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8-K/A - FORM 8-K AMENDMENT NO. 1 - LORAL SPACE & COMMUNICATIONS INC. | d440531d8ka.htm |
Exhibit 99.1
PRO FORMA EFFECT ON LORAL SPACE & COMMUNICATIONS INC.
OF THE SALE OF SPACE SYSTEMS/LORAL, LLC
Unaudited Pro Forma Condensed Consolidated Financial Information
The following unaudited pro forma condensed consolidated statements of operations for the nine months ended September 30, 2012 and the years ended December 31, 2011, 2010 and 2009 and the unaudited pro forma condensed consolidated balance sheet as of September 30, 2012 give effect to the sale (the Sale) by Loral Space & Communications Inc. (Loral) of its wholly-owned subsidiary, Space Systems/Loral, LLC (formerly known as Space Systems/Loral, Inc.) (SS/L), to MDA Communications Holdings, Inc. (MDA Holdings), a subsidiary of MacDonald, Dettwiler and Associates Ltd. (MDA), and the special distribution to shareholders in connection with the receipt of proceeds from the Sale. Pursuant to the purchase agreement (the Purchase Agreement), dated June 26, 2012, by and among Loral, SS/L, MDA and MDA Holdings, as amended on October 30, 2012, in a series of transactions described below, Loral received total cash payments of $967.9 million plus a three-year promissory note in the principal amount of $101 million for the purchase of certain real estate used in connection with SS/Ls business.
Prior to the Sale, SS/L (i) was converted into a limited liability company, (ii) transferred the real estate owned by it to a newly formed limited liability company (Land LLC), (iii) distributed the equity interests in Land LLC to Loral, and (iv) issued to Loral promissory notes in an aggregate amount equal to $193.9 million (the Closing Notes). The Closing Notes were issued to satisfy SS/Ls obligations under the Purchase Agreement to repay intercompany balances due Loral and to pay Loral a cash dividend, which included per diem amounts provided for in the Purchase Agreement. Immediately following the Sale, SS/L repaid the Closing Notes for an aggregate cash amount equal to $193.9 million.
At closing of the Sale, Loral received (i) $774 million from MDA Holdings for the purchase of the equity interests in SS/L and (ii) a promissory note, dated November 2, 2012, issued by MDA for $101 million (the Land Note) for the purchase of the equity interests in Land LLC.
On November 7, 2012, in connection with the receipt of the proceeds from the Sale, our Board of Directors declared a special distribution of $29.00 per share for an aggregate distribution of $899.3 million (the Distribution). The Distribution will be paid on December 4, 2012 to holders of record of Loral voting and non-voting common stock as of November 19, 2012. In accordance with Lorals stock incentive plan, an equitable adjustment will be made to outstanding stock-based awards to reflect the Distribution.
The unaudited pro forma condensed consolidated financial information is based on the historical consolidated financial statements of Loral. The unaudited pro forma condensed consolidated statements of operations for the nine months ended September 30, 2012 and the year ended December 31, 2011 give effect to the Sale as if it had occurred on January 1, 2011 and the unaudited pro forma condensed consolidated balance sheet gives effect to the Sale and Distribution as if they had occurred on September 30, 2012. The unaudited pro forma condensed consolidated statements of operations for the years ended December 31, 2010 and 2009 are presented on a continuing operations basis. The unaudited pro forma condensed consolidated financial information is not necessarily indicative of the financial position or results of operations that would actually have occurred had the Sale and Distribution been consummated as of the date or as of the beginning of the periods presented, nor is it necessarily indicative of future operating results or financial position.
Assumptions underlying the pro forma adjustments are described in the accompanying notes which should be read in conjunction with this unaudited pro forma condensed consolidated financial information. You should read the unaudited pro forma condensed consolidated financial information and the related notes thereto in conjunction with the historical consolidated financial statements and related notes thereto of Loral included in its Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2012 and its Annual Reports on Form 10-K for the years ended December 31, 2011, 2010 and 2009.
