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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, 2004
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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
Committee of the Loral Savings Plan has duly caused this annual report to be
signed by the undersigned thereunto duly authorized.
LORAL SAVINGS PLAN
--------------------------------
(Plan)
BY: ERIC J. ZAHLER
--------------------------------
Eric J. Zahler
Committee Member
Date: June 24, 2005
LORAL SAVINGS PLAN
TABLE OF CONTENTS
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PAGE
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Report of Independent Registered Public Accounting Firm............ 2
Financial Statements:
Statements of Net Assets Available For Benefits as of
December 31, 2004 and 2003.................................... 3
Statements of Changes in Net Assets Available For Benefits
for the years ended December 31, 2004 and 2003................ 4
Notes to Financial Statements...................................... 5
Supplemental Schedule as of December 31, 2004:
Schedule H, Line 4i - Schedule of Assets (Held at End of Year)... 11
Note - Other supplemental schedules required by Section 2520.103-10 of the
Department of Labor Rules and regulations for Reporting and Disclosure under the
Employee Retirement Income Security Act of 1974 (ERISA) have been omitted
because they are not applicable.
Exhibit:
Consent of Independent Registered Public Accounting Firm
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2004 and 2003,
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, 2004 and 2003, 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
Accountancy Corporation
Campbell, California
June 22, 2005
2
LORAL SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
(IN THOUSANDS)
DECEMBER 31,
-----------------------
2004 2003
---------- ----------
Assets:
Investments, at fair value:
Mutual Funds......................... $ 168,162 $ 164,245
Common/Collective trust.............. 17,263 18,949
Loral Space & Communications
Ltd. Common Stock................ 414 953
Ford Motor Company Common Stock...... 5,898 7,437
Participant loans.................... 1,312 1,647
---------- ----------
Total investments................. 193,049 193,231
---------- ----------
Net assets available for benefits......... $ 193,049 $ 193,231
========== ==========
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,
----------------------
2004 2003
--------- ----------
Investment income:
Net realized and unrealized appreciation in
fair value of investments............................ $ 6,207 $ 10,934
Interest and dividends................................. 4,061 3,201
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10,268 14,135
--------- ----------
Contributions:
Participants........................................... 13,607 15,582
Employer............................................... 4,816 4,739
Rollovers.............................................. 384 74
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18,807 20,395
--------- ----------
Benefits paid to participants.............................. (29,176) (32,456)
Administrative expenses.................................... (81) (75)
--------- ----------
(29,257) (32,531)
--------- ----------
Net increase (decrease) in net assets...................... (182) 1,999
Net assets available for benefits:
Beginning of year........................................ 193,231 191,232
--------- ----------
End of year.............................................. $ 193,049 $ 193,231
========= ==========
The accompanying notes are an integral part of these financial statements
4
LORAL SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
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 tax-advantaged long-term savings for retirement. It was
established as a qualified plan under Internal Revenue Code section 401(a). It
is also subject to the provisions of the Employee Retirement Income Security Act
of 1974 ("ERISA"), 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 and Common/Collective Trust - Participants are able to direct
their investments into a variety of mutual funds and a common/collective trust
offered by the Plan.
Loral Space Stock Fund - Prior to July 2003, the Plan allowed participants
to direct all or a portion of their elective deferrals to the Loral Space Stock
Fund ("Stock Fund"). In addition, Employer matching contributions were generally
initially invested in the Stock Fund from which vested participants could
exchange out of at any time. Non-vested participants were required to leave the
Employer matching contributions and earnings invested in the Stock Fund until
they were vested. In July 2003, the Board of Directors voted to disallow any new
investment, including both Employer matching contributions and employee-directed
deferrals, in the Stock Fund. As a result, Employer matching contributions and
employee elective deferrals received by the trustee after that date were
directed by participants to other investment alternatives. Existing balances in
the Stock Fund can be exchanged into other options at the participant's
direction and, therefore, this investment is now entirely participant directed.
Prior to June 12, 2002, Employer matching contributions were invested
solely in the Stock Fund, except for pension eligible participants (as defined
in the Plan document), who could direct the Employer matching contributions into
any investment (other than the Ford Stock Fund). All vested participants were
permitted to take in-service withdrawals from the Stock Fund, in cash or in
kind. Effective June 12, 2002, the Plan investment rules were changed to allow
vested participants to transfer all or part of their Employer matching
contributions out of the 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 Stock Fund continued to remain participant directed and
could be transferred out of the Stock Fund at any time. Prior to July 2003, the
Stock Fund was valued in units because the Fund included investments in Loral
Space & Communications Ltd. common stock ("Loral Common Stock") and the Fidelity
Short Term Interest Fund. Each unit represented a proportionate interest in all
assets of the Stock Fund. Stock Fund units were valued daily based on the values
of both Loral Common Stock and the Fidelity Short Term Interest Fund. However,
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 Stock Fund is now
measured solely 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, however, existing balances can be transferred into other investment
options at the participant's direction. This fund is comprised primarily of Ford
Motor Company common stock.
