,916) $ (873) $ (24,561) $ 202,561 $ (114,175)
========= ========= ======= ========== ========= ==========
43
Loral Orion, Inc. and Subsidiaries
(A wholly owned subsidiary of Loral Space & Communications Corporation)
Notes to Consolidated Financial Statements (continued)
10. FINANCIAL INFORMATION FOR ISSUER'S PARENT, GUARANTORS AND OTHER
SUBSIDIARIES -- (Continued)
LORAL ORION, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
PARENT ISSUER'S GUARANTOR OTHER
COMPANY PARENT SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- --------- ---------- ------------- ------------ ------------
Operating activities:
(Loss) income from continuing operations.... $ (98,504) $(201,916) $ (873) $ -- $ 202,561 $ (98,732)
Non-cash items:
Equity in net loss of affiliates, net of
taxes................................... -- 151,635 -- -- (151,635) --
Equity in net loss of unconsolidated
subsidiaries, net of taxes.............. 873 62,060 -- -- (62,933) --
Minority interest, net of taxes........... -- -- -- -- -- --
Deferred taxes............................ 4,692 15,636 (2,570) -- (13,067) 4,691
Depreciation and amortization............. 54,988 -- 5,428 -- -- 60,416
Provision for bad debt.................... 2,009 -- -- -- -- 2,009
Non-cash interest expense................. 33,758 -- -- -- -- 33,758
Non-cash interest and investment income... (2,292) (11,451) -- -- 11,451 (2,292)
Satellite purchase price payable.......... (180,755) -- 180,755 -- -- --
Changes in operating assets and liabilities,
net of acquisitions:
Accounts receivable, net.................... (5,216) -- (1,673) -- -- (6,889)
Other current assets........................ (4,147) -- (2,778) -- -- (6,925)
Deposits.................................... (2,285) -- 2,285 -- -- --
Due to (from) unconsolidated subsidiaries... (30,461) (18,959) 3,241 1,315 5,740 (39,124)
Other assets................................ (11,205) -- (98) -- -- (11,303)
Accounts payable............................ (5,250) (29,083) -- -- 39,961 5,628
Accrued expenses and other current
liabilities............................... (1,229) 13,859 1,229 -- (13,859) --
Customer advances........................... 3,128 -- 1,133 -- -- 4,261
Income taxes payable........................ -- 2,175 -- -- (2,175)
Long-term liabilities....................... (269) -- -- -- -- (269)
Other....................................... -- 728 -- -- (728) --
--------- --------- --------- --------- --------- ---------
Net cash (used in) provided by continuing
operations.................................. (242,165) (15,316) 186,079 1,315 15,316 (54,771)
Net cash provided by (used in) discontinued
operations.................................. 64,451 -- -- (1,315) -- 63,136
--------- --------- --------- --------- --------- ---------
Investing activities:
Capital expenditures........................ (19,778) -- (273,167) -- -- (292,945)
Investments in and advances to affiliates... -- (250,794) -- -- 250,794 --
Investments in and advances to
unconsolidated affiliates................. -- (340,979) -- -- 340,979 --
Increase in restricted and segregated
assets.................................... (2,942) -- -- -- -- (2,942)
Use and transfer of restricted and
segregated cash........................... 156,381 -- -- -- -- 156,381
--------- --------- --------- --------- --------- ---------
Net cash (used in) provided by investing
activities.................................. 133,661 (591,773) (273,167) -- 591,773 (139,506)
--------- --------- --------- --------- --------- ---------
Financing activities:
Repayments of note to unconsolidated
subsidiary................................ -- (14,211) -- -- 14,211 --
Repayments of other long-term obligations... (1,469) -- -- -- -- (1,469)
Preferred dividends......................... -- (44,728) -- -- 44,728 --
Proceeds from other stock issuances......... -- 20,095 -- -- (20,095) --
Proceeds from the issuance of 9.5% senior
notes, net................................ -- 343,875 -- -- (343,875) --
Capital contributions from Loral
CyberStar................................. (28,558) -- 90,943 -- 62,385
Increase in note payable to SpaceCom........ 74,114 -- -- -- -- 74,114
--------- --------- --------- --------- --------- ---------
Net cash (used in) provided by financing
activities.................................. 44,087 305,031 90,943 -- (305,031) 135,030
--------- --------- --------- --------- --------- ---------
Increase (decrease) in cash and cash
equivalents................................. 34 (302,058) 3,855 -- 302,058 3,889
Cash and cash equivalents -- beginning of
