Loral Reports Second Quarter 1999 Financial Results
Thursday July 29, 10:33 am Eastern Time
Company Press Release
NEW YORK--(BUSINESS WIRE)--July 29, 1999--Loral Space & Communications today reported results for the three
months and six months ended June 30, 1999, which match the company's previously stated expectations for the full year.
Financial Results for the Periods Ending June 30, 1999
Prior to intercompany and affiliate eliminations, Loral's segment revenues in the second quarter were $454 million, versus
$406 million a year earlier, reflecting higher sales in each of the company's operating segments. Reported revenues for the
period, after all eliminations, were $378 million, up 52 percent over the $248 million reported a year earlier.
For the first six months of the year, segment revenues prior to eliminations rose 13 percent, to $869 million. After
intercompany and affiliate eliminations, reported revenues for the first half of 1999 were $684 million, a 26 percent increase
over revenues of $544 million a year ago.
Segment EBITDA (earnings before interest, taxes, depreciation and amortization) for the three months ended June 30, 1999,
prior to all eliminations and development and start-up costs, rose to $70 million, a 35 percent gain over the $52 million
reported last year. Reported EBITDA, after all eliminations, was $44 million, a 257 percent increase over the $12 million in
EBITDA reported a year earlier reflecting increased EBITDA from all operating segments.
Segment EBITDA for the six months ended June 30, 1999, prior to all eliminations and development and start-up costs, was
$138 million, up 36 percent over the $101 million posted in the first half of 1998. Reported EBITDA for the first six months,
after all eliminations and development and start-up costs, rose 162 percent to $80 million versus EBITDA of $31 million
reported for the first six months last year.
''Our solid second quarter performance reflects continued progress in executing our business plan,'' stated Bernard L.
Schwartz, Loral chairman and chief executive officer. ''Space Systems/Loral maintained its margin improvements, with
EBITDA up 59 percent over last year. Fixed satellite services performance was steady, despite a late start for Telstar 6, the
loss of Orion 3 and a slower than expected sales ramp-up at Satmex. CBS signed on during the quarter as a new Loral
Skynet broadcast customer and an important direct-to-home television customer renewed its contract with Satmex. We plan
to place two more satellites - Telstar 7 and Orion 2 -- into service before year end.
''We are pleased with the activity at our data services group, where we are devoting resources to the development and
introduction of broadband services,'' Mr. Schwartz continued, ''a market we believe has huge potential.
''On the Globalstar front, with another successful launch just last weekend, we now have 32 satellites in our initial
constellation and are gearing up for the start of service in several regions of the world beginning this fall. It is thrilling for all
involved to be on the threshold of service. The balance of this year,'' Mr. Schwartz concluded, ''promises to be an eventful
one.''
Funded backlog at June 30, 1999, net of eliminations, was $1.9 billion versus net funded backlog of $2.2 billion a year
earlier. For the first half of 1999, segment bookings before eliminations were $911 million versus $1.1 billion last year. The
timing of bookings at SS/L, along with a debooking of $89 million due to the Orion 3 loss, led to a decline in total bookings
for the second quarter to $283 million, before eliminations, down from $832 million in a particularly strong quarter a year
earlier. Both backlog and bookings are expected to show year-over-year improvement at the end of the year.
Loral's net loss for the period of $50 million, or $0.17 per share, was an improvement over last year's net loss of $71 million
or $0.27 per share. For the first six months, the company's net loss was $100 million or $0.34 per share versus $98 million or
$0.38 a year ago.
''While reported EBITDA is expected to improve in the second half, Loral's net loss will deepen consistent with our forecast
for the year,'' Mr. Schwartz noted. ''The expected loss is attributable to increased interest and depreciation expenses as well
as to the planned costs of deployment as Globalstar service gets underway, and to increased expenses at Loral's Globalstar
service ventures in Brazil, Mexico, Russia and Canada. We remain on track to meet our previously announced earnings per
share target.''
Per share calculations for the three-month and six-month periods ended June 30, 1999, are based on 290 million weighted
shares of Loral common stock, versus 266 million and 258 million for each of the respective periods a year earlier.
