- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported) - June 18, 1996
-----------
LOCKHEED MARTIN CORPORATION
(Exact name of registrant as specified in its charter)
Maryland 1-11437 52-1893632
(State of other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
6801 Rockledge Drive, Bethesda, Maryland 20817
(Address of principal executive offices) (Zip Code)
(301) 897-6000
(Registrant's telephone number, including area code)
----------
Not Applicable
(Former name or address, if changed since last report)
- --------------------------------------------------------------------------------
Item 5. Other Events
A. Background
On January 7, 1996, Lockheed Martin Corporation (the "Corporation") and its
wholly owned subsidiary LAC Acquisition Corporation ("LAC"), entered into an
Agreement and Plan of Merger (the "Loral Merger Agreement") with Loral
Corporation ("Loral") pursuant to which LAC agreed to commence a tender offer to
purchase all the issued and outstanding shares of Common Stock of Loral
(together with the associated preferred stock purchase rights) for an aggregate
consideration of $38 per share, net to the seller in cash, without interest (the
"Tender Offer"). The Tender Offer was made as part of a series of transactions
that resulted in (i) the distribution, to stockholders of Loral immediately
prior to the consummation of the Tender Offer, of shares of capital stock of
Loral Space & Communications, Ltd., and (ii) the acquisition by the Corporation
of Loral's defense electronics and systems integration businesses. In accordance
with the terms of the Tender Offer and the Loral Merger Agreement, on April 23,
1996, LAC purchased approximately 94.5% of the outstanding shares of Common
Stock of Loral. Subsequent to the consummation of the Tender Officer, on April
29, 1996, in accordance with the terms of the Loral Merger Agreement, LAC merged
with and into Loral and pursuant thereto each remaining share of Common Stock of
Loral not owned by LAC was converted into the right to receive $38, each
outstanding share of Common Stock of LAC was converted into shares of Common
Stock of Loral, and Loral changed its name to Lockheed Martin Tactical Systems,
Inc. ("Tactical Systems"). As a result of these transactions, Tactical Systems
became a wholly owned subsidiary of the Corporation.
The Corporation is filing this Current Report on Form 8-K in order to
provide the consolidated financial statements of Loral Corporation and
Subsidiaries -- Retained Business as of March 31, 1996 and 1995, and for each of
the three years then ended, which are included as Exhibit 99(a) to this Current
Report on Form 8-K. References in Exhibit 99(a) of this Current Report on Form
8-K to Loral Corporation and Subsidiaries -- Retained Business constitute
references to Tactical Systems.
B. Exhibits
Exhibit No. Description
----------- -----------
23 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule
99(a) Audited Consolidated Financial Statements of Loral
Corporation and Subsidiaries -- Retained Business
as of
March 31, 1996 and 1995, and for each of
the three years then ended.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
LOCKHEED MARTIN CORPORATION
/s/ ROBERT E. RULON
--------------------------
Robert E. Rulon
Vice President and
Controller
18 June 1996
INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
23 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule
99(a) Audited Consolidated Financial Statements of Loral
Corporation and Subsidiaries -- Retained Business as of
March 31, 1996 and 1995, and for each of the three years
then ended.
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the registration statements of
Lockheed Martin Corporation on Form S-3 (File No. 333-01939), Form S-3 (File
No. 33-58067), Form S-8 (File No. 33-58073), Form S-8 (File No. 33-58075),
Form S-8 (File No. 33-58077), Form S-8 (File No. 33-58079), Form S-8 (File
No. 33-58081), Form S-8 (File No. 33-58083), Form S-8 (File No. 33-58085),
Form S-8 (File No. 33-58089), Form S-8 (File No. 33-58097), Form S-8 (File
No. 33-57645) and Form S-8 (File No. 33-63155) of our report dated May 17, 1996,
on our audits of the consolidated financial statements of Loral Corporation and
Subsidiaries -- Retained Business, which is now known as Lockheed Martin
Tactical Systems, Inc., a subsidiary of Lockheed Martin Corporation, as of March
31, 1996 and 1995, and for each of the three years in the period ended March 31,
1996, which report is included in the Current Report on Form 8-K of Lockheed
Martin Corporation dated June 18, 1996.
/s/ Coopers & Lybrand L.L.P.
New York, New York
June 18, 1996
5
1,000,000
YEAR
MAR-31-1996
APR-01-1995
MAR-31-1996
277
0
941
0
429
2,150
2,080
890
5,983
1,570
1,857
0
0
0
1,769
5,983
6,123
6,123
5,386
5,386
0
0
142
600
216
384
0
0
0
384
0
0
EXHIBIT 99(A)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Auditors...................................... F-2
Consolidated Statements of Operations............................... F-3
Consolidated Balance Sheets......................................... F-4
Consolidated Statements of Changes in Net Assets.................... F-5
Consolidated Statements of Cash Flows............................... F-6
Notes to Consolidated Financial Statements.......................... F-7 to F-20
F-1
REPORT OF INDEPENDENT AUDITORS
To the Shareholder and Board of Directors of Lockheed Martin Tactical Systems,
Inc.:
We have audited the accompanying consolidated balance sheets of Loral
Corporation and Subsidiaries Retained Business (the "Company"), which is now
known as Lockheed Martin Tactical Systems, Inc., a subsidiary of Lockheed
Martin Corporation, as of March 31, 1996 and 1995 and the related consolidated
statements of operations, changes in net assets and cash flows for each of the
three years in the period ended March 31, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Loral
Corporation and Subsidiaries--Retained Business as of March 31, 1996 and 1995,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended March 31, 1996 in conformity with
generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
1301 Avenue of the Americas
New York, New York 10019
May 17, 1996
F-2
LORAL CORPORATION AND SUBSIDIARIES--RETAINED BUSINESS
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31,
--------------------------------
1996 1995 1994
---------- ---------- ----------
(IN THOUSANDS)
Sales......................................... $6,122,755 $5,484,401 $4,008,733
Costs and expenses............................ 5,385,711 4,919,857 3,607,765
---------- ---------- ----------
Operating income.............................. 737,044 564,544 400,968
Interest income and net investment income..... 5,246 9,484 8,275
Interest expense.............................. 141,998 96,405 39,016
---------- ---------- ----------
Income before income taxes.................... 600,292 477,623 370,227
Income taxes.................................. 216,405 181,456 138,420
---------- ---------- ----------
Net income.................................... $ 383,887 $ 296,167 $ 231,807
========== ========== ==========
See notes to consolidated financial statements.
