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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2003

Commission File Number 1-14180

Loral Space & Communications Ltd.

c/o Loral SpaceCom Corporation

600 Third Avenue

New York, New York 10016
Telephone: (212) 697-1105

Jurisdiction of incorporation: Bermuda

IRS identification number: 13-3867424

      The registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and has been subject to such filing requirements for the past 90 days.

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [ü] No [ ]

      As of July 31, 2003, there were 44,107,782 shares of Loral Space & Communications Ltd. common stock outstanding.

 

PART 1.

FINANCIAL INFORMATION

LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR-IN-POSSESSION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par values)
(Unaudited)
                     
June 30, December 31,
2003 2002
ASSETS
Current assets:
               
 
Cash and cash equivalents
  $ 127,767     $ 65,936  
 
Accounts receivable, net
    31,603       28,893  
 
Contracts-in-process
    34,312       113,154  
 
Vendor financing receivables
    ––       38,016  
 
Inventories
    73,459       95,733  
 
Other current assets
    37,554       48,695  
     
     
 
   
Total current assets
    304,695       390,427  
Property, plant and equipment, net
    1,866,453       1,897,343  
Long-term receivables
    78,086       163,191  
Investments in and advances to affiliates
    87,807       95,443  
Deposits
    34,750       58,250  
Other assets
    76,475       88,148  
     
     
 
   
Total assets
  $ 2,448,266     $ 2,692,802  
     
     
 
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities:
               
 
Current portion of long-term debt
  $ 2,244,002     $ 131,898  
 
Accounts payable
    44,735       58,323  
 
Accrued employment costs
    29,295       34,531  
 
Customer advances
    63,293       114,080  
 
Accrued interest and preferred dividends
    44,746       37,370  
 
Income taxes payable
    37,064       37,936  
 
Other current liabilities
    52,024       47,005  
     
     
 
   
Total current liabilities
    2,515,159       461,143  
Pension and other postretirement liabilities
    129,672       124,193  
Long-term liabilities
    178,616       207,835  
Long-term debt
    —       2,112,627  
Minority interest
    2,559       16,150  
Convertible redeemable preferred stock:
               
 
6% Series C ($106,009 redemption value), $.01 par value
    —       104,582  
 
6% Series D ($21,122 redemption value), $.01 par value
    —       20,499  
Commitments and contingencies (Notes 2, 10, and 12)
               
Shareholders’ deficit:
               
 
6% Series C convertible redeemable preferred stock ($187,274 and $81,265 redemption value), $.01 par value
    184,753       80,171  
 
6% Series D convertible redeemable preferred stock ($36,707 and $15,585 redemption value), $.01 par value
    35,624       15,125  
 
Common stock, $.10 par value
    4,409       4,293  
 
Paid-in capital
    3,392,821       3,389,035  
 
Treasury stock
    (3,360 )     (3,360 )
 
Unearned compensation
    (208 )     (151 )
 
Retained deficit
    (3,932,790 )     (3,782,107 )
 
Accumulated other comprehensive loss
    (58,989 )     (57,233 )
     
     
 
   
Total shareholders’ deficit
    (377,740 )     (354,227 )
     
     
 
   
Total liabilities and shareholders’ deficit
  $ 2,448,266     $ 2,692,802  
     
     
 

See notes to condensed consolidated financial statements.

2

 

LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR-IN-POSSESSION

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)
(Unaudited)
                                   
Three Months Ended
June 30, Six Months Ended June 30,
2003 2002 2003 2002
As Restated As Restated
(See Note 4) (See Note 4)
Revenues from satellite sales
  $ 71,207     $ 214,579     $ 186,244     $ 413,050  
Revenues from satellite services
    71,442       101,781       154,638       211,486  
     
     
     
     
 
 
Total revenues
    142,649       316,360       340,882       624,536  
Cost of satellite sales
    153,281       202,890       283,417       389,318  
Cost of satellite services
    51,844       62,422       113,010       128,718  
Selling, general and administrative expenses
    38,400       42,373       74,330       83,120  
     
     
     
     
 
Operating (loss) income
    (100,876 )     8,675       (129,875 )     23,380  
Interest and investment income
    3,795       4,452       10,841       9,861  
Interest expense
    (18,929 )     (18,385 )     (35,733 )     (36,955 )
Gain on investment
    16,793       —       17,900       —  
     
     
     
     
 
Loss before income taxes, equity in net losses of affiliates, minority interest, cumulative effect of change in accounting principle and extraordinary gain on acquisition of minority interest
    (99,217 )     (5,258 )     (136,867 )     (3,714 )
Income tax provision
    (1,867 )     (4,043 )     (3,849 )     (9,571 )
     
     
     
     
 
Loss before equity in net losses of affiliates, minority interest, cumulative effect of change in accounting principle and extraordinary gain on acquisition of minority interest
    (101,084 )     (9,301 )     (140,716 )     (13,285 )
Equity in net losses of affiliates, net of taxes
    (8,335 )     (13,200 )     (16,838 )     (29,150 )
Minority interest, net of taxes
    15       (68 )     (24 )     6  
     
     
     
     
 
Loss before cumulative effect of change in accounting principle and extraordinary gain on acquisition of minority interest
    (109,404 )     (22,569 )     (157,578 )     (42,429 )
Cumulative effect of change in accounting principle, net of taxes of $13,809 in 2002
    —       —       —       (876,500 )
Extraordinary gain on acquisition of minority interest, net of taxes
    13,615       —       13,615       —  
     
     
     
     
 