Page 1 of 8
Loral Space & Communications Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
(in thousands, except share data)
Nine Months Ended September 30, 2012 | ||||||||||||||||
Historical Consolidated Loral |
Discontinued Operations (a) |
Pro Forma Adjustments |
Pro Forma | |||||||||||||
Selling, general and administrative expenses |
$ | (19,191 | ) | $ | 5,800 | (b) | $ | (13,391 | ) | |||||||
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Operating loss |
(19,191 | ) | 5,800 | (13,391 | ) | |||||||||||
Interest and investment income |
1,313 | 313 | (e) | 1,626 | ||||||||||||
Interest expense |
(87 | ) | (87 | ) | ||||||||||||
Other expense |
(3,498 | ) | (3,498 | ) | ||||||||||||
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Loss from continuing operations before income taxes and equity in net income of affiliates |
(21,463 | ) | 6,113 | (15,350 | ) | |||||||||||
Income tax benefit |
39,157 | (8,805 | ) (l) | 30,352 | ||||||||||||
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Income from continuing operations before equity in net income of affiliates |
17,694 | (2,692 | ) | 15,002 | ||||||||||||
Equity in net income of affiliates |
37,102 | 16,463 | (d) | 53,565 | ||||||||||||
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Income from continuing operations |
54,796 | 13,771 | 68,567 | |||||||||||||
Income from discontinued operations, net of tax |
17,716 | $ | (17,716 | ) | | |||||||||||
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Net income |
72,512 | (17,716 | ) | 13,771 | 68,567 | |||||||||||
Net loss attributable to noncontrolling interest |
230 | (230 | ) | | ||||||||||||
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Net income attributable to Loral |
$ | 72,742 | $ | (17,946 | ) | $ | 13,771 | $ | 68,567 | |||||||
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Net income per share attributable to Loral common shareholders: |
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Basic |
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Income from continuing operations |
$ | 1.79 | $ | 2.23 | ||||||||||||
Income from discontinued operations, net of tax |
0.58 | | ||||||||||||||
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Net income |
$ | 2.37 | $ | 2.23 | ||||||||||||
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Diluted |
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Income from continuing operations |
$ | 1.76 | $ | 2.21 | ||||||||||||
Income from discontinued operations, net of tax |
0.58 | | ||||||||||||||
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Net income |
$ | 2.34 | $ | 2.21 | ||||||||||||
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Weighted average common shares outstanding: |
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Basic |
30,684 | 30,684 | ||||||||||||||
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Diluted |
30,980 | 30,980 | ||||||||||||||
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See notes to unaudited pro forma condensed consolidated financial information.
Page 2 of 8
Loral Space & Communications Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
(in thousands, except share data)
Year Ended December 31, 2011 | ||||||||||||||||
Historical Consolidated Loral |
Discontinued Operations (a) |
Pro Forma Adjustments |
Pro Forma | |||||||||||||
Revenues |
$ | 1,107,365 | $ | (1,107,365 | ) | $ | $ | | ||||||||
Cost of revenues |
(908,715 | ) | 908,715 | | ||||||||||||
Selling, general and administrative expenses |
(112,129 | ) | 93,784 | (18,345 | ) | |||||||||||
Gain on disposition of net assets |
6,913 | (1,795 | ) (c) | 5,118 | ||||||||||||
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Operating income (loss) |
93,434 | (104,866 | ) | (1,795 | ) | (13,227 | ) | |||||||||
Interest and investment income |
21,350 | (18,207 | ) | 750 | (e) | 3,893 | ||||||||||
Interest expense |
(2,688 | ) | 2,566 | (122 | ) | |||||||||||
Gain on litigation, net |
4,535 | 4,535 | ||||||||||||||
Other expense |
(6,641 | ) | (34 | ) | (6,675 | ) | ||||||||||
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Income (loss) before income taxes and equity in net income of affiliates |
109,990 | (120,541 | ) | (1,045 | ) | (11,596 | ) | |||||||||
Income tax provision |
(89,145 | ) | 47,072 | (6,801 | ) (l) | (48,874 | ) | |||||||||
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Income (loss) before equity in net income of affiliates |
20,845 | (73,469 | ) | (7,846 | ) | (60,470 | ) | |||||||||
Equity in net income of affiliates |
106,329 | 18,483 | (d) | 124,812 | ||||||||||||
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Net income |
127,174 | (73,469 | ) | 10,637 | 64,342 | |||||||||||
Net income attributable to noncontrolling interest |
(497 | ) | 497 | | ||||||||||||
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Net income attributable to Loral |
$ | 126,677 | $ | (72,972 | ) | $ | 10,637 | $ | 64,342 | |||||||
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Net income per share attributable to Loral common shareholders: |
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Basic |
$ | 4.13 | $ | 2.10 | ||||||||||||
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Diluted |
$ | 3.92 | $ | 1.92 | ||||||||||||
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Weighted average common shares outstanding: |
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Basic |
30,680 | 30,680 | ||||||||||||||
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Diluted |
31,166 | 31,166 | ||||||||||||||
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See notes to unaudited pro forma condensed consolidated financial information.