F-3
LORAL CORPORATION AND SUBSIDIARIES--RETAINED BUSINESS
CONSOLIDATED BALANCE SHEETS
MARCH 31,
---------------------
1996 1995
---------- ----------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents............................. $ 276,824 $ 125,674
Contracts in process.................................. 1,369,762 1,147,233
Deferred income taxes................................. 309,359 138,374
Other current assets.................................. 193,778 141,846
---------- ----------
Total current assets................................ 2,149,723 1,553,127
---------- ----------
Property, plant and equipment........................... 2,080,425 1,899,804
Less, accumulated depreciation and amortization....... 890,232 758,279
---------- ----------
1,190,193 1,141,525
---------- ----------
Cost in excess of net assets acquired, less
amortization........................................... 1,924,355 1,265,932
Deferred income taxes................................... 6,486
Prepaid pension cost and other assets................... 718,342 591,217
---------- ----------
$5,982,613 $4,558,287
========== ==========
LIABILITIES AND NET ASSETS
Current liabilities:
Current portion of debt............................... $ 10,860 $ 958
Accounts payable, trade............................... 197,294 169,743
Billings and estimated earnings in excess of cost..... 674,865 313,379
Accrued employment costs.............................. 284,298 235,260
Income taxes.......................................... 128,118 80,642
Other current liabilities............................. 274,625 216,585
---------- ----------
Total current liabilities........................... 1,570,060 1,016,567
---------- ----------
Postretirement benefits................................. 599,523 611,911
Deferred income taxes................................... 2,967
Other liabilities....................................... 184,555 178,798
Long-term debt.......................................... 1,856,764 1,315,530
Commitments and contingencies (Notes 10 and 14).........
Net assets.............................................. 1,768,744 1,435,481
---------- ----------
$5,982,613 $4,558,287
========== ==========
See notes to consolidated financial statements
F-4
LORAL CORPORATION AND SUBSIDIARIES--RETAINED BUSINESS
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED MARCH 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
(IN THOUSANDS)
Balance, beginning of year................. $1,435,481 $1,222,054 $1,050,836
Shares issued:
Exercise of stock options and related tax
benefits, net of shares tendered........ 41,208 11,614 9,392
Employee benefit plans................... 62,560 42,698 11,398
Restricted Stock Purchase Plan........... (1)
Amortization of restricted options......... 10,504 3,351 3,246
Shares earned under Restricted Stock
Purchase Plan............................. 737 5,655 3,919
Net income................................. 383,887 296,167 231,807
Dividends.................................. (54,251) (49,663) (45,183)
Changes in net assets applicable to Space
and Communications Operations............. (100,982) (100,580) (25,774)
Additional minimum pension liability....... (7,248) 5,085 (16,049)
Foreign currency translation adjustment.... (3,152) (900) (1,537)
---------- ---------- ----------
Balance, end of year....................... $1,768,744 $1,435,481 $1,222,054
========== ========== ==========
See notes to consolidated financial statements.
F-5
LORAL CORPORATION AND SUBSIDIARIES--RETAINED BUSINESS
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31,
--------------------------------
1996 1995 1994
-------- ---------- ----------
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net income.................................. $383,887 $ 296,167 $ 231,807
Depreciation and amortization............... 266,767 250,122 178,184
Deferred income taxes....................... 76,054 111,769 27,500
Changes in operating assets and liabilities:
Contracts in process...................... (127,321) 30,966 31,850
Other current assets...................... (22,198) 31,868 (56,713)
Prepaid pension cost and other assets..... (88,816) (40,956) (22,767)
Accounts payable and accrued liabilities.. 137,476 (59,703) (21,247)
Income taxes.............................. 47,505 2,827 17,375
Postretirement benefits and other
liabilities.............................. (48,162) (23,279) (26,366)
Other..................................... (10,500) 4,185 (562)
-------- ---------- ----------
Net cash from operating activities.......... 614,692 603,966 359,061
-------- ---------- ----------
INVESTING ACTIVITIES:
Acquisition of businesses, net of cash
acquired................................... (879,228) (3,750) (1,426,103)
Proceeds from note receivable............... 20,935
Capital expenditures........................ (117,242) (122,733) (102,952)
Disposition of property, plant and
equipment.................................. 37,561 37,482 6,492
-------- ---------- ----------
(958,909) (89,001) (1,501,628)
-------- ---------- ----------
FINANCING ACTIVITIES:
Net borrowings (payments) under revolving
credit facilities and commercial paper..... 401,389 (1,131,737) 808,018
Proceeds from borrowings.................... 150,000 651,273 503,534
Payments of debt............................ (4,557) (1,037) (47,578)
Distributions to Space and Communications
Operations................................. (100,982) (100,580) (25,774)
Dividends paid.............................. (54,251) (49,663) (45,183)
Proceeds from issuance of common stock...... 103,768 54,312 20,789
Seller financing in connection with
acquisition of business.................... (50,357) 50,357
-------- ---------- ----------
495,367 (627,789) 1,264,163
-------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents................................ 151,150 (112,824) 121,596
Cash and cash equivalents, beginning of
year....................................... 125,674 238,498 116,902
-------- ---------- ----------
Cash and cash equivalents, end of year...... $276,824 $ 125,674 $ 238,498
======== ========== ==========
Supplemental information:
Interest paid during the year............... $139,650 $ 93,385 $ 46,342
======== ========== ==========
Income taxes paid during the year, net of
refunds.................................... $ 77,468 $ 62,563 $ 73,729
======== ========== ==========
See notes 3 and 4 for additional information.
See notes to consolidated financial statements.
