All,
Earning release,
Not good from its first look.
Loral Reports Third Quarter Results
NEW YORK--(BUSINESS WIRE)--Oct. 30, 1998--Loral Space & Communications Ltd. (NYSE:LOR - news) today reported results for the third quarter and nine months ended September 30, 1998.
Revenues from operations for the quarter ended September 30, 1998, totaled $349 million before intercompany and affiliate eliminations of $59 million, versus the previous year's third quarter revenues and eliminations of $423 million and $52 million, respectively. The decline is due mainly to timing issues between the third and fourth quarters. Sales in 1998 reflect the negative impact of the $291 million debooking in 1997 of three satellites by two Asian customers.
Earnings before interest, taxes, depreciation and amortization (EBITDA) before development costs and affiliate eliminations rose to $38 million from $30 million in the same period a year ago, reflecting growth in Loral's fixed satellite services businesses. The company reported a net loss of $22 million or $0.08 per share after continued investments in Globalstar and CyberStar, compared with a loss of $16 million or $0.06 per share in last year's third quarter. Third quarter results also reflect certain non-recurring items, including a gain of $35 million related to a Globalstar stock transaction and a charge of $7.3 million, representing Loral's proportionate share of the accounting charge taken by Globalstar as a result of the Zenit launch failure. There were 289.0 million weighted shares of Loral common stock outstanding for the quarter compared with 246.4 million for the same period last year.
The results for the third quarter are on target with the company's expectations for the quarter and for the year.
Loral's cash balance on September 30, 1998, was approximately $649 million after payment of the net cash requirement of $175 million to complete the purchase of Globalstar partnership interests and the Soros transaction. An additional $72 million in cash on hand is restricted to the construction of two Orion satellites. The company's debt of $1.5 billion includes approximately $911 million of Orion debt that is non-recourse to Loral.
Funded backlog at September 30, 1998, was $2.3 billion before intercompany and affiliate eliminations of $247 million versus funded backlog and eliminations of $2.0 billion and $253 million at the same time last year. Total bookings for the year to date were $1.2 billion before eliminations, while third quarter bookings before eliminations were $138 million. The company expects substantially higher fourth quarter bookings.
Bernard L. Schwartz, Loral's chairman and chief executive officer, said: ''Loral's fundamentals remain on track and we continue to make progress in the execution of our business plan. We remain confident that Loral will meet its expectations for 1998.
''Demand for the speed, quality and cost-efficiency of satellite-delivered services remains strong. Loral is rigorously focused on addressing this demand and particularly well-equipped to do so. Five GEO satellites are scheduled for launch between now and mid-1999, almost doubling the capacity of our fixed satellite services fleet. The revised Globalstar launch plan is more robust, flexible and balanced. It will support commercial service initiation in the third quarter of 1999 and a full in-orbit constellation by the end of that year. The results of CyberStar's broadband data delivery pilot programs in the enterprise market have been positive, readying the company for commercial service in 1999. Our prospects across all lines of business are strong. Our plan remains in place to build on Loral's current capabilities through the appropriate investments and acquisitions which we are confident will lead to the achievement of improved shareholder value.''
Mr. Schwartz also noted that, ''In the most recent period, certain setbacks - both industry-wide and Loral-specific - have affected our service timetable. While challenging, these events will not significantly delay the deployment of our satellite-based services. Loral's business plans were built to accommodate risk and the periodic disappointments that are inherent in the satellite industry. We remain focused on those plans.''
Business Unit Review
Satellite Design and Manufacturing
Space Systems/Loral, the company's satellite design and manufacturing subsidiary, is on track to post revenues of approximately $1.4 billion and EBITDA of approximately $107 million for 1998, in line with company expectations. Revenues reported in the third quarter were lower than expected, due to quarterly phasing issues and will be offset by substantially increased revenue in the final quarter of the year. During the third quarter, SS/L shipped two GEO satellites for customer PanAmSat and expects to ship and launch another six GEOs by mid-1999. Funded backlog for SS/L at September 30, 1998, was $1.3 billion before intercompany eliminations of $129 million.
SS/L recently was selected to build the spacecraft bus for a hybrid communications and military satellite for Optus Communications, pending the completion of agreements with Australia's Department of Defense. This booking of approximately $80 million will be reflected in a future period.
Fixed Satellite Services
Loral offers fixed satellite services (FSS) through three business units with existing satellite networks and operations control facilities: Loral Skynet, Loral Orion and the 49%-owned SatMex. Combined, these networks form Loral's fixed satellite services group, an integrated marketing operation that provides increased worldwide market power and economies of scale. Third quarter revenue for these companies was $66 million (including 49% of SatMex sales), a threefold increase from the same period a year ago, reflecting an increase of 62 percent in Loral Skynet revenue and the addition of Loral Orion and SatMex, acquired in the last year. The third quarter EBITDA margin was approximately 52% or $35 million.