period...................................... -- 401,269 -- -- (401,269) --
--------- --------- --------- --------- --------- ---------
Cash and cash equivalents -- end of period.... $ 34 $ 99,211 $ 3,855 $ -- $ (99,211) $ 3,889
========= ========= ========= ========= ========= =========
44
Loral Orion, Inc. and Subsidiaries
(A wholly owned subsidiary of Loral Space & Communications Corporation)
Notes to Consolidated Financial Statements
(continued)
11. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the quarterly results of operations for the
years ended December 31, 2001 and 2000 (in thousands):
March 31, June 30, September 30, December 31,
--------- -------- ------------- ------------
2001
Revenues ..................... $ 26,234 $ 27,415 $ 27,747 $ 27,549
Loss (income) from
operations ................. (2,350) 136 (536) (6,286)
Loss before income taxes,
extraordinary gain and
discontinued operations .... (27,533) (24,727) (25,491) (28,971)
Loss from continuing
operations ................. (27,227) (23,227) (24,919) (797)
Income (loss) from discontinued
operations ................. (5,034) (6,076) (5,832) 4,855
Net (loss) income............. (32,261) (29,303) (30,751) 4,058
March 31, June 30, September 30, December 31,(1)
--------- -------- ------------- ---------------
2000
Revenues ..................... $ 17,377 $ 18,285 $ 21,479 $ 26,243
Loss (income) from
operations ................. (12,012) (12,169) (7,342) (2,561)
Loss before income taxes and
discontinued operations .... (33,172) (35,550) (31,929) (27,556)
Loss from continuing
operations ................. (34,116) (32,544) (30,429) (32,028)
Income (loss) from discontinued
operations ................. (2,932) (5,558) (4,578) 4,767
Net loss ..................... (37,048) (38,102) (35,007) (27,261)
(1) Includes a $12.0 million settlement resulting from a contract termination
with a customer.
45
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND ACCOUNTING AND
FINANCIAL DISCLOSURES.
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Omitted pursuant to General Instruction I of Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
Omitted pursuant to General Instruction I of Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Omitted pursuant to General Instruction I of Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Omitted pursuant to General Instruction I of Form 10-K.
46
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) (1) and (2) List of Financial Statements and Financial Statement
Schedules
The following consolidated financial statements of Loral Orion are
included in Item 8:
Consolidated Balance Sheets - December 31, 2001 and 2000
Consolidated Statements of Operations - Years ended December 31,
2001, 2000 and 1999.
Consolidated Statements of Stockholders' Equity - Years ended
December 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows - Year ended December 31,
2001, 2000 and 1999
Notes to Consolidated Financial Statements
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
(b) Reports on Form 8-K filed in the fourth quarter of 2001
Date of Report Description
- -------------- ---------------
October 24, 2001 Item 5 - Other Events Exchange Offer
December 14, 2001 Item 5 - Other Events Exchange Offer
December 18, 2001 Item 5 - Other Events Exchange Offer
December 21, 2001 Item 2 - Acquisition or
Disposition of Assets Sale of Data
Business Assets
(c) Exhibits
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
2.1 Agreement and Plan of Merger, dated as of October 7, 1997, by and
among Orion, Loral and Loral Satellite Corporation. (Incorporated by
reference to exhibit number 2.1 in Current Report on Form 8-K dated
October 9, 1997.)
2.2 Principal Stockholder Agreement among Orion, Loral, Loral Satellite
Corporation and the stockholders that are signatories thereto, dated
as of October 7, 1997. (Incorporated by reference to exhibit number
2.2 in Current Report on Form 8-K dated October 9, 1997.)
2.3 Amendment No. 1 Agreement and Plan of Merger, dated as of February
11, 1998, by and among Orion, Loral and Loral Satellite Corporation.
(Incorporated by reference to exhibit number 2.2 in Registration
Statement No. 333-46407 on Form S-4.)
47
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
2.4 Amendment No.1 to Principal Stockholder Agreement among Orion,
Loral, Loral Satellite Corporation and the stockholders that are
signatories thereto, dated as of December 1, 1997. (Incorporated by
reference to exhibit number 2.4 in Annual Report on Form 10-K for
fiscal year ended December 31, 1997.)