F-6
LORAL CORPORATION AND SUBSIDIARIES--RETAINED BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Loral Corporation and Subsidiaries--Retained Business, now Lockheed Martin
Tactical Systems, Inc., (the "Retained Business" or the "Company") is a
leading supplier of advanced electronic systems, components and services to
U.S. and foreign governments for defense and non-defense applications. The
Company's principal business areas are: electronic combat; training and
simulation; tactical weapons; command, control, communications and
intelligence (C/3/I); systems integration; and telecommunications. The Company
operates primarily in one industry segment, government electronic systems.
Substantially all of the Company's products are sold to agencies of the
United States Government, primarily the Department of Defense, to foreign
government agencies or to prime contractors or subcontractors thereof. All
domestic government contracts and subcontracts to which the Company is a party
are subject to audit, various cost controls and include standard provisions
for termination for the convenience of the Government. Multi-year Government
contracts and related orders are subject to cancellation if funds for contract
performance for any subsequent year become unavailable. Foreign government
contracts generally include comparable provisions relating to termination for
the convenience of the government.
The decline in the U.S. defense budget since the mid 1980s has resulted in
program delays, cancellations and scope reductions for defense contractors in
general. These events may or may not have an effect on the Company's programs;
however, in the event that expenditures for products of the type manufactured
by the Company are reduced, and not offset by greater foreign sales or other
new programs or products, or acquisitions, there will be a reduction in the
volume of contracts or subcontracts awarded to the Company.
2. BASIS OF PRESENTATION
On January 7, 1996, Loral Corporation ("Loral") and Lockheed Martin
Corporation ("Lockheed Martin") entered into a definitive Agreement and Plan
of Merger (the "Merger Agreement") among Loral Corporation, Lockheed Martin
and LAC Acquisition Corporation ("LAC"), a wholly-owned subsidiary of Lockheed
Martin. Concurrently with the execution of the Merger Agreement, Loral
Corporation, certain wholly-owned subsidiaries of Loral Corporation and
Lockheed Martin, entered into a Restructuring, Financing and Distribution
Agreement (the "Distribution Agreement"), which provided, among other things,
for (i) the transfer of Loral Corporation's space and communications business,
including its direct and indirect interests in Globalstar, L.P.
("Globalstar"), Space Systems/Loral, Inc. ("SS/L"), and other affiliated
business, as well as certain other assets, ("the "Space and Communications
Operations"), to Loral Space & Communications Ltd., a Bermuda company ("Loral
SpaceCom"), (ii) the distribution of all of the shares of Loral SpaceCom
common stock to holders of Loral Corporation common stock and persons entitled
to acquire shares of Loral Corporation common stock on a one-for-one basis
(the "Spin-off"), and (iii) the contribution by Lockheed Martin of
$712,400,000 to Loral SpaceCom, of which $344,000,000 represents payment for
preferred stock, convertible into a 20% equity interest in Loral SpaceCom,
retained by Lockheed Martin following the Spin-Off and the Merger.
Under the terms of the Merger Agreement, LAC commenced a cash tender offer
on January 12, 1996 for all outstanding shares of common stock, par value $.25
per share, of Loral Corporation at a price of $38.00 per share.
In accordance with the terms of the tender offer and the Merger Agreement,
on April 23, 1996, LAC purchased approximately 94.5% of the outstanding shares
of common stock of Loral. Subsequent to the consummation of the Tender Offer,
on April 29, 1996, in accordance with the terms of the Merger Agreement,
F-7
LORAL CORPORATION AND SUBSIDIARIES--RETAINED BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
LAC merged with and into Loral and pursuant thereto each remaining share of
common stock of Loral not owned by LAC was converted into the right to receive
$38.00, each outstanding share of common stock of LAC was converted into
shares of common stock of Loral, and Loral changed its name to Lockheed Martin
Tactical Systems, Inc. ("Tactical Systems"). As a result of these
transactions, Tactical Systems became a wholly owned subsidiary of Lockheed
Martin.
The accompanying consolidated financial statements reflect the portion of
Loral that became a subsidiary of Lockheed Martin. However, the financial
position and results of operations, as presented herein, may not have been the
same as would have occurred had the Retained Business and Space and
Communications Operations been independent entities.
All significant intercompany balances and transactions have been eliminated.
The financial statements reflect the allocations of certain expenses to
Space and Communications Operations based upon estimates of actual services
performed by the Company (See Note 14). The amount of corporate office
expenses allocated to Space and Communication Operations has been estimated
based primarily on the allocation methodology prescribed by government
regulations pertaining to government contractors, which management believes to
be a reasonable allocation method.
The financial statements exclude interest expense of $10,524,000, $9,456,000
and $8,253,000 for the years ended March 31, 1996, 1995 and 1994,
respectively, which has been allocated to Space and Communications Operations
based upon the Company's historical weighted average debt cost applied to
Loral's average investment in affiliates for each period.
The financial statements do not include the effects of adjustments to assets
and liabilities as a result of the acquisition of the Company by Lockheed
Martin.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with a maturity of
three months or less at the time of purchase.
Statements of Cash Flow
Changes in operating assets and liabilities are net of the impact of
acquisitions and final purchase price allocations.
Contracts in Process
Sales on long-term production-type contracts are recorded as units are
shipped; profits applicable to such shipments are recorded pro rata, based
upon estimated total profit at completion of the contract. Sales and profits
on cost reimbursable contracts are recognized as costs are incurred. Sales and
estimated profits under other long-term contracts are recognized under the
percentage of completion method of accounting using the cost-to-cost method.
Amounts representing contract change orders or claims are included in sales
only when they can be reliably estimated and realization is probable.
F-8
LORAL CORPORATION AND SUBSIDIARIES--RETAINED BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Costs accumulated under long-term contracts include applicable amounts of
selling, general and administrative expenses. Losses on contracts are
immediately recognized in full when determinable. Revisions in profit
estimates are reflected in the period in which the facts which require the
revision become known.
In accordance with industry practice, contracts in process contain amounts
relating to contracts and programs with long production cycles, a portion of
which may not be realized within one year.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is provided
primarily using the straight-line method over the estimated useful lives of
the related assets. Leasehold improvements are amortized over the shorter of
the lease term or the estimated useful life of the improvements.