The company's cash balance on June 30, 1999, was $546 million, including approximately $49 million of cash restricted for
interest payments on Loral Orion's outstanding debt. The cash balance does not include the insurance proceeds of
approximately $266 million due from the loss of the Orion 3 satellite. Loral's total debt of approximately $2.0 billion includes
$949 million of Loral Orion debt, which is non-recourse to Loral.
Business Unit Review
Fixed Satellite Services (FSS)
During the second quarter of 1999, FSS segment revenue increased to $90 million from $64 million a year earlier. A portion
of this increase, $17 million, is attributable to a transaction in which Loral Skynet acquired two transponders from Satmex
(Satelites Mexicanos S.A. de C.V.), which is 49 percent-owned by Loral. Loral Skynet will use these transponders to
provide expanded coverage to its customers and may acquire an additional two transponders in the third quarter. There is no
impact on Loral's reported results from these transactions. Loral will now record 100 percent of the revenue and EBITDA
arising from the lease of these transponders.
Revenues at Loral Skynet during the quarter rose $11 million from the year-previous quarter reflecting the service start-up of
Telstar 6. Offsetting this growth in Loral's FSS segment was a revenue decline at Satmex of $1.3 million, before the $17
million transaction with Loral Skynet. Satmex performance was negatively affected during the quarter by the Solidaridad I
anomaly which led to the transition of some existing customers to Satmex 5 and a decrease in capacity utilization on
Solidaridad I to 40 percent. Although Satmex capacity utilization is temporarily below plan, Loral's assessment of market
demand remains positive. Satmex's market strength in Latin America is validated by the renewal of its contract with Innova, a
Televisa direct-to-home joint venture.
The FSS segment EBITDA margin declined, as expected, as Loral Skynet and Satmex increased costs prior to the realization
of revenues from recent and planned satellite launches. Similarly, $2.2 million was invested in EuropeStar during the quarter,
well in advance of its first satellite launch. EBITDA margins are expected to improve going forward as Telstar 7 and Orion 2
enter service in 1999 and EuropeStar in 2000, and as capacity utilization rates increase on Telstar 6 and Satmex 5. The
end-of-year capacity utilization rate for the entire Loral fixed satellite services fleet is expected to be approximately 75
percent.
In June 1999, Loral Skynet firmly established its position as the leading provider of satellite broadcast services for North
America by signing CBS Broadcasting onto its Telstar broadcast and syndication neighborhood. CBS, joining blue-chip
''anchor'' customers ABC and Fox on Loral's broadcast arc, has leased a total of 12 transponders: seven C-band
transponders on Telstar 6 and three on Telstar 4 to distribute its network programming feeds to more than 200 affiliates
across North America, and two Ku-band transponders on Telstar 6 for satellite news gathering operations.
Loral's Orion 3 broadcast video and data communications satellite for the Asian market, which was to be part of our FSS
fleet, was lost in a launch failure in May. The company is examining the alternatives available for replacing the lost capacity,
including the construction of a new satellite, use of existing satellite inventory or the purchase of on-orbit capacity. In the
meantime, Loral Skynet is marketing the capacity of Mabuhay's Agila 2 satellite, positioned over Asia, as part of the Loral
Global Alliance.
The FSS launch schedule for the second half of the year includes the launches of Telstar 7 and Orion 2. Telstar 7, scheduled
for a September launch on board an Ariane 44 LP rocket, will anchor a strong neighborhood covering North America and
Latin America for cable and Internet service providers (ISPs) at its 129 degrees W.L. orbital location. Orion 2, scheduled for
launch in the fourth quarter of 1999, will offer a unique trans-Atlantic configuration at 12 degrees W.L., and significantly
extend Loral's coverage of the Western Hemisphere. In May Loral Skynet signed a 10-year agreement with NetSat Express,
a Globecomm Systems subsidiary, to lease capacity on Orion 2, which NetSat Express will use to provide satellite-based
Internet access services, digital media distribution services and integrated data, voice and video communications services
across Europe, the Middle East and South Africa.