Page 3 of 8
Loral Space & Communications Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
(in thousands, except share data)
Year Ended December 31, 2010 | ||||||||||||
Historical Consolidated Loral |
Discontinued Operations (a) |
Continuing Operations |
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Revenues |
$ | 1,158,985 | $ | (1,158,985 | ) | $ | | |||||
Cost of revenues |
(986,697 | ) | 986,697 | | ||||||||
Selling, general and administrative expenses |
(84,823 | ) | 65,351 | (19,472 | ) | |||||||
Directors indemnification expense |
(6,857 | ) | (6,857 | ) | ||||||||
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Operating income (loss) |
80,608 | (106,937 | ) | (26,329 | ) | |||||||
Interest and investment income |
13,550 | (12,299 | ) | 1,251 | ||||||||
Interest expense |
(3,143 | ) | 2,958 | (185 | ) | |||||||
Gain on litigation, net |
5,000 | 5,000 | ||||||||||
Other expense |
(2,921 | ) | 3 | (2,918 | ) | |||||||
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Income (loss) before income taxes and equity in net income of affiliates |
93,094 | (116,275 | ) | (23,181 | ) | |||||||
Income tax benefit |
308,622 | 16,523 | 325,145 | |||||||||
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Income before equity in net income of affiliates |
401,716 | (99,752 | ) | 301,964 | ||||||||
Equity in net income of affiliates |
85,625 | 85,625 | ||||||||||
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Net income |
487,341 | (99,752 | ) | 387,589 | ||||||||
Net income attributable to noncontrolling interest |
(495 | ) | 495 | | ||||||||
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Net income attributable to Loral |
$ | 486,846 | $ | (99,257 | ) | $ | 387,589 | |||||
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Net income per share attributable to Loral common shareholders: |
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Basic |
$ | 16.18 | $ | 12.88 | ||||||||
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Diluted |
$ | 15.63 | $ | 12.41 | ||||||||
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Weighted average common shares outstanding: |
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Basic |
30,085 | 30,085 | ||||||||||
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Diluted |
30,887 | 30,887 | ||||||||||
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See notes to unaudited pro forma condensed consolidated financial information.
Page 4 of 8
Loral Space & Communications Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
(in thousands, except share data)
Year Ended December 31, 2009 | ||||||||||||
Historical Consolidated Loral |
Discontinued Operations (a) |
Continuing Operations |
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Revenues |
$ | 993,400 | $ | (993,400 | ) | $ | | |||||
Cost of revenues |
(880,486 | ) | 880,486 | | ||||||||
Selling, general and administrative expenses |
(92,703 | ) | 68,225 | (24,478 | ) | |||||||
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Operating income (loss) |
20,211 | (44,689 | ) | (24,478 | ) | |||||||
Interest and investment income |
8,307 | (7,040 | ) | 1,267 | ||||||||
Interest expense |
(1,422 | ) | 1,296 | (126 | ) | |||||||
Other expense |
(121 | ) | 121 | | ||||||||
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Income (loss) before income taxes and equity in net income of affiliates |
26,975 | (50,312 | ) | (23,337 | ) | |||||||
Income tax provision |
(5,571 | ) | 3,472 | (2,099 | ) | |||||||
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Income (loss) before equity in net income of affiliates |
21,404 | (46,840 | ) | (25,436 | ) | |||||||
Equity in net income of affiliates |
210,298 | 210,298 | ||||||||||
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Net income attributable to Loral |
$ | 231,702 | $ | (46,840 | ) | $ | 184,862 | |||||
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Net income per share attributable to Loral common shareholders: |
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Basic |
$ | 7.79 | $ | 6.21 | ||||||||
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Diluted |
$ | 7.73 | $ | 6.17 | ||||||||
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Weighted average common shares outstanding: |
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Basic |
29,761 | 29,761 | ||||||||||
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Diluted |
29,981 | 29,981 | ||||||||||
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See notes to unaudited pro forma condensed consolidated financial information.