By mid-1999, an additional five satellites will be added to these constellations, dramatically broadening Loral's international coverage: SatMex 5, which will replace the aging Morelos II; Loral Skynet's Telstar 6 and Telstar 7; and, Orion 2 and Orion 3. Europe*Star, jointly owned by Loral (49%) and Alcatel (51%), will participate with Loral's FSS companies in the Loral Global Alliance with the launch of its first satellite in 2000. At that time, the fixed satellite services group is expected to have 13 satellites with approximately 540 transponders in service, virtually blanketing the earth.
SatMex 5 is scheduled for launch on an Ariane IV rocket from Kourou, French Guiana, at the end of November. The Telstar 6 and Telstar 7 satellites currently are scheduled to be launched and in service before the end of the second quarter of 1999. The launch of Telstar 6, originally scheduled for October, was delayed when the company was notified by a component manufacturer that the traveling wave tubes (TWTs) in the satellite assembly may have reliability problems, which resulted in replacement of the tubes. The TWTs on Telstar 7 also are being replaced. The Orion 3 satellite launch, originally scheduled to be launched on Boeing's Delta 3 rocket late in the fourth quarter of 1998, has been rescheduled pending the results of an investigation into the failure of a Delta 3 launch in August. The launch is now scheduled to take place in March-April 1999. The Orion 2 satellite is scheduled for launch in mid-1999.
The current projected pre-launch fill rates for these satellites are approximately: SatMex 5, 35%; Telstar 6, 35%; Telstar 7, 43%; and Orion 3, 20%.
The funded backlog for the fixed satellite services group was approximately $931 million on September 30, 1998. Bookings for the quarter totaled approximately $129 million.
Loral Skynet announced recently that Time Warner Cable will anchor the cable neighborhood on the Telstar 7 satellite at 129 degrees WL. Time Warner will distribute an array of digital services for cable operators and their customers beginning on Telstar 5 in October and migrating to Telstar 7 in the second quarter of 1999. Loral Skynet will support the distribution of Time Warner's digital services with an antenna seeding program.
Loral Orion entered into an agreement with Embratel, Brazil's international telecommunications provider, to furnish satellite-based services directly between the U.S. and Brazil, including private network, video distribution and Internet access services. Similarly, Loral Orion and Natelco, one of India's leading telecommunications companies, formed Loral Orion-India to provide private network and Internet access services to India's domestic and international markets. Loral Orion holds a 49% stake in the venture.
Bargaining unit contract negotiations were recently completed at SatMex allowing for workforce streamlining and realignment as well as increased opportunities for cost savings and efficiencies.
Broadband Data Services
CyberStar, a broadband data services company formed by Loral, is conducting pilot programs with enterprise customers in the U.S. and is positioned for commercial service initiation in 1999. With year-to-date development costs of almost $23 million, a total of $69 million has been invested in the development of CyberStar by Loral and 14%-partner Alcatel Espace since its inception. CyberStar will focus initially on distributing customized information via Loral Skynet's Telstar 5 satellite to several vertical markets, among them entertainment, finance, real estate, training, insurance and retail. The affordably priced point-to-multipoint service will allow users to transfer large data, audio and video files directly to the desktop, avoiding ground-based network bottlenecks. CyberStar demonstrated one of its new service applications by distributing a feature-length film, ''The Last Broadcast,'' to select movie theaters nationwide the week of October 23, marking the first digital satellite distribution of a fully digital end-to-end production.
Global Mobile Telephony
The company was disappointed by the failure of the Zenit launch in September. The impact on Globalstar was a $17 million non-cash charge for the uninsured portion of the loss, and a delay of three months in the initiation of commercial service at a cost of approximately $100 million, representing additional interest and operating expenses directly attributed to the delay. Estimated costs for revisions to Globalstar's launch plan are approximately $140 million. The company's contingency launch plan was activated immediately and has, since then, been further refined and strengthened with options for additional Delta launches. The revised plan provides additional assurance of successful satellite deployment through greater flexibility and redundant capacity, reducing the company's dependence on any one launcher and further reducing risk.
As previously announced, including costs for the revised launch plan and the associated delay in revenue service, Globalstar plans to raise approximately $600 million in 1999 through the high-yield debt market to satisfy financing requirements through the initiation of commercial service in the third quarter of 1999.
Globalstar, which has eight satellites in orbit now, plans to have at least 32 satellites in orbit and eight to 12 gateways in operation to support the initiation of commercial service in the third quarter of 1999. By the end of 1999, Globalstar expects to have a total of 52 satellites in orbit and at least 16 gateways in operation. The remaining gateways already on order are expected to be in operation in the spring of 2000.
Brian H. |
