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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, 2003
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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: ERIC J. ZAHLER
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Eric J. Zahler
Committee Member
Date: June 25, 2004
LORAL SAVINGS PLAN
TABLE OF CONTENTS
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Page
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Independent Accountants Report.................................... 2
Financial Statements:
Statements of Net Assets Available For Benefits as of
December 31, 2003 and 2002...................................... 3
Statements of Changes in Net Assets Available For Benefits
for the years ended December 31, 2003 and 2002.................. 4
Notes to Financial Statements..................................... 5
Supplemental Schedule as of December 31, 2003:
Schedule H, Line 4i - Schedule of Assets (Held at End of Year)... 10
Exhibit:
Consent of Independent Accountants
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, 2003 and 2002,
and the related statements of changes in net assets available for benefits for
the years then ended. 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 the standards of the Public
Company Accounting Oversight Board (United States). 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, 2003 and 2002, and the changes in net assets available for
benefits for the years then ended, 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 at end of year) 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.
/s/ MOHLER, NIXON & WILLIAMS
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Accountancy Corporation
Campbell, California
June 24, 2004
2
LORAL SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
(In thousands)
December 31,
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2003 2002
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Assets:
Investments, at fair value:
Mutual Funds.................. $ 183,194 $ 170,016
Loral Space Stock Fund........ 953 12,515
Ford Stock Fund............... 7,437 6,210
Participant loans............. 1,647 2,491
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Total investments.......... 193,231 191,232
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Net assets available for benefits.. $ 193,231 $ 191,232
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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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2003 2002
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Investment income (loss):
Net realized and unrealized appreciation
(depreciation) in fair value of investments .... $ 10,934 $ (71,019)
Interest and dividends ........................... 3,201 3,543
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14,135 (67,476)
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Contributions:
Participants ..................................... 15,582 19,053
Employer ......................................... 4,739 6,632
Rollovers ........................................ 74 411
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20,395 26,096
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Benefits paid to participants ......................... (32,456) (21,996)
Administrative expenses ............................... (75) (91)
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(32,531) (22,087)
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Net increase (decrease) in net assets ................. 1,999 (63,467)
Net assets available for benefits:
Beginning of year ................................... 191,232 254,699
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End of year ......................................... $ 193,231 $ 191,232
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The accompanying notes are an integral part of these financial statements.
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LORAL SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2003 and 2002
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"), as amended, and the Internal Revenue Code, as
amended. 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.
Investments
Mutual Funds - Participants are able to direct their investments into a
variety of mutual funds offered by the Plan.
Loral Space Stock Fund - Prior to July 2003, employer matching
contributions were initially invested in the Loral Space Stock Fund and
transfers from that fund of employer matching contributions were significantly
restricted, as summarized below. In addition, the Plan allowed participants to
direct all or a portion of their elective deferrals to the Loral Space Stock
Fund. In July 2003, the Board of Directors voted to terminate this investment.
As a result, employer matching contributions and employee elective deferrals
after that date must be directed to other investment alternatives. Existing
investments in this fund as of July 2003 may be directed to other funds at the
participant's direction therefore, this investment is now entirely participant
directed.
Prior to June 12, 2002, employer matching contributions were invested
solely in the Loral Space Stock Fund, except for pension eligible participants
(as defined in the Plan Document), who could direct the match into any
investment (other than the Ford Stock Fund). Effective June 12, 2002, these
restrictions were lifted to allow vested participants to transfer all or part of
their employer matching contributions out of the Loral Space Stock Fund and into
any other investment offered by the Plan (other than the Ford Stock Fund).
Participant elective deferrals directed by participants to the Loral Space Stock
Fund continued to remain participant directed and could be transferred out of
the Loral Space Stock Fund at any time.
Prior to July 2003, the Loral Space Stock Fund was a unitized fund, which
included investments in Loral Space & Communications Ltd. common stock ("Loral
Common Stock") and the Fidelity Short Term Interest Fund. An interest in the
Loral Space Stock Fund was expressed in units of participation rather than
shares of Loral Common Stock. Such units represented a proportionate interest in
all assets of the Loral Space Stock Fund. A net asset value per unit of
participation was determined daily for outstanding units of the Loral Space
Stock Fund. In July 2003, the assets held in the Fidelity Short Term Interest
Fund portion were transferred into a mutual fund held within the Plan and
allocated to participants' accounts. The shares of Loral Common Stock that
remained in the fund were then allocated to participants' accounts. The Loral
Space Stock Fund is now measured in shares.
Ford Stock Fund - A carry-over fund resulting from the transfer of assets
from a prior plan. Contributions and investments into this fund are not
permitted.
Participant Accounts
Participants can direct their investments in a number of mutual funds.
Before July 2003, investments could also be directed into the Loral Space 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.
5
Vesting and Forfeitures
Participants are immediately vested in their contributions plus actual
earnings thereon. Generally, participants vest 100% in employer contributions as
follows: Employer contributions received prior to January 1, 2002 vest fully
after five years of credited 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. In 2003, Loral used approximately
$823,000 of forfeitures to reduce employer contributions. The balance of
non-vested forfeitures at December 31, 2003 and 2002 were approximately $71,000
and $814,000, respectively.