Loral's presence in the Latin American market for television programming distribution was furthered by the renewal of a
contract for the lease of 12 Ku-band transponders on Solidaridad 2 through at least December 2001 by Innova, a Mexican
direct-to-home broadcaster which provides 161 digital television channels to 150,000 subscribers in Latin America.
Satellite Manufacturing and Technology
Space Systems/Loral (SS/L) posted revenues of $345 million during the second quarter for a total of $672 million in revenue
for the first half of the year. EBITDA before eliminations for the quarter was $31 million, an increase over the previous year's
quarter of 59 percent. The manufacturing segment maintained a strong EBITDA margin of approximately nine percent, for the
three-month and six-month periods. SS/L's total funded backlog at June 30, 1999, was $1.3 billion.
As of June 30, 1999, SS/L satellites have amassed more than 670 years on-orbit. With 27 geostationary (GEO) satellites
valued at approximately $4 billion now in process, SS/L is operating at near-full capacity and expects to ship seven GEO
satellites to customers for launching between now and year end. GEO satellites being prepared for launch in the second half of
1999 include Telstar 7, Chinasat 8, GOES L, MTSAT, EchoStar 5 and 6, and Orion 2.
In addition, having delivered 24 LEO satellites to Globalstar for February, March, April, June and two July 1999 launches,
SS/L is on track to deliver an additional 20 Globalstar low-earth-orbit (LEO) satellites for launches scheduled for August,
September, October, November and December 1999. The performance of the 32 Globalstar satellites already in space is
excellent, reflecting SS/L's superior design expertise and manufacturing capability as well as its proven reliability.
SS/L's Geostationary Operational Environmental Satellite (GOES) L, the fourth and most advanced in the next-generation
series of weather satellites built by SS/L for the National Aeronautics and Space Administration and the National Oceanic and
Atmospheric Administration, is scheduled for launch in the fourth quarter. GOES-M, the last in the GOES I-M series, is on
target for its 2001 launch date. The SS/L-built GOES-8, on orbit since April 1994, exceeded its five-year mission life during
the second quarter, and its ground systems software is undergoing a significant upgrade to further extend its mission life.
The first eight SS/L-built sequential shunt units (SSU) for the International Space Station were launched aboard the Space
Shuttle Discovery in May. The shuttle crew placed the SSUs, which help to control voltage, aboard the Space Station to be
used as on-orbit spares later in the Space Station's life.
Data Services
Sales in the Data Services segment rose 50 percent during the quarter to $18 million. Revenues for the first half totaled $34
million.
Loral currently offers a series of broadband products and services to the enterprise market using leased Ku-band
transponders. It intends to expand its service offerings ultimately to include two-way satellite-based transmissions via a
dedicated, global Ka-band satellite constellation for both the enterprise and consumer markets. Consistent with its strategy,
Loral has formed several new business relationships that not only extend its capacity and product offerings but also bring
additional expertise to the development of its broadband business.
To address the increasing demand for Internet access and corporate data networks that is driving the data services segment,
Loral Orion recently rolled out its digital video broadcast (DVB)-based platform. By employing this new, IP-based global
delivery platform, Loral Orion is able to offer its customers the ability to multicast data to multiple sites worldwide, using
receiving dishes under one meter in size.
Broadband services that can be multicast to customers on the Loral Orion IP-based global delivery platform include
electronic package delivery and video and audio streaming. The Fantastic Corporation, under an agreement signed in January
1999, recently delivered its software for those applications to Loral Orion. Loral Orion has tested the Fantastic system, and is
now able to deliver Fantastic services to customers.
The Loral Data Services group also further expanded its Internet infrastructure and access capacity during the second quarter.
In April, Loral Orion added capability to its Internet backbone by partnering with AboveNet Communications Inc. to use
AboveNet's terrestrial network across the United States. This will enable Loral Orion to serve ISPs with greater, more
reliable Internet access. In addition, Loral Orion signed an agreement with Satmex for transponder capacity on Satmex 5 that
will enable Loral Orion to deliver Internet services across Latin America.