Cost in Excess of Net Assets Acquired
The excess of the cost of purchased businesses over the fair value of the
net assets acquired is being amortized using a straight-line method generally
over a 40-year period. Accumulated amortization amounted to $159,830,000 and
$107,857,000 at March 31, 1996 and 1995, respectively.
The carrying amount of Cost in Excess of Net Assets Acquired is evaluated on
a recurring basis. Current and future profitability as well as current and
future undiscounted cash flows, excluding financing costs, of the acquired
businesses are primary indicators of recoverability. For the three years ended
March 31, 1996, there were no adjustments to the carrying amount of the cost
in excess of net assets acquired resulting from these evaluations.
Foreign Currency Translation
Assets and liabilities of foreign operations are translated into U.S dollars
at current rates and income and expenses are translated at average rates
during the period. The effects of the translation adjustments are included as
a component of Net Assets.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company's 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 reported amounts of revenue and expenses
during the reporting period. The most significant of these estimates and
assumptions relate to contract estimates of revenues and costs, income taxes,
pensions and postretirement benefits, recoverability of recorded amounts of
fixed assets and cost in excess of net assets acquired, litigation and
environmental obligations. Actual results could differ from these estimates.
Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"),
which is required to be adopted by fiscal 1997. SFAS 121 establishes the
accounting standards for the impairment of long-lived assets, certain
intangible assets and cost in excess of net assets acquired to be held and
used and for long-lived assets and certain intangible assets to be disposed
of. The Company has evaluated the adoption of SFAS 121 and does not consider
the impact to be material.
F-9
LORAL CORPORATION AND SUBSIDIARIES--RETAINED BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. ACQUISITIONS
On May 5, 1995, the Company acquired substantially all the assets and
liabilities of the Defense Systems operations of Unisys Corporation ("Loral
UDS") for $862,609,000, net of cash acquired. Additionally, acquisition
expenses of $6,000,000 have been recorded. The assets and liabilities recorded
in connection with the purchase price allocation were $1,229,852,000 and
$361,243,000 respectively. The acquisition was financed through commercial
paper borrowings.
On March 1, 1994, effective January 1, 1994, the Company, through its newly
formed wholly owned subsidiary Loral Federal Systems Company ("LFS"), acquired
substantially all the assets and liabilities of the Federal Systems Company, a
division of International Business Machines Corporation, for $1,511,500,000 in
cash, including acquisition costs. The assets and liabilities recorded in
connection with the purchase price allocation were $1,857,655,000 and
$346,155,000, respectively. The acquisition was financed through cash on hand
and commercial paper borrowings.
The Company has acquired other businesses during 1996, 1995, and 1994. These
acquisitions did not have a material effect on the operations of the Company.
The acquisitions of Loral UDS and LFS have been accounted for as purchases.
As such, the Company's consolidated financial statements reflect the results
of operations of the acquired entities from the respective effective dates of
acquisition.
Had the acquisition of Loral UDS occurred on April 1, 1994, the unaudited
proforma sales and net income for the year ended March 31, 1995 would have
been $6,789,000,000 and $310,300,000. The results, which are based on various
assumptions, are not necessarily indicative of what would have occurred had
the acquisition been consummated as of April 1, 1994. The proforma effect of
the acquisition of Loral UDS on the results of operations for the year ended
March 31, 1996 is not material.
Performance under acquired contracts in process, the accounting for which is
described in Note 5, contributed after-tax income of $16,786,000, $62,328,000
and $49,061,000, net of after-tax interest cost on debt related to the
acquisitions and incremental amortization of cost in excess of net assets
acquired aggregating $119,345,000, $85,922,000 and $29,125,000 for 1996, 1995,
and 1994, respectively.
5. CONTRACTS IN PROCESS
Billings and accumulated costs and profits on long-term contracts,
principally with the U.S. Government, comprise the following:
MARCH 31,
------------------------
1996 1995
----------- -----------
(IN THOUSANDS)
Billed contract receivables........................ $ 510,415 $ 380,240
Unbilled contract receivables...................... 1,573,267 1,702,967
Inventoried costs.................................. 583,350 477,955
----------- -----------
2,667,032 2,561,162
Less, unliquidated progress payments............... (1,297,270) (1,413,929)
----------- -----------
Net contracts in process......................... $ 1,369,762 $ 1,147,233
=========== ===========
F-10
LORAL CORPORATION AND SUBSIDIARIES--RETAINED BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Unbilled contract receivables represent accumulated costs and profits earned
but not yet billed to customers at year-end. The Company believes that
substantially all such amounts will be billed and collected within one year.
The following data has been used in the determination of costs and expenses:
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
Selling, general and administrative ("S,G&A")
costs included in inventoried costs............. $ 60,512 $ 51,468 $ 64,212
S,G&A costs incurred............................. 624,718 563,342 462,890
Independent research and development, including
bid and proposal costs, included in S,G&A costs
incurred........................................ 249,445 228,005 172,604
In connection with the determination of the fair value of assets acquired
(Note 4) and pursuant to the provisions of Accounting Principles Board Opinion
No. 16, the Company has valued acquired contracts in process at contract
price, minus the estimated cost to complete and an allowance for the Company's
normal profit on its effort to complete such contracts.
6. PROPERTY, PLANT AND EQUIPMENT
MARCH 31,
---------------------
1996 1995
---------- ----------
(IN THOUSANDS)
Land.................................................. $ 166,786 $ 106,879
Buildings and improvements............................ 593,024 569,724
Machinery, equipment, furniture and fixtures.......... 1,183,187 1,095,149
Leasehold improvements................................ 137,428 128,052
---------- ----------
$2,080,425 $1,899,804
========== ==========
Depreciation and amortization expense in 1996, 1995 and 1994 was
$201,213,000, $192,473,000, and $141,853,000, respectively.
