________________________________________________________________________________
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 11-K
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ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 2002
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Commission file number 1-14180
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LORAL SAVINGS PLAN
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LORAL SPACE & COMMUNICATIONS LTD.
600 Third Avenue
New York, New York 10016
________________________________________________________________________________
________________________________________________________________________________
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Savings Committee has duly caused this annual report to be signed by the
undersigned thereunto duly authorized.
LORAL SAVINGS PLAN
________________________________
(Plan)
BY: STEPHEN L. JACKSON
________________________________
Stephen L. Jackson
Committee Member
Date: June 25, 2003
LORAL SAVINGS PLAN
TABLE OF CONTENTS
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Page
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Report of Independent Accountants........................... 2
Financial Statements:
Statements of Net Assets Available For Benefits as of
December 31, 2002 and 2001 ............................ 3
Statements of Changes in Net Assets Available For Benefits
for the years ended December 31, 2002 and 2001 ........ 4
Notes to Financial Statements ............................. 5
Supplemental Schedules:
Schedule of Assets Held for Investment Purposes as of
December 31, 2002...................................... 10
Exhibit:
Consent of Independent Accountants
Certification Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
1
INDEPENDENT ACCOUNTANTS' REPORT
To the Participants and
Plan Administrator of the
Loral Savings Plan
We have audited the accompanying statements of net assets available for
benefits of the Loral Savings Plan (the Plan) as of December 31, 2002 and 2001,
and the related statement of changes in net assets available for benefits for
the years ended December 31, 2002 and 2001. These financial statements are the
responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the net assets available for benefits of the Plan as
of December 31, 2002 and 2001, and the changes in net assets available for
benefits for the years ended December 31, 2002 and 2001, in conformity with
accounting principles generally accepted in the United States of America.
Our audits were performed for the purpose of forming an opinion on the
basic financial statements taken as a whole. The supplemental schedule of assets
held for investment purposes is presented for the purpose of additional analysis
and is not a required part of the basic financial statements but is
supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. The supplemental schedule is the responsibility of the
Plan's management. This supplemental schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
MOHLER, NIXON & WILLIAMS
Accountancy Corporation
Campbell, California
June 23, 2003
2
LORAL SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
(In thousands)
December 31,
------------------------
2002 2001
---------- ----------
Assets:
Investments, at fair value:
Participant directed:
Mutual Funds ......................... $ 170,016 $ 195,143
Loral Stock Fund...................... 8,434 28,016
Loans................................. 2,491 3,569
Non-participant directed:
Loral Stock Fund...................... 4,081 16,621
Ford Stock Fund....................... 6,210 11,350
---------- ----------
Total investments.................. 191,232 254,699
---------- ----------
Net assets available for benefits.......... $ 191,232 $ 254,699
========== ==========
The accompanying notes are an integral part of these financial statements.
3
LORAL SAVINGS PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
(In thousands)
Years ended
December 31,
---------------------------
2002 2001
--------- ---------
Investment (loss) income:
Net decrease in fair value of investments... $ (71,019) $ (22,599)
Interest and dividends...................... 3,543 6,052
--------- ---------
(67,476) (16,547)
--------- ---------
Contributions:
Participants................................ 19,053 21,424
Employer.................................... 6,632 7,741
Rollovers................................... 411 1,388
--------- ---------
26,096 30,553
--------- ---------
Benefits paid to participants................. (21,996) (17,333)
Transfer of assets to other plans, net........ --- (15,816)
Administrative expenses....................... (91) (126)
--------- ---------
Net decrease in net assets.................... (63,467) (19,269)
Net assets available for benefits:
Beginning of year........................... 254,699 273,968
--------- ---------
End of year................................. $ 191,232 $ 254,699
========= =========
The accompanying notes are an integral part of these financial statements.
4
LORAL SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
1. Plan Description
General
The Loral Savings Plan (the "Plan") was established on April 23, 1996
following the spin-off and formation of Loral Space & Communications Ltd.