Page 5 of 8
Loral Space & Communications Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
(In thousands, except share data)
As of September 30, 2012 | ||||||||||||||||
Historical Consolidated |
Held for Sale (a) |
Pro Forma Adjustments |
Pro Forma | |||||||||||||
ASSETS |
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Current assets: |
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Cash and cash equivalents |
$ | 53,932 | $ | 967,880 | (f) | 122,463 | ||||||||||
(899,349 | ) (g) | |||||||||||||||
Notes receivable |
23,953 | 23,953 | ||||||||||||||
Deferred tax assets |
152,488 | (137,517 | )(l) | 14,971 | ||||||||||||
Assets held-for-sale |
959,536 | $ | (959,536 | ) | | |||||||||||
Other current assets |
4,177 | 33,667 | (h) | 37,844 | ||||||||||||
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Total current assets |
1,194,086 | (959,536 | ) | (35,319 | ) | 199,231 | ||||||||||
Property, plant and equipment, net |
46 | 46 | ||||||||||||||
Long-term receivables |
| 67,333 | (h) | 67,333 | ||||||||||||
Investments in affiliates |
63,913 | 63,913 | ||||||||||||||
Long-term deferred tax assets |
144,215 | (47,754 | )(l) | 112,818 | ||||||||||||
16,357 | (m) | |||||||||||||||
Other assets |
2,613 | 2,613 | ||||||||||||||
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Total assets |
$ | 1,404,873 | $ | (959,536 | ) | $ | 617 | $ | 445,954 | |||||||
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LIABILITIES AND EQUITY |
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Current liabilities: |
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Accrued employment costs |
$ | 9,489 | $ | 9,489 | ||||||||||||
Liabilities held-for-sale |
651,960 | $ | (651,960 | ) | | |||||||||||
Other current liabilities |
10,582 | $ | 111,676 | (i) | 122,258 | |||||||||||
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Total current liabilities |
672,031 | (651,960 | ) | 111,676 | 131,747 | |||||||||||
Pension and other postretirement liabilities |
34,826 | 34,826 | ||||||||||||||
Long-term liabilities |
93,191 | 43,483 | (l) | 136,674 | ||||||||||||
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Total liabilities |
800,048 | (651,960 | ) | 155,159 | 303,247 | |||||||||||
Commitments and contingencies |
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Equity: |
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Intercompany investment |
(441,489 | ) | 441,489 | (j) | | |||||||||||
Loral shareholders equity: |
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Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued and outstanding |
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Common Stock: |
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Voting common stock, $.01 par value; 50,000,000 shares authorized, 21,402,082 issued |
214 | 214 | ||||||||||||||
Non-voting common stock, $.01 par value; 20,000,000 shares authorized, 9,505,673 issued and outstanding |
95 | 95 | ||||||||||||||
Paid-in capital |
1,010,752 | 16,357 | (m) | 1,027,109 | ||||||||||||
Treasury stock (at cost), 154,494 shares of voting common stock |
(9,592 | ) | (9,592 | ) | ||||||||||||
(Accumulated deficit) retained earnings |
(250,561 | ) | 307,164 | (k) | (842,746 | ) | ||||||||||
(899,349 | ) (g) | |||||||||||||||
Accumulated other comprehensive loss |
(146,979 | ) | 134,809 | (20,203 | ) (l) | (32,373 | ) | |||||||||
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Total shareholders equity attributable to Loral |
603,929 | (306,680 | ) | (154,542 | ) | 142,707 | ||||||||||
Noncontrolling interest |
896 | (896 | ) | | ||||||||||||
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Total equity |
604,825 | (307,576 | ) | (154,542 | ) | 142,707 | ||||||||||
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Total liabilities and equity |
$ | 1,404,873 | $ | (959,536 | ) | $ | 617 | $ | 445,954 | |||||||
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See notes to unaudited pro forma condensed consolidated financial information.
Page 6 of 8
Loral Space & Communications Inc.
Notes to Unaudited Pro Forma Condensed Consolidated Financial Information
(a) | The SS/L discontinued operations and the assets and liabilities held for sale have been presented separately on the accompanying unaudited condensed consolidated statements of operations and balance sheet, respectively, as a deduction from the Loral consolidated results as the first step in determining the pro forma continuing operations. |
(b) | Before the Sale, Loral charged SS/L for certain corporate office expenses. These expenses will be reflected as Loral expenses subsequent to the Sale. |
Loral and SS/L have entered into an agreement for Loral to provide certain transition services to SS/L and for SS/L to provide certain transition services to Loral for a limited period to end not later than December 31, 2014. Transition services income and expenses have been excluded from the pro forma statements of operations because they are non-recurring in nature and would be based on management estimates.