7. DEBT
MARCH 31,
---------------------
1996 1995
---------- ----------
(IN THOUSANDS)
Commercial paper (5.51% and 6.22% at March 31, 1996
and 1995, respectively)............................ $ 643,200 $ 241,811
7 5/8% Senior Notes due 2004........................ 250,000 250,000
9 1/8% Senior Debentures due 2022................... 100,000 100,000
8 3/8% Senior Debentures due 2023................... 100,000 100,000
7% Senior Debentures due 2023....................... 200,000 200,000
8 3/8% Senior Debentures due 2024................... 400,000 400,000
7 5/8% Senior Debentures due 2025................... 150,000
Other............................................... 24,424 24,677
---------- ----------
1,867,624 1,316,488
Less current maturities............................. 10,860 958
---------- ----------
Total long-term debt.............................. $1,856,764 $1,315,530
========== ==========
F-11
LORAL CORPORATION AND SUBSIDIARIES--RETAINED BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The aggregate maturities of long-term debt, excluding commercial paper
borrowings classified as long-term, for the years 1997 through 2001 are as
follows: $10,860,000, $1,324,000, $1,024,000, $978,000 and $1,050,000.
At March 31, 1996, the Company had a $1,200,000,000 revolving credit
facility with a group of banks expiring in November 1999. This facility
supported the Company's commercial paper borrowings and was available for
other corporate purposes. The amount available for borrowings was reduced by
the outstanding commercial paper. Borrowings were unsecured and bore interest,
at the Company's option, at various rates based on the base rate, or on
margins over the CD rate or EuroDollar rate. The Company paid a commitment fee
on the unused portion. The margins and the commitment fee were subject to
adjustment. Borrowings were prepayable at any time and were due at expiration.
This facility was subsequently cancelled pursuant to the terms of the Merger
Agreement, with the commercial paper outstanding at the closing date being
supported by Lockheed Martin's revolving credit facility.
Commercial paper outstanding at March 31, 1996 is classified as long-term
since the Company, through Lockheed Martin, intends to refinance these
borrowings on a long-term basis either through continued commercial paper
borrowings or the utilization of available credit facilities.
In May 1994, the Company increased its existing shelf registration statement
to issue up to $800,000,000 of debt and equity securities. In June 1994, the
Company issued $250,000,000 7 5/8% Senior Notes due 2004 and $400,000,000 8
3/8% Senior Debentures due 2024. In June 1995 the Company utilized the balance
of its shelf registration statement by issuing $150,000,000 7 5/8% Senior
Debentures due 2025. The proceeds were used to reduce outstanding commercial
paper.
None of the Company's Senior Notes and Senior Debentures are redeemable
prior to maturity or subject to sinking fund requirements.
8. INCOME TAXES
Income before income taxes consists of:
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
Domestic........................................ $559,961 $448,322 $364,814
Foreign......................................... 40,331 29,301 5,463
-------- -------- --------
Total......................................... $600,292 $477,623 $370,277
======== ======== ========
The components of the provision for income taxes are as follows:
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
Currently payable:
Federal........................................ $103,718 $ 45,273 $ 91,358
State and local................................ 22,517 13,622 15,534
Foreign, principally Europe.................... 14,116 10,792 4,028
-------- -------- --------
140,351 69,687 110,920
-------- -------- --------
Deferred:
Federal........................................ 70,909 100,993 21,491
State and local................................ 5,145 10,776 6,009
-------- -------- --------
76,054 111,769 27,500
-------- -------- --------
Total provision for income taxes............. $216,405 $181,456 $138,420
======== ======== ========
The provision for income taxes excludes: current tax benefits related to the
exercise of stock options, credited directly to Net Assets, of $21,132,000,
$4,503,000 and $3,643,000 for 1996, 1995 and 1994, respectively; a deferred
tax benefit of $4,635,000, a deferred tax credit of $3,251,000 and a deferred
tax benefit of $10,261,000, related to the additional minimum pension
liability recorded directly to Net Assets for 1996, 1995 and 1994,
respectively.
F-12
LORAL CORPORATION AND SUBSIDIARIES--RETAINED BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The effective income tax rate differs from the statutory Federal income tax
rate for the following reasons:
1996 1995 1994
---- ---- ----
Statutory Federal income tax rate........................ 35.0% 35.0% 35.0%
Research and development and other tax credits........... (1.8) (.6) (1.1)
State and local income taxes, net of Federal income tax
benefit and state and local income tax credits.......... 3.1 3.3 3.8
Foreign sales corporation tax benefit.................... (.6) (.6) (.7)
Other, net............................................... .4 .9 .4
---- ---- ----
Effective income tax rate.............................. 36.1% 38.0% 37.4%
==== ==== ====
The significant components of the deferred income tax assets and liabilities
are:
MARCH 31,
-----------------
1996 1995
-------- --------
(IN THOUSANDS)
Deferred tax assets:
Postretirement benefits other than pensions............. $177,857 $185,169
Inventoried costs....................................... 285,834 128,059
Intangible assets....................................... 25,145 33,149
Compensation and benefits............................... 28,471 18,406
Other, net.............................................. 28,546 21,315
-------- --------
545,853 386,098
-------- --------
Deferred tax liabilities:
Pension costs........................................... 208,642 175,146
Property, plant and equipment........................... 18,206 49,815
Income recognition on long-term contracts............... 12,613 16,277
-------- --------
239,461 241,238
-------- --------
Net deferred income tax asset......................... $306,392 $144,860
======== ========
The net deferred income tax asset is classified as follows:
MARCH 31,
------------------
1996 1995
-------- --------
(IN THOUSANDS)
Current deferred income tax asset........................ $309,359 $138,374
-------- --------
Long-term deferred income tax (liability) asset.......... $ (2,967) $ 6,486
-------- --------
9. NET ASSETS
Stock Plans
Under the Company's 1994 Stock Option Plan, options were granted at fair
market value at date of grant. Under the Company's various other stock option
plans, options were granted at prices determined by the Compensation and Stock
Option Committee (the "Committee"). The Committee determined the exercise and
expiration dates of the options, which were not later than 10 years from the
date of grant. Unearned compensation for options granted at less than their
market value at date of grant was included as a component of Net Assets and
was amortized over the period that the options vest.
F-13
LORAL CORPORATION AND SUBSIDIARIES--RETAINED BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Options outstanding have been granted at prices ranging from $2.78 to $35.06
per share. All share and per share amounts have been adjusted for a two-for-
one stock split distributed to shareholders of record on September 21, 1995.