3.1 Certificate of Merger of Loral Satellite Corporation into Orion,
dated March 20, 1998, and Exhibit A thereto, Restated Certificate of
Incorporation of the Company. (Incorporated by reference to exhibit
number 3.1 in Annual Report on Form 10-K for the fiscal year ended
December 31, 1998.)
3.2 Certificate of Merger of Loral CyberStar, Inc. into Loral Orion
Services, Inc. (Incorporated by reference to exhibit number 3.2 in
Annual Report on Form 10-K for the fiscal year ended December 31,
2000.)
3.3 Merger Agreement between Loral CyberStar, Inc. and Loral Orion
Services, Inc. (Incorporated by reference to exhibit number 3.3 in
Annual Report on Form 10-K for the fiscal year ended December 31,
2000.)
3.4 Amended and Restated Certificate of Incorporation of the Company.*
3.5 Amended and Restated Bylaws of the Company.*
4.1 Form of Senior Note Indenture and Form of Note included therein.
(Incorporated by reference to exhibit number 4.1 to Registration
Statement No. 333-19167 on Form S-1.)
4.1.1 Supplemental Indenture, dated as of December 21, 2001, to the Senior
Note Indenture, dated January 31, 1997. (Incorporated by reference
to exhibit number 99.7 to Current Report on Form 8-K filed on
January 7, 2002.)
4.2 Form of Senior Discount Note Indenture and Form of Note included
therein. (Incorporated by reference to exhibit number 4.2 to
Registration Statement No. 333-19167 on Form S-1.)
4.2.1 Supplemental Indenture, dated as of December 21, 2001, to the Senior
Discount Note Indenture, dated January 31, 1997. (Incorporated by
reference to exhibit number 99.8 to Current Report on Form 8-K filed
on January 7, 2002.)
4.3 Form of Collateral Pledge and Security Agreement. (Incorporated by
reference to exhibit number 4.3 to Registration Statement No.
333-19167 on Form S-1.)
4.4 Indenture, dated as of December 21, 2001, by and among the Company,
certain of its subsidiaries and Bankers Trust Company, as Trustee.
(Incorporated by reference to exhibit number 99.5 to Current Report
on Form 8-K filed on January 7, 2002.)
10.1 Second Amended and Restated Purchase Agreement, dated September 26,
1991 ("Satellite Contract") by and between Loral Orion Services,
Inc. (formerly known as Orion Satellite Corporation) and British
Aerospace PLC and the First Amendment, dated as of September 15,
1992, Second Amendment, dated as of November 9, 1992, Third
Amendment, dated as of March 12, 1993, Fourth Amendment, dated as of
April 15, 1993, Fifth Amendment, dated as of September 22, 1993,
Sixth Amendment, dated as of April 6, 1994, Seventh Amendment, dated
as of August 9, 1994, Eighth Amendment, dated as of December 8,
1994, and Amendment No. 9 dated October 24, 1995, thereto.
[CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THESE
DOCUMENTS.] (Incorporated by reference to exhibits number 10.13 and
10.14 in Registration Statement No. 33-80518 on Form S-1).
48
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
10.2 Restated Amendment No. 10, dated December 10, 1996, between Loral
Orion Services, Inc. and Matra Marconi Space to the Second Amended
and Restated Purchase Agreement, dated September 16, 1991 by and
between OrionServ and British Aerospace PLC (which contract and
prior exhibits thereto were incorporated by reference as exhibit
number 10.1). (Incorporated by reference to exhibit number 10.2 in
Registration Statement No. 333-19795 on Form S-4.)
10.3 Contract for a Satellite Control System, dated December 7, 1992, by
and between Loral Orion Services, Inc., Telespazio S.p.A. and Martin
Marietta Corporation. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR
PORTIONS OF THIS DOCUMENT.] (Incorporated by reference to exhibit
number 10.31 in Registration Statement No. 33-80518 on Form S-1.)
10.4 Restated Definitive Agreement, dated October 29, 1998, by and
between Orion and Republic of the Marshall Islands. [CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS
DOCUMENT.](Incorporated by reference to exhibit number 10.12 in
Annual Report on Form 10-K for the fiscal year ended December 31,
1998.)
10.5 Orion 3 Spacecraft Purchase Contract, dated January 15, 1997, by and
among Hughes Space and Communications International, Inc., Loral
Orion Services, Inc. (by assignment from Loral Orion-Asia Pacific,
Inc., formerly known as Orion Asia Pacific Corporation) and Orion.
[CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THIS
DOCUMENT.]. (Incorporated by reference to exhibit number 10.52 to
Registration Statement No. 333-19167 on Form S-1.)
10.6 Orion-Z Spacecraft Purchase Contract, dated May 15, 1998, by and
between Loral Orion Services, Inc. and Space Systems/Loral, Inc. and
Amendment No. 1 dated December 29, 1998. [CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED FOR PORTIONS OF THIS DOCUMENT.] (Incorporated by
reference to exhibit number 10.17 in Annual Report on Form 10-K for
the fiscal year ended December 31, 1998.)
10.7 Agreement, dated January 1, 1999, by and between Loral Orion
Services, Inc. and Loral Skynet. (Incorporated by reference to
exhibit number 10.18 in Annual Report on Form 10-K for the fiscal
year ended December 31, 1998.)
10.8 Agreement, dated January 1, 1999, by and between Loral Orion
Services, Inc. and Loral Skynet. (Incorporated by reference to
exhibit number 10.19 in Annual Report on Form 10-K for the fiscal
year ended December 31, 1998.)
10.9 Lease Agreement, dated as of August 18, 1999, by and between Loral
Asia Pacific Satellite (HK) Limited and APT Satellite Company
Limited. (Incorporated by reference to exhibit number 99.1 to
Current Report on Form 8-K filed on August 23, 1999.)
10.10 Lock-up Agreement, dated as of October 15, 2001, by and among the
Company, Loral Space & Communications Ltd., Loral SpaceCom
Corporation and certain holders of the Company's 111/4% Senior Notes
due 2007 and its 121/2% Senior Discount Notes due 2007.
(Incorporated by reference to exhibit number 10.1 to Current Report
on Form 8-K filed on November 16, 2001.)
49
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
10.11 Asset Purchase Agreement, dated as of December 21, 2001, between the
Company and Loral CyberStar Data Services Corporation. (Incorporated
by reference to exhibit number 99.1 to Current Report on Form 8-K
filed on January 7, 2002.)
10.12 $29.7 million aggregate principal amount, 10% Subordinated Note due
2006, made by the Company and issued to Loral SpaceCom Corporation.
(Incorporated by reference to exhibit number 99.3 to Current Report
on Form 8-K filed on January 7, 2002.)
10.13 Subordinated Guaranty Agreement, dated as of December 21, 2001,
between Loral Space & Communications Ltd. and Loral SpaceCom
Corporation with respect to the 10% Subordinated Note due 2006.
(Incorporated by reference to exhibit number 99.4 to Current Report
on Form 8-K filed on January 7, 2002.)
10.14 Warrant Agreement, dated as of December 21, 2001, between Loral
Space & Communications Ltd. and The Bank of New York, as Warrant
Agent. (Incorporated by reference to exhibit number 99.6 to Current
Report on Form 8-K filed on January 7, 2002.)
10.15 Guaranty Agreement, dated as of December 21, 2001, between Loral
Space & Communications Ltd. and Bankers Trust Company, as Trustee.
(Incorporated by reference to exhibit number 99.9 to Current Report
on Form 8-K filed on January 7, 2002.)
- ----------
* Filed herewith
50
SIGNATURES
CORPORATE UPDATE TITLES
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 ORION, INC.
By: /s/ Terry J. Hart
Title: President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Signature Title Date
- ------------------------------ ------------------------------ --------------
/s/ Bernard L. Schwartz Chairman of the Board March 26, 2002
- ------------------------------ and Chief Executive Officer
Bernard L. Schwartz
/s/ George Baker Director March 26, 2002
- ------------------------------
George Baker
/s/ Eric J. Zahler Executive Vice President March 26, 2002
- ------------------------------ and Director
Eric J. Zahler
/s/ Michael P. DeBlasio First Senior Vice President March 26, 2002
- ------------------------------ and Director
Michael P. DeBlasio
/s/ Daniel Hirsch Director March 26, 2002
- ------------------------------
Daniel Hirsch
/s/ Richard J. Townsend Senior Vice President March 26, 2002
- ------------------------------ and Chief Financial Officer
Richard J. Townsend (Principal Financial Officer)
/s/ Harvey B. Rein Vice President and March 26, 2002
- ------------------------------ Controller
Harvey B. Rein (Principal Accounting Officer)
51