5
Participant Accounts
Participants can direct their investments to a number of mutual funds.
Before July 2003, investments could also be directed into the Stock Fund. A
participant's account is credited with the participant's contribution, the
Employer's matching contribution and an allocation of investment earnings or
losses, net of certain investment management fees.
Vesting and Forfeitures
Participants are immediately vested in their elective contributions plus
actual earnings thereon. Generally, participants vest 100% in Employer
contributions as follows: Employer contributions made 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 becoming
"pension eligible" as defined in the Plan document, participants become fully
vested. Non-vested Employer matching contributions are forfeited upon a
participant's "break in service'" as defined by the Plan document, and are used
for certain Plan administrative expenses or to reduce future Employer matching
contributions. In 2004, approximately $68,000 of forfeitures were used to pay
Plan expenses. In 2003, Loral used approximately $823,000 of forfeitures to
reduce Employer contributions. The balance of non-vested forfeitures at December
31, 2004 and 2003 were approximately $2,500 and $71,000, respectively.
Contributions
The Plan has two pre-tax features: Tax-Efficient Savings ("TES") and, for
those participants meeting a certain age requirement, a Catch-Up Contribution.
Under the Plan, and subject to dollar limits imposed by the Internal Revenue
Code ("IRC"), participants may generally elect a reduction in eligible
compensation up to 40% with a corresponding TES and/or Catch-Up 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 $0.60 for
each dollar of TES and/or Regular Savings contributions, up to 6% of a
participant's eligible compensation, unless the Employer determines to make a
different contribution or no contribution. For eligible employees of Loral
Skynet division, the match is $0.6667 for each dollar of employee contributions,
again up to 6% of eligible compensation. Through July 2003, Employer matching
contributions were generally invested in the Stock Fund. Since July 2003,
Employer matching contributions are generally initially invested in the Fidelity
Retirement Money Market Fund. Participants can exchange out of this investment
option and into any other investment option at any time.
Each separate division of Loral is obliged to pay Employer contributions
only for its own employees.
Payment of Benefits
Upon separation from service, disability, or death, participants or their
beneficiaries are eligible to receive the vested portion of their account
balance in the form of a lump sum distribution. Vested former-participants who
have an account balance in excess of $5,000 may leave their account balance in
the Plan generally until age 70 1/2. Vested former participants with an account
balance of $5,000 or less will receive a mandatory immediate cash payout of
their entire Plan benefit.
Generally in-service withdrawals of vested amounts may be made once a
year, until a participant reaches age 59-1/2. At that point, in-service
withdrawals are not limited in frequency. Withdrawals made by participants who
are not yet 59-1/2 may be subject to an additional 10% penalty tax.
Assets in a participant's account may be withdrawn at any time that
withdrawals are permitted under the Plan's provisions.
6
Payment of Administrative Expenses
All administrative expenses are paid by the Plan. The Plan document
provides that forfeitures derived from terminated participants' non-vested
Employer matching contributions may be used to pay certain administrative
expenses. Expenses that derive from settlor functions are the responsibility of
the Employer. However, the Committee has discretionary authority to allocate
administrative expenses between the Plan and one or more Employers. Generally,
each Employer division is responsible for the expenses attributable to settlor
functions relating to its employees.
Participant Loans
The Plan permits active participants to borrow from the vested assets of
their Plan 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, or (2) 50% of the vested account balance.
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, 2004 ranged from
5.00% to 10.25%. Loans are prohibited to beneficiaries, alternate payees (as
defined by the Plan and the IRC), former participants, and officers subject to
reporting requirements under rule 16(b) of the Securities Exchange Act.
The term of a loan may be up to five years except for loans to purchase a
primary residence, which may have a term of up to ten years. Loan repayments are
made through payroll deductions. Participants may repay all or a part of the
balance of a loan at any time. All loan repayments are allocated to the
investment funds based upon the participant's current TES investment direction.
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 common stock are valued at quoted market
prices.
Investments in common/collective trusts are valued as of the last day of
the Plan year, as reported by the trustee.
Participant loans 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.
Reclassification
Certain reclassifications were made to the 2003 financial statements to
conform to the 2004 presentation.