A summary of the option transactions follows:
1996 1995 1994
--------- --------- --------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
Options outstanding, beginning of year....... 10,150 10,130 7,528
Options granted.............................. 2,322 1,368 3,790
Options exercised............................ (2,149) (1,058) (1,016)
Exercise price per share..................... ($2.78 ($2.50 ($2.25
to $27.59) to $12.91) to $9.78)
Options cancelled............................ (437) (290) (172)
--------- --------- --------
Options outstanding, end of year............. 9,886 10,150 10,130
========= ========= ========
Options exercisable, end of year............. 9,886 4,258 3,562
========= ========= ========
In July 1994, the shareholders approved an increase of 11,000,000 shares of
common stock available for future grants. There were 0 shares, 9,960,604
shares and 102,052 shares of common stock available for future option grants
at March 31, 1996, 1995 and 1994, respectively. In connection with the Merger,
the Stock Option and Compensation Committee of the Board of Directors of Loral
established January 12, 1996 as the accelerated date for vesting of all
options. Of the 9,886,000 options exercisable at March 31, 1996, 468,000
options were exercisable by employees of SS/L. SS/L has agreed to pay the
Company any difference between the market value of Loral stock at the time of
exercise and the option price. Subsequent to March 31, 1996, all outstanding
options were exercised and unissued options were cancelled.
Under the Company's Restricted Stock Purchase Plan, established in 1988,
4,000,000 shares of the Company's common stock were issued under the Plan,
upon payment by the employee of the par value per share. The total number of
shares earned under the Plan each year equaled 3% of the Company's pre-tax
profit divided by the grant value (currently $210 per share) of restricted
shares outstanding. Any shares not earned at the earlier of completion of the
seventh year after grant or termination of employment were essentially
forfeited by being repurchased by the Company at par value. Under the Plan,
28,550 shares, 266,926 shares and 209,692 shares were earned for the years
ended March 31, 1996, 1995 and 1994, respectively. At March 31, 1996 there
were no shares still to be earned.
Net Assets
The components of certain amounts included in Net Assets are:
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
Unearned compensation--stock options............... $10,651 $13,644
Unearned compensation--Restricted Stock Purchase
Plan.............................................. 605 5,521
Cumulative translation adjustment.................. $ 5,956 2,804 1,904
Additional minimum pension liability............... 18,212 10,964 16,049
------- ------- -------
$24,168 $25,024 $37,118
======= ======= =======
10. COMMITMENTS AND CONTINGENCIES
The Company leases certain facilities and equipment under agreements
expiring at various dates through 2080. At March 31, 1996, future minimum
payments for noncancellable operating and capital leases with initial or
remaining terms in excess of one year are as follows:
F-14
LORAL CORPORATION AND SUBSIDIARIES--RETAINED BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OPERATING LEASES
---------------------
REAL ESTATE EQUIPMENT CAPITAL LEASES TOTAL
----------- --------- -------------- --------
(IN THOUSANDS)
1997........................... $ 41,249 $11,983 $11,394 $ 64,626
1998........................... 26,383 8,067 1,243 35,693
1999........................... 20,014 6,267 1,243 27,524
2000........................... 10,918 5,395 1,243 17,556
2001........................... 4,872 60 1,243 6,175
Thereafter..................... 64,903 37 7,142 72,082
-------- ------- ------- --------
$168,339 $31,809 $23,508 $223,656
======== ======= ======= ========
Real estate lease commitments have been reduced by minimum sublease rentals
of $73,772,000 due in the future under noncancellable subleases. The present
value of the minimum lease payments for capital leases is $17,655,000 net of
imputed interest of $5,853,000.
Leases covering major items of real estate and equipment contain renewal and
or purchase options which may be exercised by the Company. Rent expense, net
of sublease income of $8,286,000, $11,429,000 and $7,285,000 was $87,232,000,
$84,884,000 and $60,891,000 in 1996, 1995 and 1994, respectively.
At March 31, 1996, outstanding letters of credit were approximately
$265,232,000.
In October 1995, the Company agreed to guarantee $250,000,000 of bank debt
of one of the Company's affiliates, Globalstar. In exchange for the guarantee,
the Company will be issued warrants to purchase up to a 7% equity interest in
Globalstar on a fully diluted basis. Subject to the approval of its
shareholders, the warrants will be issued by Globalstar Telecommunications
Limited ("GTL"), a general partner of Globalstar, and upon such approval, GTL
will be issued additional warrants representing an approximate 2% equity
interest in Globalstar. If GTL shareholder approval is not obtained,
Globalstar will issue to the Company warrants to purchase partnership
interests representing up to an 8% equity interest in Globalstar and no
warrants will be issued to GTL. Globalstar has also agreed to pay the Company
a fee equal to 1.5% per annum of the guaranteed amount outstanding under the
bank financing. Such fee will be deferred and paid with interest commencing 90
days after the expiration of the bank financing. It is expected that
Globalstar's other strategic partners will assume a portion of the guarantee.
On December 15, 1995, Globalstar entered into a five-year $250 million credit
agreement with a group of banks.
Under the terms of the Merger Agreement, Lockheed Martin agreed to assume
the obligations of the Company as guarantor under the above described Credit
Agreement and receive up to 60% of such warrants. At the time of Merger the
amount of the guarantee was $200,300,000. In addition, Loral SpaceCom has
agreed to (i) indemnify Lockheed Martin, under certain circumstances, for up
to $100,000,000 for its guarantee of Globalstar's obligations under the Credit
Agreement, and (ii) use reasonable efforts to cause Globalstar's partners to
assume up to $150,000,000 of the obligations as guarantor under the Credit
Agreement. To the extent Globalstar's partners agree to assume the obligations
as guarantor, rights to a proportionate amount of such warrants will be
transferred to them, and the Lockheed Martin guarantee and the Loral SpaceCom
indemnification will be reduced accordingly.