Contributions
The Plan has both a Tax-Efficient Savings ("TES") and a Regular Savings
(after tax) feature. Under the Plan, and subject to dollar limits imposed by the
Internal Revenue Code ("IRC"), participants may generally 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.
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. Through July 2003, Employer matching
contributions were generally invested in the Loral Space Stock Fund. Since July
2003, Employer matching contributions are generally initially invested in the
Fidelity Retirement Money Market Fund.
Loral Cyberstar, Inc. and Cyberstar, L.P., subsidiaries of Loral, eligible
employees received an Employer contribution of between 1% and 2% of base salary,
based upon the employees' years of service. The Employer contribution, which was
in addition to any Employer matching contribution, could be directed by
participants to any available investment option except the Ford 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 in the form of a lump sum distribution. 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 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
The Plan permits active participants to borrow from the vested assets in
their TES accounts. The minimum loan amount is $1,000.
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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 at December 31, 2003 ranged from
5.75% to 10.25%.
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 mutual funds and the common stock of a company are valued at
quoted market prices.
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.
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 market values, interest rates or other factors in the
near term would materially affect participants' account balances and the amounts
reported in the statements 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 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
7
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, 2003 and 2002 (in thousands):
2003 2002
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Loral Common Stock .......................... $ 953 $12,515*
Fidelity Blue Chip Growth Fund .............. 42,144 36,038
Fidelity Growth & Income Fund ............... 25,178 22,277
Fidelity Retirement Money Market Portfolio .. 43,696 51,604
Fidelity Managed Income Portfolio II ........ 18,949 19,461
Fidelity Magellan Fund ...................... 20,517 16,155
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* Includes both participant directed and non-participant directed amounts.
In 2003 and 2002, the Plan's investments, including gains and losses on
investments bought and sold, as well as held during each year increased
(decreased) in value as follows (in thousands):
2003 2002
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Mutual Funds ............................... $ 21,309 $(26,108)
Loral Space Stock Fund ..................... (13,711) (40,511)
Ford Stock Fund ............................ 3,336 (4,400)
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$ 10,934 $(71,019)
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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.
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. The Company believes that the
Plan is operated in accordance with, and qualifies under, the applicable
requirements of the Code and related state statutes, and that the trust, which
forms a part of the Plan, is exempt from federal and state income taxes.
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. 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.
8
7. LAWSUITS AGAINST DIRECTORS, OFFICERS AND EMPLOYEE'S OF LORAL
In December 2003, plaintiff Wendy Koch, a former employee, filed a
purported class action complaint against the Loral Space & Communications Ltd.
Savings Plan Administrative Committee, all Loral directors, Richard J. Townsend
and certain other Loral officers and employees in the United States District
Court for the Southern District of New York. The complaint alleges (a) that
defendants violated Section 404 of the Employee Retirement Income Security Act
("ERISA"), by breaching their fiduciary duties to prudently and loyally manage
the assets of the Plan by including Loral common stock as an investment
alternative and by providing matching contributions under the Plan in Loral
stock, (b) that the director defendants violated Section 404 of ERISA by
breaching their fiduciary duties to monitor the committee defendants and (c)
that defendants violated Sections 404 and 405 of ERISA by failing to provide
complete and accurate information to Plan participants and beneficiaries. The
class of plaintiffs on whose behalf the lawsuit has been asserted consists of
all participants in or beneficiaries of the Plan at any time between November 4,
1999 and the present and whose accounts included investments in Loral stock. One
other similar complaint against the defendants with substantially similar
allegations has been filed, and the two cases have been consolidated. Plaintiffs
have been granted until the beginning of July 2004 to file an amended complaint.
Loral is obligated to indemnify its directors and officers for any losses
or costs they may incur as a result of these lawsuits.
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LORAL SAVINGS PLAN
SCHEDULE H, LINE 4i - SCHEDULE OF ASSETS (HELD AT END OF YEAR)
as of December 31, 2003
(In thousands, except share amounts)
Description of investment
Identity of issue, including maturity date,
borrower, lessor or rate of interest, collateral, Current
similar party par or maturity value Cost Value
(a) (b) (c) (d) (e)
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* Loral Space &
Communication Ltd. Common Stock (3,024,470
shares) $115,129 $ 953
Ford Motor
Company Common Stock (1,344,909
shares) 6,609 7,437
* Fidelity Management
Trust Company Retirement Money Market
Portfolio 43,696
Blue Chip Growth Fund 42,144
Growth & Income Fund 25,178
Managed Income Portfolio II 18,949
Magellan Fund 20,517
Intermediate Bond Fund 5,990
Asset Manager 4,539
Spartan U.S. Equity Index 5,533
Overseas Fund 5,138
Puritan Fund 1,872
Morgan Stanley-Dean
Witter Global Equity Portfolio
Class B 745
PIMCO Total Return Fund 2,737
Mid Cap Growth Fund 1,836
Capital Appreciation Fund 1,059
High Yield Fund 1,064
Strong Financial
Corporation Strong Advisors Small Cap
Fund 1,373
Ariel Mutual Funds Ariel Appreciation Fund 824
* Participant Loans Interest rates ranging
from 5.75% to 10.25% 1,647
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$193,231
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* Party-in-interest
10