7
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 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, 2004 and 2003 (in thousands):
2004 2003
-------- --------
Fidelity Blue Chip Growth Fund............... $ 39,901 $ 42,144
Fidelity Growth & Income Fund................ 24,395 25,178
Fidelity Retirement Money Market Portfolio... 41,749 43,696
Fidelity Managed Income Portfolio II......... 17,263 18,949
Fidelity Magellan Fund....................... 19,643 20,517
In 2004 and 2003, 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):
2004 2003
-------- --------
Mutual funds................................. $ 7,215 $ 21,309
Loral Space & Communications Ltd.
Common stock.............................. (387) (13,711)
Ford Motor Company common stock.............. (621) 3,336
-------- --------
$ 6,207 $ 10,934
======== ========
8
4. PLAN TERMINATION
Although the Employer has not expressed intent to do so, the Employer can
discontinue their contributions at any time or 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 Employer 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. The
determination application of the Plan is currently under active review by the
IRS. Its delay has been inadvertently caused by successive changeover in IRS
personnel.
Accordingly, the Employer believes that based upon present applicable laws
and regulations, participants will not be subject to Federal income tax on the
TES, Catch-Up deferrals or Employer matching 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.
7. LAWSUITS AGAINST DIRECTORS AND OFFICERS OF LORAL
In April 2004, two separate purported class action lawsuits filed in the
United States District Court for the Southern District of New York by former
Loral employees and participants in the Plan were consolidated into one action
titled In re: Loral Space ERISA Litigation. In July 2004, plaintiffs in the
consolidated action filed an amended consolidated complaint against the members
of the Loral Space & Communications Ltd. Savings Plan Administrative Committee
and certain existing and former members of the Board of Directors of SS/L,
including Bernard L. Schwartz. The amended 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 to provide them with accurate
information, (c) that defendants violated Sections 404 and 405 of ERISA by
failing to provide complete and accurate information to Plan participants and
beneficiaries, and (d) that defendants violated Sections 404 and 405 of ERISA by
breaching their fiduciary duties to avoid conflicts of interest. 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. In
October 2004, defendants filed a motion to dismiss the amended complaint in its
entirety which is pending before the court.
In addition, two insurers under the Company's directors and officers
liability insurance policies have denied coverage with respect to the case
titled In re: Loral Space ERISA Litigation, each claiming that coverage should
be provided under the other's policy. In December 2004, one of the defendants in
that case filed a lawsuit in the United States District Court for the Southern
District of New York seeking a declaratory judgment as to his right to receive
coverage under the policies. In March 2005, the insurers filed answers to the
complaint and one of the insurers filed a cross claim against the other insurer
which such insurer answered in April 2005. Discovery has commenced and is
ongoing.
On July 15, 2003, Loral and certain of its subsidiaries filed voluntary
petitions for reorganization (the "Chapter 11 Cases") under chapter 11 of title
11 ("Chapter 11") of the United States Code (the "Bankruptcy Code"). The Company
is obligated, subject to the effects of the Chapter 11 Cases, to indemnify the
Company's directors and officers for any losses or costs they may incur as a
result of the lawsuits described immediately above. The plan of reorganization
provides that the liability of the Company post-emergence in respect of such
indemnity obligation is limited to the In re: Loral Space ERISA Litigation and
one other case In re: Loral Space & Communications Ltd, Securities Litigation,
in an aggregate amount of $2.5 million.
9
8. SUBSEQUENT EVENT
The stock price of the Ford Motor Company's common stock has decreased by
approximately 27% from its December 31, 2004 level. The Plan's assets may have
significantly decreased in value.
10
LORAL SAVINGS PLAN
Plan #018
EIN 23-1602217
SCHEDULE H, LINE 4i - SCHEDULE OF ASSETS (HELD AT END OF YEAR)
AS OF DECEMBER 31, 2004
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
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 Space & Communications Ltd. Common Stock (2,432,939 shares) $ 414
Ford Motor Company Common Stock (402,881 shares) 5,898
* Fidelity Management Trust
Company Retirement Money Market Portfolio 41,749
Blue Chip Growth Fund 39,901
Growth & Income Fund 24,395
Managed Income Portfolio II 17,263
Magellan Fund 19,643
Intermediate Bond Fund 5,232
Asset Manager 4,364
Spartan U.S. Equity Index 7,031
Overseas Fund 5,501
Puritan Fund 2,642
Freedom Income Funds 1,515
Interest bearing cash 108
Morgan Stanley-Dean Witter Global Equity Portfolio Class B 848
PIMCO Total Return Fund 3,229
Mid Cap Growth Fund 2,547
Capital Appreciation Fund 1,444
High Yield Fund 1,315
Strong Financial Corporation Strong Advisors Small Cap Fund 4,448
Ariel Mutual Funds Ariel Appreciation Fund 2,250
* Participant Loans Interest rates ranging from 5.00% to 10.25% 1,312
---------
$ 193,049
=========
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* Party-in-interest
11