In May, Loral Orion was awarded a contract from Nokia, the world's leading supplier of mobile phones, to expand Nokia's
internal communications network into sites across eastern Europe. Nokia will benefit from Loral Orion's
bandwidth-on-demand service that lets a customer allocate bandwidth to sites within a network, as capacity is needed.
In April, Loral Data Services established a relationship with NeoPlanet, a leading provider of integrated Internet software
services, to develop navigation tools to create a customizable portal for Loral's broadband services. The portal became
operational from CyberStar's web site in mid-May.
Global Mobile Telephony
Continued successful launches during the second quarter and in July were the most visible indicator of Globalstar's steady
progress in readying for service this fall. Most recently, Globalstar has achieved four launch successes -- including launches of
four Globalstar satellites each on a Soyuz rocket in April and on three Delta II rockets in June and July. Globalstar now has
32 satellites in space, the requisite number that will permit the progressive rollout of Globalstar service beginning in the fall.
Launches will continue through the end of the year, at the rate of one per month, using a combination of Delta and Soyuz
launch vehicles. Ultimately, Globalstar will have 52 satellites, including four in-orbit spares, in its first-generation constellation. [Already looking ahead to the second generation... :-)]
The program has reached other significant milestones, including continued successful satellite telephone call testing using
handsets, satellites and gateways. Currently, eight gateways are operational, including six that are being readied for service by
undergoing testing to ensure capacity levels and exercise billing software. Hardware for the balance of gateways on order has
been delivered and on-site installation of the gateways is in progress.
Globalstar announced in June that it had arranged a $500 million credit facility, underwritten by Bank of America. Together
with expected vendor financing, the credit facility completes Globalstar financing requirements through the achievement of
positive cash flow. The guaranteed credit facility, supported by certain Loral assets, brings to $3.8 billion the amount
Globalstar has raised for the development, construction and deployment of the Globalstar system.
Globalstar and its service providers are planning a regional rollout of service in the fall with 32 satellites and nine gateways,
providing more than ample coverage during the early subscriber acquisition period. In January 2000, approximately 16
gateways are to be in operation. Twenty-two additional gateways are scheduled to come on stream throughout 2000. A
sufficient number of telephones, manufactured by Ericsson, Qualcomm and Telital, should be in the distribution pipeline in the
fourth quarter to satisfy expected demand, with telephone production ramping up to 40,000 units per month by early 2000.
Loral Space & Communications (NYSE:LOR - news) is a high-technology company that primarily concentrates on satellite
manufacturing and satellite-based services, including broadcast transponder leasing and value-added services, domestic and
international corporate data networks, global wireless telephony, broadband data transmission and formatting, Internet
connectivity, digital audio radio services, and international direct-to-home satellite services. For more information, visit Loral's
web site at loral.com.
This document contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In addition, from time to time, Loral Space
& Communications Ltd. or its representatives have made or may make forward-looking statements, orally or in writing. Such
forward-looking statements may be included in, but are not limited to, various filings made by the company with the Securities
and Exchange Commission, press releases or oral statements made with the approval of an authorized executive officer of the
company. Actual results could differ materially from those projected or suggested in any forward-looking statements as a
result of a wide variety of factors and conditions. These factors and conditions have been described in the section of the
company's annual report on Form 10-K for the fiscal year ended December 31, 1998, entitled ''Certain Factors That May
Affect Future Results.'' In addition, these factors and conditions have been described with particular regard to the company's
interest in Globalstar, L.P. (''Globalstar'') and Globalstar Telecommunications Limited (''GTL''), in the section of the annual
report on Form 10-K of Globalstar and GTL for the fiscal year ended December 31, 1998, entitled ''Certain Factors That
May Affect Future Results.'' With regard to forward-looking statements concerning Loral Orion, Inc. and its business,
financial condition, results of operations and prospects, the factors and conditions which could materially affect these
statements are described in the section of Loral Orion's annual report on Form 10-K for the fiscal year ended December 31,
1998, entitled ''Certain Factors That May Affect Future Results.'' The reader is specifically referred to these documents
regarding the factors and conditions that may affect future results. |