("Loral" or "Company"). It was established for the benefit of employees of
certain affiliates of Loral (collectively referred to as the "Employer"), and is
sponsored by Space Systems/Loral, Inc. ("SS/L").
The Plan is a defined contribution plan designed to provide eligible
employees with systematic savings and tax-advantaged long-term savings for
retirement. It is subject to the provisions of the Employee Retirement Income
Security Act of 1974 ("ERISA") and the Internal Revenue Code. Regular full-time
and regular part-time employees are eligible to participate in the Plan as of
their date of hire. A complete description of the Plan's provisions is contained
in the Plan document.
In June 2003, the Company's board of directors voted to effect a reverse
split of the Company's common stock at a ratio of one-for-ten, resulting in a
new par value of $0.10 per share.
Non-Participant Directed Investments
Loral Stock Fund - Funds are primarily invested in Loral Space &
Communications Ltd. common stock ("Loral Common Stock"). Assets invested in the
Loral Stock Fund are expressed in units of participation rather than shares of
Loral Common Stock. Such units represent a proportionate interest in all assets
of the Loral Stock Fund, which includes Loral Common Stock and the Fidelity
Short Term Interest Fund. A net asset value per unit of participation is
determined daily for each outstanding unit of the Loral Stock Fund.
The Ford Stock Fund is a carry-over fund resulting from the transfer of
assets from a prior plan. Contributions and reinvestment of dividends into this
fund are not permitted. Dividends received on Ford common stock are invested in
the Fidelity Retirement Money Market Fund. Assets invested in the Ford Stock
Fund are expressed in units of participation rather than shares of Ford common
stock. Such units represent a proportionate interest in all assets of the Ford
Stock Fund, which includes Ford common stock and the Fidelity Short Term
Interest Fund. A net asset value per unit of participation is determined daily
for each outstanding unit of the Ford Stock Fund.
The Globalstar Stock Fund - The Globalstar Stock Fund reflected the value
of Employer matching contributions from August 1, 1997 to July, 31 2001 for
employees of Globalstar only. Assets invested in the fund were expressed in
units of participation rather than shares of Globalstar Telecommunications Ltd.
common stock. Such units represented a proportionate interest in all assets of
the Globalstar Stock Fund, which included Globalstar common stock and the
Fidelity Short Term Interest Fund. In August 2001, Globalstar L.P.
("Globalstar") created its own sponsored plan for employees of Globalstar and
assets of approximately $15.8 million were transferred out of the Plan.
Participant Accounts
Participants can direct their investments in a number of mutual funds and
the Loral Stock Fund. A participant's account is credited with the participant's
contribution; the Employer's matching contribution and an allocation of Plan
earnings or losses, net of certain investment management fees. Allocations are
based on a participant's account balance as a percentage of the sum of all
participants' account balances.
Vesting and Forfeitures
Participants are immediately vested in their contributions plus actual
earnings thereon. Generally, participants vest 100% in their employer
contributions as follows: Employer contributions received prior to January 1,
2002 vest fully after five years of credited
5
service and employer contributions received on or after January 1, 2002 vest
fully after three years of credited service. On termination of service due to
death, disability, or retirement, participants become fully vested. Non-vested
Employer contributions are forfeited upon termination or withdrawal and are used
for certain Plan administrative expenses or to reduce future Employer
contributions. Forfeitures for the years ended December 31, 2002 and 2001 were
approximately $174,000 and $223,000, respectively.
Contributions
The Plan has both a Tax-Efficient Savings ("TES") and a Regular Savings
(after tax) feature. Under the Plan, and subject to limits imposed by the
Internal Revenue Code ("IRC"), participants, except for Loral Skynet ("Skynet" a
division of Loral) participants, may elect a reduction in eligible salary up to
15% with a corresponding TES contribution in the same amount made to the Plan by
the Employer on their behalf. Such contributions are excluded from the
participant's taxable income. Subject to limits imposed by the IRC, participants
may also contribute up to 10% of their base salaries to the Regular Savings
feature of the Plan on an after-tax basis. Skynet participants may elect to
contribute from 2% to 16% of eligible compensation which can be either on a TES
or Regular Savings basis. Pursuant to Economic Growth and Tax Relief
Reconciliation Act of 2001, participants who were age 50 or older in 2002 could
elect to contribute $1,000 TES above the IRC imposed limits.