Management is continually assessing its obligations with respect to
applicable environmental protection laws. While it is difficult to determine
the timing and ultimate cost to be incurred by the Company in order to comply
with these laws, based upon available internal and external assessments, the
Company believes that even without considering potential insurance recoveries,
if any, there are no environmental loss contingencies that, individually or in
the aggregate, would be material to the Company's operations. The Company
accrues for these contingencies when it is probable that a liability has been
incurred and the amount of the loss can be reasonably
F-15
LORAL CORPORATION AND SUBSIDIARIES--RETAINED BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
estimated. The Company has been named a Potentially Responsible Party ("PRP")
at a number of sites. In several of these situations Loral acquired the site
pursuant to a purchase agreement which provided that the seller would retain
liability for environmental remediation and related costs arising from
occurrences prior to the sale. In other situations the Company is party to an
interim or final allocation plan that has been accepted by other PRPs whose
size and current financial condition make it probable that they will be able
to pay the environmental costs apportioned to them. The Company believes that
it has adequately accrued for future expenditures in connection with
environmental matters and that such expenditures will not have a material
adverse effect on its financial position or results of operations.
There are a number of lawsuits or claims pending against the Company and
incidental to its business. However, in the opinion of management, the
ultimate liability on these matters, if any, will not have a material adverse
effect on the financial position or results of operations of the Company.
11. PENSIONS AND OTHER EMPLOYEE BENEFITS
Pensions
The Company maintains a number of pension plans, both contributory and
noncontributory, covering certain employees. Eligibility for participation in
these plans varies and benefits are generally based on members' compensation
and years of service. The Company's funding policy is generally to contribute
in accordance with cost accounting standards that affect government
contractors, subject to the Internal Revenue Code and regulations thereon.
Plan assets are invested primarily in U.S. government and agency obligations
and listed stocks and bonds.
Pension cost (credit) includes the following components:
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS)
Service cost-benefits earned during the
period.................................. $ 57,155 $ 58,699 $ 29,530
Interest cost on projected benefit
obligation.............................. 193,044 164,266 158,681
Actual return on plan assets............. (594,981) (4,814) (271,974)
Net amortization and deferral............ 347,207 (236,759) 64,221
--------- --------- ---------
Total pension cost (credit)............ $ 2,425 $ (18,608) $ (19,542)
========= ========= =========
F-16
LORAL CORPORATION AND SUBSIDIARIES--RETAINED BUSINESS
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
The following presents the plans' funded status and amounts recognized in
the balance sheet:
MARCH 31,
-------------------------------------------------------
1996 1995
--------------------------- ---------------------------
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS
------------- ------------- ------------- -------------
(IN THOUSANDS)
Actuarial present value
of benefit obligations:
Vested benefits....... $2,401,220 $221,387 $1,797,076 $162,120
========== ======== ========== ========
Accumulated benefits.. $2,420,482 222,477 $1,807,500 $162,810
Effect of projected
future salary
increases............ 149,012 20,406 95,632 13,406
---------- -------- ---------- --------
Projected benefits.... 2,569,494 242,883 1,903,132 176,216
Plan assets at fair
value.................. 2,951,662 200,612 2,263,576 152,734
---------- -------- ---------- --------
Plan assets in excess of
(less than) projected
benefit obligations.... 382,168 (42,271) 360,444 (23,482)
Unrecognized net loss... 189,367 50,265 130,075 31,382
Unrecognized prior
service (gain) cost
related to plan
amendments............. (19,536) 24,388 814 9,389
Unrecognized net asset
existing at
transition............. (1,523) (1) (1,882) (1)
Additional minimum
liability.............. (54,246) (27,364)
---------- -------- ---------- --------
Prepaid (accrued)
pension cost........... $ 550,476 $(21,865) $ 489,451 $(10,076)
========== ======== ========== ========
The principal actuarial assumptions were:
1996 1995 1994
---- ----- -----
Discount rate............................................... 7.5% 8.5% 7.75%
Rate of increase in compensation levels..................... 4.5% 4.75% 4.75%
Expected long-term rate of return on plan assets............ 9.5% 9.5% 9.5%
Effective April 1, 1995, the Company adopted a non qualified supplemental
pension plan covering certain employees, which provides for incremental
pension payments from the Company's funds so that total pension payments equal
amounts that would have been payable from the Company's principal pension
plans if it were not for limitations imposed by income tax regulations. The
annual pension cost of this plan has been included in the determination of
total pension cost shown above and amounted to $2,225,000. The unfunded
accumulated benefit obligation under this plan at March 31, 1996 has been
included in the accrued pension cost shown above and amounted to $9,589,000.
Postretirement Health Care and Life Insurance Benefits
In addition to providing pension benefits, the Company provides certain
health care and life insurance benefits for retired employees and dependents
at certain locations. Participants are eligible for these benefits when they
retire from active service and meet the eligibility requirements for the
Company's pension plans. These benefits are funded primarily on a pay-as-you-
go basis with the retiree generally paying a portion of the cost through
contributions, deductibles and coinsurance provisions.
F-17
LORAL CORPORATION AND SUBSIDIARIES--RETAINED BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In March 1993 and March 1994, the Company adopted various plan amendments
resulting in unrecognized prior service gains, which are being amortized
commencing in the quarter following adoption.
Postretirement health care and life insurance costs include the following
components:
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
Service cost--benefits earned during the
period....................................... $ 7,367 $ 8,263 $ 6,778
Interest cost on accumulated postretirement
benefit obligation........................... 32,064 31,340 42,117
Net amortization.............................. (21,389) (21,712) (14,068)
-------- -------- --------
Total postretirement health care and life
insurance costs............................ $ 18,042 $ 17,891 $ 34,827
======== ======== ========
The following table presents the amounts recognized in the balance sheet:
MARCH 31,
------------------
1996 1995
-------- --------
(IN THOUSANDS)
Accumulated postretirement benefit obligation:
Retirees............................................. $330,032 $293,506
Fully eligible plan participants..................... 51,481 31,311
Other active plan participants....................... 73,498 58,011
-------- --------
Total accumulated postretirement benefit obligation.... $455,011 382,828
Unrecognized prior service gain related to plan
amendments............................................ 209,839 231,019
Unrecognized net loss.................................. (87,192) (12,012)
-------- --------
Accrued postretirement health care and life insurance
costs................................................. $577,658 $601,835
======== ========
Actuarial assumptions used in determining the accumulated postretirement
benefit obligation include a discount rate of 7.5% and 8.5% for 1996 and 1995,
respectively, and an assumed health care cost trend rate of 10.6% decreasing
gradually to an ultimate rate of 5.5% by the year 2003. Changing the assumed
health care cost trend rate by 1% in each year would change the accumulated
postretirement benefit obligation at March 31, 1996 by approximately
$44,000,000 and the aggregate service and interest cost components for 1996 by
approximately $4,300,000.