We expect to achieve cost savings at Loral after the Sale because of the decreased corporate headquarters responsibilities including reduced personnel. General and administrative expenses at Loral after a transition period subsequent to the Sale are estimated to be approximately $7 million per year, excluding costs related to the SS/L transaction and net of consulting fees from Telesat Canada (Telesat) of $5 million per year. Cost savings have not been reflected in the pro forma condensed consolidated statements of operations because they are based on management estimates.
Severance costs of $5.8 million related to the personnel reductions that generate these cost savings have been excluded from the pro forma condensed consolidated statements of operations for the nine months ended September 30, 2012 because they are non-recurring in nature.
(c) | During 2011, Loral sold to Telesat the portion of a satellite being built by SS/L for Loral. Included in Lorals gain in its historical financial statements was a reversal of previously eliminated profits of $1.8 million. If Loral did not own SS/L during 2011, this $1.8 million reversal of intercompany profit elimination would not have been recorded in 2011. |
(d) | Represents reversal of the profit elimination on sales from SS/L to Telesat, a 64% owned affiliate of Loral. In Lorals historical financial statements, Loral eliminated 64% of SS/Ls profits on sales to Telesat by reducing equity in net income of affiliates. |
(e) | Primarily represents interest income for the period on the Land Note. See Note (h) below. |
Page 7 of 8
(f) | Represents the proceeds from the Sale, which include (in thousands): |
Base price |
$ | 774,000 | ||||||
Closing Notes: |
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Excess cash dividend |
$ | 111,851 | ||||||
Per diem payments |
41,580 | |||||||
Intercompany settlement |
40,449 | |||||||
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Total Closing Notes |
193,880 | |||||||
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Total cash consideration |
967,880 | |||||||
Land Note (see Note (h)) |
101,000 | |||||||
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Total Sale consideration |
$ | 1,068,880 | ||||||
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(g) | Represents the Distribution of $29.00 per share for an aggregate distribution of $899.3 million to holders of record of Loral voting and non-voting common stock and holders of equity based awards as of November 19, 2012. |
(h) | Represents current and long-term portions of the Land Note, which bears interest at the rate of 1% per annum and amortizes in three equal annual installments. |
(i) | Represents transaction costs of $35.3 million, estimated cash taxes payable on the Sale of $51.7 million and a $24.7 million liability related to certain contingencies and Loral indemnification of SS/L. These indemnification liabilities and contingencies are reflected at estimated fair value. |
(j) | Represents the elimination of Lorals investment in SS/L. |
(k) | Lorals estimated gain on the Sale is as follows (in thousands): |
Total Sale consideration (see Note (f)) |
$ | 1,068,880 | ||||||
Book value of net assets sold per below |
(441,489 | ) | ||||||
Less: |
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Contingencies and indemnification liabilities |
$ | (24,678 | ) | |||||
Tax provision |
(260,229 | ) | ||||||
Transaction costs |
(35,320 | ) | (320,227 | ) | ||||
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Gain on Sale, after taxes |
$ | 307,164 | ||||||
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Net Assets Sold |
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Assets held-for-sale |
$ | 959,536 | ||||||
Add: Accumulated other comprehensive loss (before income taxes of $20,203) |
134,809 | |||||||
Less: Liabilities held-for-sale |
$ | (651,960 | ) | |||||
Noncontrolling interest |
(896 | ) | (652,856 | ) | ||||
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$ | 441,489 | |||||||
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(l) | The unaudited pro forma balance sheet reflects adjustments to the tax assets and liabilities for the tax provision on the gain on Sale. The primary differences between the estimated cash taxes payable on the gain on Sale of $51.7 million (see Note i) and the tax provision on the gain on Sale of $260.2 million (see Note k) are due to differences in book and tax bases of SS/Ls assets and liabilities, use of Net Operating Losses and other tax credits and deferred tax liabilities on the Land Note. |
For purposes of the unaudited pro forma income statements, a statutory tax rate of 39% has been applied to the pro forma adjustments to pre-tax income and equity in net income of affiliates.
(m) | Represents the adjustment to paid-in capital for excess tax benefits realized from stock-based compensation as a result of cash taxes due on the gain on Sale. |
Page 8 of 8