Participants' contributions are generally matched at a rate of $.60 for
each dollar of TES and/or Regular Savings contributions, up to 6% of a
participant's base salary, unless the Employer determines to make a different
contribution or no contribution. With the exception of Globalstar employees, all
Employer matching contributions are generally invested in the Loral Stock Fund.
For Globalstar employees, the Employer matching contributions were invested in
the Globalstar Stock Fund. Employer matching contributions related to Globalstar
employees were transferred to any of the participant directed funds. All
Employer matching contributions remaining in the non-participant directed Loral
Stock Fund or the Globalstar Stock Fund are reflected as non-participant
directed in the accompanying financial statements. Participants who are 55 years
old and have 10 years of service may direct their Employer matching
contributions to any available investment option except the Ford Stock Fund and
the Globalstar Stock Fund.
For Loral Cyberstar, Inc. and for Cyberstar, L.P., subsidiaries of Loral,
eligible employees began receiving an Employer contribution of between 1% - 2%
of base salary, based upon the employees' years of service. The Employer
contribution, which is in addition to any Employer matching contribution, can be
directed by participants to any available investment option except the Ford
Stock Fund and the Globalstar Stock Fund. However, effective April, 2002, Loral
Cyberstar, Inc. and Cyberstar, L.P., suspended all Employer contributions,
matching and otherwise.
Payment of Benefits
Upon termination, participants are eligible to receive the vested portion
of their account balance. Terminated participants who have an account balance in
excess of $5,000 may elect to leave their account balance in the Plan or
withdraw it in full at any time up to age 70 1/2. Terminated participants with
an account balance of less than $5,000 receive their account balance as soon as
practicable after termination.
Assets in a participant's TES account may be withdrawn only for financial
hardship before termination of employment or before reaching age 59 1/2.
Financial hardship is determined pursuant to provisions of the IRC. Generally, a
10% penalty will be imposed on certain withdrawals of pre-tax assets made before
the participant reaches age 59 1/2. After age 59 1/2, TES assets may be
withdrawn in total or in part at any time.
Assets in a participant's Regular Savings account may be withdrawn in total
or in part at any time in accordance with the Plan provisions.
Vested Employer contributions are eligible for withdrawal by Plan
participants at any time subject to Plan provisions.
Payment of Administrative Expenses
Most administrative expenses are paid by the Plan. The Plan permits the
Employer to use forfeitures from participants' non-vested accounts to pay
certain administrative expenses. Expenses not paid by the Plan are the
responsibility of the Employer.
Participant Loans
6
The Plan permits active participants to borrow from the vested assets in
their TES accounts. The minimum loan amount is $1,000. The maximum loan
permitted is the lesser of: (1) $50,000 minus the highest outstanding loan
balance during the last twelve months, (2) 50% of the vested account balance, or
(3) the assets in the TES Account which are eligible for a loan. The amounts in
(2) and (3) are reduced by any loan balance outstanding. Participants may have
only one outstanding loan at a time. No new loans will be made until all
outstanding loans are repaid. The interest rate for a loan is the prime rate as
defined in the Plan document, and remains the same for the term of the loan.
Interest rates for outstanding loans ranged from 5.75% to 7.0% in 2002.
The term of a loan can be up to five years except for loans to purchase a
primary residence, which can have a term of up to ten years. Loan repayment is
made through payroll deductions. Repayment of the entire loan balance is
permitted at any time. All loan repayments are allocated to the investment funds
based upon the participant's current TES election.
2. Summary of Significant Accounting Policies
Basis of Accounting
The financial statements of the Plan are prepared under the accrual method
of accounting.