Net loss
    (95,789 )     (22,569 )     (143,963 )     (918,929 )
Preferred dividends
    (3,360 )     (46,810 )     (6,720 )     (58,773 )
     
     
     
     
 
Net loss applicable to common shareholders
  $ (99,149 )   $ (69,379 )   $ (150,683 )   $ (977,702 )
     
     
     
     
 
Basic and diluted loss per share:
                               
 
Before cumulative effect of change in accounting principle and extraordinary gain on acquisition of minority interest
  $ (2.57 )   $ (1.94 )   $ (3.77 )   $ (2.91 )
 
Cumulative effect of change in accounting principle
    —       —       —       (25.22 )
 
Extraordinary gain on acquisition of minority interest
    0.31       —       0.31       —  
     
     
     
     
 
 
Loss per share
  $ (2.26 )   $ (1.94 )   $ (3.46 )   $ (28.13 )
     
     
     
     
 
Weighted average shares outstanding:
                               
 
Basic and diluted
    43,850       35,817       43,531       34,761  
     
     
     
     
 

See notes to condensed consolidated financial statements.

3

 

LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR-IN-POSSESSION

 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
                     
Six Months Ended
June 30,
2003 2002
As Restated
(See Note 4)
Operating activities:
               
 
Net loss
  $ (143,963 )   $ (918,929 )
 
Non-cash items:
               
   
Equity in net losses of affiliates, net of taxes
    16,838       37,348  
   
Minority interest, net of taxes
    24       (6 )
   
Cumulative effect of change in accounting principle, net of taxes
    —       876,500  
   
Extraordinary gain on acquisition of minority interest, net of taxes
    (13,615 )     —  
   
Deferred taxes
    3,395       13,232  
   
Depreciation and amortization
    89,215       95,222  
   
Provisions for inventory obsolescence
    23,957       12,338  
   
Loss on cancellation of deposit
    23,500       —  
   
Loss on acceleration of receipt of long-term receivables
    10,893       —  
   
Charge on vendor financing receivables
    10,008       —  
   
Accrual for Alcatel settlement
    8,000       —  
   
Provisions for bad debts
    1,799       1,735  
   
Gain on investment
    (17,900 )     —  
   
Interest
    (845 )     (529 )
 
Changes in operating assets and liabilities:
               
   
Accounts receivable
    (4,509 )     (2,799 )
   
Contracts-in-process
    68,359       (4,774 )
   
Inventories
    (1,683 )     (10,856 )
   
Long-term receivables
    54,588       (2,268 )
   
Deposits
    —       50,200  
   
Other current assets and other assets
    25,082       17,188  
   
Accounts payable
    (13,480 )     (31,112 )
   
Accrued expenses and other current liabilities
    (9,116 )     5,986  
   
Customer advances
    (50,787 )     (10,940 )
   
Income taxes payable
    (872 )     540  
   
Pension and other postretirement liabilities
    5,479       4,425  
   
Long-term liabilities
    (6,263 )     (19,626 )
   
Other
    (110 )     88  
     
     
 
Net cash provided by operating activities
    77,994       112,963  
     
     
 
Investing activities:
               
 
Capital expenditures
    (49,900 )     (97,294 )
 
Proceeds from sale of investment
    45,908       —  
 
Investments in and advances to affiliates
    (11,715 )     (21,714 )
     
     
 
Net cash used in investing activities
    (15,707 )     (119,008 )
     
     
 
Financing activities:
               
 
Borrowings under revolving credit facilities
    66,000       86,000  
 
Repayments under term loans
    (32,500 )     (32,500 )
 
Repayments under revolving credit facilities
    —       (84,000 )
 
Interest payments on 10% senior notes
    (30,635 )     —  
 
Repayments of other long-term obligations
    (2,007 )     (2,000 )
 
Payment of bank amendment costs
    (5,131 )     —  
 
Preferred dividends
    —       (20,878 )
 
Proceeds from stock issuances
    3,817       7,154  
     
     
 
Net cash used in financing activities
    (456 )     (46,224 )
     
     
 
Increase (decrease) in cash and cash equivalents
    61,831       (52,269 )
Cash and cash equivalents — beginning of period
    65,936       159,949  
     
     
 
Cash and cash equivalents — end of period
  $ 127,767     $ 107,680  
     
     
 
Non-cash activities:
               
 
Unrealized (losses) gains on available-for-sale securities, net of taxes
  $ (2,513 )   $ 1,516  
     
     
 
 
Accrual of preferred dividends
  $ 6,720       —  
     
     
 
 
Unrealized net gains (losses) on derivatives, net of taxes
  $ 332     $ (779 )
     
     
 
 
Conversion of Series C preferred stock and Series D preferred stock and related issuance of additional common shares on conversion
  $ —     $ 256,444  
     
     
 

See notes to condensed consolidated financial statements.

4

 

LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR-IN-POSSESSION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 
1. Organization and Principal Business

      Loral Space & Communications Ltd. (“Loral” or the “Company”, which terms shall include its subsidiaries unless otherwise indicated or the context requires) together with its subsidiaries is one of the world’s leading satellite communications companies with substantial activities in satellite-based communications services and satellite manufacturing. Loral is organized into two operating businesses (see Note 14):

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        Fixed Satellite Services (“FSS”). The Company leases transponder capacity to customers for various applications, including television and cable broadcasting, news gathering, Internet access and transmission, private voice and data networks, business television, distance learning and direct-to-home television (“DTH”) and provides satellite telemetry, tracking and control (“TT&C”) and related professional services to its customers. Loral also provides network services such as managed communications networks, Internet and intranet services, business television and business media services to customers.