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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, 2001
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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
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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
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(Plan)
BY: STEPHEN L. JACKSON
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Stephen L. Jackson
Committee Member
Date: June 24, 2002
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, 2001 and 2000 ............................ 3
Statements of Changes in Net Assets Available For Benefits
for the years ended December 31, 2001 and 2000 ........ 4
Notes to Financial Statements .............................. 5
Supplemental Schedules:
Schedule of Assets Held for Investment Purposes as of
December 31, 2001 ..................................... 10
Exhibit:
Consent of Independent Accountants
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, 2001 and 2000,
and the related statement of changes in net assets available for benefits for
the years ended December 31, 2001 and 2000. 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, 2001 and 2000, and the changes in net assets available for
benefits for the years ended December 31, 2001 and 2000, 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 20, 2002
2
LORAL SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
(IN THOUSANDS)
DECEMBER 31,
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2001 2000
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Assets:
Investments, at fair value:
Participant directed:
Mutual Funds ............... $195,143 $222,570
Loral Stock Fund ........... 28,016 20,895
Loans ...................... 3,569 4,413
Non-participant directed:
Loral Stock Fund ........... 16,621 7,825
Ford Stock Fund ............ 11,350 18,099
Globalstar Stock Fund ...... -- 166
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Total Investments ....... 254,699 273,968
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Net assets available for benefits $254,699 $273,968
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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,
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2001 2000
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Investment (loss) income:
Net decrease in fair value of investments $ (22,599) $(164,842)
Interest and dividends .................. 6,052 15,268
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(16,547) (149,574)
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Contributions:
Participant ............................. 21,424 21,740
Employer ................................ 7,741 6,802
Rollovers ............................... 1,388 1,978
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30,553 30,520
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Benefits paid to participants .................. (17,333) (35,990)
Transfer of assets (to) from other plans, net .. (15,816) 11
Administrative expenses ........................ (126) (123)
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Net decrease in net assets ..................... (19,269) (155,156)
Net assets available for benefits:
Beginning of year ............................ 273,968 429,124
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End of year .................................. $ 254,699 $ 273,968
========= =========
The accompanying notes are an integral part of these financial statements.
4
LORAL SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
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"). 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"). 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 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.
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.
Associates Stock Fund -- Effective November 15, 2000, the Associates Stock
Fund was no longer offered as an investment vehicle, and participants
transferred their existing balance from the fund into other investment options
within the Plan.
The Globalstar Stock Fund - The Globalstar Stock Fund reflected the value
of Employer matching contributions since 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.
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
5
Employer contributions plus actual earnings thereon after completion of five
years of service and, thereafter, vest immediately in all future Employer
contributions. 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, 2001 and 2000 were approximately $223,000 and
$369,000, respectively.
Contributions
The Plan has both a Tax-Efficient Savings ("TES") and a Regular Savings
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 after-tax
basis.
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 may be 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. Effective January 1, 2000 for Loral Cyberstar, Inc.
and February 1, 2000 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.
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 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.
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
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)
6
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 range from 6% to 10 1/2%.
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
elected by a participant for current TES Contributions.
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 stocks,
bonds, fixed income securities, mutual funds, and other 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. As of June
20, 2002, the Dow Jones Industrial Average and Nasdaq composite indices have
decreased by approximately 6% and 25%, respectively, since December 31, 2001,
and the Plan's assets may have significantly decreased in value.
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 the
counterparty to perform. The market value of the contract will fluctuate with
changes in currency exchange rates.
7
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, 2001 and 2000 (in thousands):
2001 2000
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Loral Stock Fund*............................. $44,637 $28,720
Fidelity Blue Chip Growth Fund................ 49,841 65,933
Fidelity Growth & Income Portfolio............ 26,694 32,019
Fidelity Retirement Money Market Portfolio.... 55,613 57,756
Fidelity Managed Income Portfolio II.......... 18,506 18,225
Fidelity Magellan............................. 20,924 24,322
Ford Stock Fund............................... 11,350 18,099
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* Includes both participant directed and non-participant directed amounts.
During 2001 and 2000, 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):
2001 2000
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Mutual Funds ........ $ (20,308) $ (21,808)
Loral Stock Fund .... 3,159 (137,301)
Globalstar Stock Fund (78) (2,712)
Associates Stock Fund -- 2,411
Ford Stock Fund ..... (5,372) (5,432)
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$ (22,599) $(164,842)
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Information about the significant components of the changes in net assets
relating to the non-participant-directed investments for 2001 and 2000 were (in
thousands):
2001 2000
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Contributions ............................... $ 7,253 $ 6,802
Net depreciation ............................ (3,387) (28,999)
Dividends ................................... 840 1,314
Benefits paid to participants and withdrawals (1,243) (5,513)
Transfers to participant-directed funds ..... (1,571) (16,842)
Loans ....................................... (11) (22)
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$ 1,881 $(43,260)
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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 has 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, 2001 and 2000, approximately 75% and 79%, respectively, of
the Plan's assets were invested in Fidelity Funds and 18% and 11%, 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
LORAL SAVINGS PLAN
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
AS OF DECEMBER 31, 2001
(IN THOUSANDS)
IDENTITY OF ISSUE, BORROWER, DESCRIPTION OF INVESTMENT INCLUDING MATURITY CURRENT
LESSOR OR SIMILAR PARTY DATE, RATE OF INTEREST, COLLATERAL, PAR OR MATURITY VALUE COST VALUE
(a) (b) (c) (d) (e)
--------------------------------------- ---------------------------------------------------------- ------------ ------------
* Loral Stock Fund Common Stock (20,956,564 shares) $ 117,116 $ 44,637
Ford Stock Fund Common Stock (2,086,402 shares) 7,266 11,350
* Fidelity Management Trust
Company Blue Chip Growth Fund 49,841
Growth & Income Fund 26,694
Asset Manager 4,719
Magellan Fund 20,924
Overseas Fund 4,101
Retirement Money Market Portfolio 55,613
Intermediate Bond Fund 4,958
Managed Income Portfolio II 18,506
Puritan Fund 726
Spartan U.S. Equity Index 3,939
Morgan Stanley-Dean Witter Global Equity Portfolio Class B 567
PIMCO Total Return Fund 1,325
Capital Appreciation Fund 968
Mid Cap Growth Fund 1,346
High Yield Fund 916
* Participant Loans Interest rates ranging from 6% to 10 1/2% 3,569
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$ 254,699
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* 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 20, 2002, on our audits
of the financial statements and schedule of the Loral Savings Plan for the years
ended December 31, 2001 and 2000, 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 24, 2002