Investment Valuation and Income Recognition
The Plan's investments are stated at fair value.
Investments in the Loral Stock Fund, the Globalstar Stock Fund and the Ford
Stock Fund are valued at quoted market prices and represent the net asset value
per unit of participation.
Shares of registered investment company funds are valued at quoted market
prices that represent the net asset value of shares held by the Plan at
year-end.
Loans receivable from participants are valued at cost which approximates
fair value.
The Plan presents in the statements of changes in net assets available for
benefits, the net increase (decrease) in the fair value of its investments which
consists of the realized gains or losses and the unrealized increase (decrease)
of those investments.
Investment transactions are accounted for on a trade date basis. Dividend
income is recorded on the ex-dividend date. Interest income is recorded when
earned.
Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, and the changes therein, and the disclosure of
contingent assets and liabilities. Actual results could differ from estimates.
Risks and Uncertainties
The Plan provides for various investment options in any combination of
investment securities. Investment securities are exposed to various risks, such
as interest rate, market and credit risks. Due to the level of risk associated
with certain investment securities and the level of uncertainty related to
changes in the value of investment securities, it is at least reasonably
possible that changes in risks in the near term would materially affect
participants' account balances and the amounts reported in the statement of net
assets available for benefits and the statements of changes in net assets
available for benefits.
Financial Instruments
Fidelity Management Trust Company ("Fidelity") is the Trustee of the Plan.
Several fund managers enter into forward foreign currency contracts to protect
securities and related receivables and payables against fluctuations in future
foreign currency rates. A forward contract is an agreement to buy or sell
currencies of different countries on a specified future date at a specified
rate. Risks associated with such contracts include the movement in the value of
the foreign currency relative to the U.S. dollar and the ability of
7
the counterparty to perform. The market value of the contract will fluctuate
with changes in currency exchange rates.
Several fund managers also invest in futures and option contracts solely
for the purpose of managing its exposure to the stock and bond markets and
fluctuations in interest rates. The use of futures and option transactions
involves the risk of imperfect correlation in movements in the price of futures
and option contracts, interest rates and the underlying hedged assets, and the
possible inability of counterparties to meet the term of their contracts. When
the contract is closed, a realized gain or loss is recorded equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed.
Plan participants should review the prospectuses of the funds that they are
investing in to ensure that they are comfortable with the funds ability to enter
into foreign currency, futures and option contracts.
3. Investments
The following presents investments that represent five percent or more of
the Plan's net assets as of December 31, 2002 and 2001 (in thousands):
2002 2001
--------- ---------
Loral Stock Fund*................................ $ 12,515 $ 44,637
Fidelity Blue Chip Growth Fund................... 36,038 49,841
Fidelity Growth & Income Fund.................... 22,277 26,694
Fidelity Retirement Money Market Portfolio....... 51,604 55,613
Fidelity Managed Income Portfolio II............. 19,461 18,506
Fidelity Magellan Fund........................... 16,155 20,924
__________
* Includes both participant directed and non-participant directed amounts.
In 2002 and 2001, the Plan's investments, including gains and losses on
investments bought and sold, as well as held during each year (decreased)
increased in value as follows (in thousands):
2002 2001
--------- ---------
Mutual Funds..................................... $ (26,108) $ (20,308)
Loral Stock Fund................................. (40,511) 3,159
Globalstar Stock Fund............................ --- (78)
Ford Stock Fund.................................. (4,400) (5,372)
--------- ---------
$ (71,019) $ (22,599)
========= =========
Information about the significant components of the changes in net assets
relating to the non-participant-directed investments in 2002 and 2001 were (in
thousands):
2002 2001
--------- ---------
Contributions.................................... $ 6,603 $ 7,253
Net appreciation (depreciation).................. 5,116 (3,387)
Dividends........................................ 284 840
Benefits paid to participants and withdrawals.... (674) (1,243)
Transfers to participant-directed funds.......... (29,009) (1,571)
Loans............................................ --- (11)
-------- --------
$(17,680) $ 1,881
======== ========
4. Plan Termination
Although the Employer has not expressed intent to do so, the Employer can
discontinue its contributions at any time and terminate the Plan subject to the
provisions of ERISA. In the event of a discontinuance and/or termination of the
Plan, participants will become 100% vested and the net assets of the Plan will
be allocated among the participants and their beneficiaries in accordance with
the provisions of ERISA.