Employee Savings Plans
Under its various employee savings plans, the Company matches the
contributions of participating employees up to a designated level. The extent
of the match, vesting terms and the form of the matching contribution vary
among the plans. Under the plans, the matching contributions, in cash, Loral
common stock or both, for 1996, 1995 and 1994 were $26,107,000, $26,701,000,
and $22,929,000 respectively.
Postemployment Benefits
Effective April 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits" ("SFAS 112"). SFAS 112 requires that the costs of benefits provided
to employees after employment but before retirement be recognized on an
accrual basis. The adoption of SFAS 112 did not have a material impact on the
financial position or results of operations of the Company.
F-18
LORAL CORPORATION AND SUBSIDIARIES--RETAINED BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. FINANCIAL INSTRUMENTS
The Company's financial instruments recorded on the balance sheet include
cash and cash equivalents and debt. Due to their short maturity, the fair
value of cash and cash equivalents approximates carrying value. The fair value
of the Company's debt, based on quoted market prices or current rates for
similar instruments with the same maturities, was approximately $1,928,234,000
and $1,262,841,000 at March 31, 1996 and 1995, respectively.
The Company uses off balance sheet derivative financial instruments,
including foreign currency forward contracts and interest rate hedge
transactions, to minimize foreign currency and interest rate risk. The Company
does not hold or issue derivative financial instruments for speculative
purposes.
Foreign Currency Hedges
The majority of the Company's foreign currency forward contracts are entered
into at the direction of the customer pursuant to contractual requirements.
Any gain or loss on the hedges accrues for the benefit or detriment of the
customer and does not expose the Company to risk.
The Company had open forward contracts to sell approximately 31,800,000
Pounds Sterling and 41,500,000 Pounds Sterling as of March 31, 1996 and 1995,
respectively, to minimize the effect of currency exposure on future cash
payments from foreign operations. At March 31, 1996 and 1995, the fair value
of these forward contracts was not material. Gains and losses on foreign
currency forward contracts are recorded when the transactions being hedged are
realized. For the years ended March 31, 1996 and 1995, gains and losses on
these contracts were not material. Other forward contracts are not material.
Interest Rate Hedges
At March 31, 1994, to fix the effective interest rates on the anticipated
refinancing of outstanding commercial paper, the Company entered into interest
rate hedges by selling U.S. Treasury forward contracts with a notional value
of $500,000,000. The hedges were closed in June 1994 upon the issuance of the
$250,000,000 7 5/8% Senior Notes due 2004 and the $400,000,000 8 3/8% Senior
Debentures due 2024. The net realized gain of $17,073,000 was deferred and is
being amortized on a pro rata basis over the term of the Senior Notes and
Senior Debentures.
13. SALES TO PRINCIPAL CUSTOMERS
The Company operates primarily in one industry segment, government
electronic systems. Sales to principal customers are as follows:
1996 1995 1994
---------- ---------- ----------
(IN THOUSANDS)
U.S. Government Agencies.................. $3,951,200 $3,548,585 $2,578,004
Foreign (principally foreign
governments)............................. 1,124,667 1,021,284 564,612
Other (principally U.S. Government end
use)..................................... 1,046,888 914,532 866,117
---------- ---------- ----------
$6,122,755 $5,484,401 $4,008,733
========== ========== ==========
F-19
LORAL CORPORATION AND SUBSIDIARIES--RETAINED BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Foreign sales comprise the following:
1996 1995 1994
---------- ---------- --------
(IN THOUSANDS)
Export sales:
Asia....................................... $ 282,585 $ 234,307 $227,312
Middle East................................ 136,419 151,152 91,049
Europe..................................... 132,717 96,257 106,546
Other...................................... 56,820 19,716 28,289
---------- ---------- --------
608,541 501,432 453,196
Foreign operations, principally Europe....... 516,126 519,852 111,416
---------- ---------- --------
Total foreign sales...................... $1,124,667 $1,021,284 $564,612
========== ========== ========
14. RELATED PARTY TRANSACTIONS
The Company has a number of transactions with Space and Communications
Operations. Management believes that the arrangements are as favorable to the
Company as could be obtained from unaffiliated parties. The following
describes the related-party transactions.
The Company bills certain operational, executive, administrative, financial,
legal and other services to SS/L and SS/L charges the Company certain overhead
costs. Net costs billed to SS/L were $9,108,000, $11,907,000, and $9,446,000
in 1996, 1995 and 1994, respectively. In addition, the Company sells products
to SS/L; net sales to SS/L were $37,721,000, $26,031,000, and $15,769,000 in
1996, 1995 and 1994, respectively. Included in other Current Assets are
receivables from SS/L of $17,084,000 and $6,548,000 at March 31, 1996 and
1995, respectively. The Company and SS/L have a tax sharing agreement whereby
certain tax liabilities and benefits are shared equitably. The Company has
guaranteed performance of SS/L under one commercial contract. To date, SS/L
has performed satisfactorily under this contract, and management believes that
it will be successfully completed.
Two of the Company's divisions have entered into contracts, totaling
$28,744,000, to construct a portion of the Globalstar System. Sales to
Globalstar were $8,182,000 and $7,429,000 in 1996 and 1995 respectively.
Included in Other Current Assets are receivables from Globalstar of $3,936,000
and $2,248,000 at March 31, 1996 and 1995, respectively.
The Company and K&F have agreements covering various real property occupancy
arrangements and agreements under which the Company and K&F provide certain
services, such as benefits administration, treasury, accounting and legal
services to each other. The charges for these services, as agreed to by the
Company and K&F, are based upon the actual cost incurred in providing the
services without a profit. These transactions between the Company and K&F were
not significant. Sales to K&F were $3,930,000, $4,181,000, and $6,785,000 in
1996, 1995 and 1994, respectively.
F-20