8
5. Tax Status
On February 27, 2002, the Employer filed for a determination from the
Internal Revenue Service that the Plan and related trust are designed in
accordance with applicable sections of the IRC.
Based upon present applicable laws and regulations, participants will not
be subject to Federal income tax on the TES contributions or Employer
contributions made on their behalf or on the earnings credited to their account
until such time as they are withdrawn.
6. Concentration of Credit Risk
At December 31, 2002 and 2001, approximately 86% and 75%, respectively, of
the Plan's assets were invested in Fidelity funds and 7% and 18%, respectively,
in the Loral Stock fund.
7. Related Party Transactions
Certain Plan investments are mutual funds managed by affiliates of the Plan
trustee, which qualify as party-in-interest transactions. Such transactions are
permitted under the provisions of the Plan and are exempt from the prohibition
of party-in-interest transactions under ERISA and applicable exemptions
promulgated thereunder.
9
SAVINGS PLAN
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
as of December 31, 2002
(In thousands)
Description of investment including
Identity of issue, borrower, maturity date, rate of interest, Current
lessor or similar party collateral, par or maturity value Cost Value
(a) (b) (c) (d) (e)
---- --------------------------- --------------------------------- ---------- ----------
* Loral Stock Fund Common Stock (35,756,501 shares) $ 115,129 $ 12,515
Ford Stock Fund Common Stock (1,910,719 shares) 6,609 6,210
* Fidelity Management
Trust Company Retirement Money Market Portfolio 51,604
Blue Chip Growth Fund 36,038
Growth & Income Fund 22,277
Managed Income Portfolio II 19,461
Magellan Fund 16,155
Intermediate Bond Fund 6,636
Asset Manager 3,908
Spartan U.S. Equity Index 3,554
Overseas Fund 3,291
Puritan Fund 892
Morgan Stanley-Dean Witter Global Equity Portfolio Class B 722
PIMCO Total Return Fund 2,494
Mid Cap Growth Fund 1,302
Capital Appreciation Fund 940
High Yield Fund 584
Strong Financial Corporation Strong Advisors Small Cap Fund 84
Ariel Mutual Funds Ariel Appreciation Fund 74
* Participant Loans Interest rates ranging from 5.75% to 7.0% 2,491
----------
$ 191,232
==========
__________
* Party-in-interest
10
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we consent to the incorporation by
reference in the registration statement of Loral Space & Communications Ltd. on
Form S-8 (File No. 333-14863) of our report dated June 23, 2003, on our audits
of the financial statements and schedule of the Loral Savings Plan for the years
ended December 31, 2002 and 2001, which report is included in the Annual Report
on Form 11-K which is filed with the Securities and Exchange Commission.
MOHLER, NIXON & WILLIAMS
Accountancy Corporation
Campbell, California
June 25, 2003
11
CERTIFICATION PURSUANT TO
18 U.S.C. 1350,
AS ADOPTED PURSUANT TO SECTION
906 of the SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of the Loral Saving Plan (the "Plan")
on Form 11-K for the year ended December 31, 2002, as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), Stephen L. Jackson, a
member of the Plan Administrative Committee, and also Vice President,
Administration of Loral Space and Communications Ltd. (the "Company"),
certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Plan.
/s/ Stephen L. Jackson
------------------------------------
Stephen L. Jackson
Plan Administrative Committee member
& Vice President, Administration
June 25, 2003
A signed original of this written statement required by Section 906 has
been provided to the Company and will be retained by the Company and furnished
to the Securities and Exchange Commission or its staff upon request.
12