Year-over-year Improvements Led by Strong Skynet Performance
Company Enters 2002 on Firm Financial Footing
NEW YORK – February 14, 2002 – Loral Space & Communications (NYSE:LOR)
today reported its financial results for the three months and year
ended December 31, 2001, and provided guidance for 2002 performance.
Highlights
Against the backdrop of a tough industry and global economic
environment, Loral performed well:
– For the year, Loral EBITDA rose 71 percent and Loral Skynet EBITDA
was up 35 percent.
– Per share performance improved over 2000 and exceeded company and
analyst expectations. Fourth quarter loss was $0.13 per share; full
year loss was $0.86 per share.
– Cash and available credit at December 31, 2001, reached $229
million, significantly better than forecast.
“2001 was marked by significant positive achievements at Loral,”
stated Bernard L. Schwartz, chairman and chief executive officer. “We
met our financial and operating targets. The fixed satellite services
segment posted solid gains in both revenue and EBITDA. A number of
important long-term contracts were signed with customers. Our three
Telstar satellites under construction for Skynet will join the fleet
within 15 months, adding important new income-producing resources, at
high incremental margins, to our growing fleet. Backlog of $1.4
billion on the existing Skynet fleet provides real visibility into
future revenue growth. The FSS segment and Skynet in particular are
very well-positioned for future growth.
“Our satellite manufacturing unit captured a nearly 25 percent share
of worldwide bookings for commercial satellite construction, and
continued to bring costs and headcount down to bolster its bottom
line. Backlog there remained strong at $1.6 billion.
“Addressing liquidity, Loral took three major financing steps in 2001:
a debt exchange, bank credit maturity extensions and a preferred stock
exchange, all of which combined to put the company on firm financial
footing.”
Financial Results for the Periods Ended December 31, 2001
The fourth quarter and full-year results for 2001 included two
unusual, non-operating items:
– A gain of $22 million or $0.07 per share on Loral CyberStar’s debt
exchange, and
– A charge of $12 million or $0.04 per share for future payments to
the U.S. government to settle a case relating to the company’s
involvement in a review of a Chinese rocket launch failure in 1996.
For the fourth quarter, reported EBITDA rose to $53 million compared
to a loss of $4 million last year; for the year, EBITDA rose 71
percent to $223 million from $130 million last year. The improvement
was driven by a strong performance at Loral Skynet.
Loral’s reported revenues were $273 million for the quarter and $1.1
billion for the year, compared to $289 million and $1.2 billion for
the same periods of 2000, with the decline in satellite manufacturing
revenue offsetting a $64 million, or 20 percent, revenue gain for the
year at Skynet.
Operating profit for 2001 was $6 million, excluding the charge for the
settlement on the China matter, versus an operating loss of $86
million last year.
Loral’s net loss for the fourth quarter was $42 million or $0.13 per
share, a sharp improvement over $1.2 billion or $3.99 per share posted
last year when Loral wrote off nearly all of its investments in
Globalstar, amounting to $1.1 billion or $3.68 per share. Net loss
for 2001 was $277 million or $0.86 per share, compared to last year’s
net loss of $1.5 billion or $5.20 per share.
2001 full-year results also included a second quarter non-operating
charge of $29 million or $0.09 per share for non-cash dividend charges
related to the preferred stock exchange.
Year-end Cash Position
The company’s cash and available credit on December 31, 2001, was $229
million, after capital spending of approximately $238 million
primarily for the continued construction of three satellites for Loral
Skynet, interest and preferred dividend payments of $195 million and
debt repayment of $86 million. Our better than anticipated cash
position was accomplished without affecting satellite construction and
launch plans.
The debt-for-debt exchange reduced Loral’s principal amount of debt by
$228 million. The treatment under generally accepted accounting
principles delays recognition of this debt reduction over several
years. Accordingly, Loral’s total balance sheet debt was $2.4 billion
at December 31, 2001, while the principal amount of the debt was $2.1
billion.
Bookings and Backlog
Loral’s total bookings in the fourth quarter were $528 million,
compared to $651 million a year ago. After de-bookings of $208
million, mostly attributable to a single FSS customer, net bookings
for the quarter were $320 million.
For the full year, total bookings were $1.3 billion and de-bookings
totaled $641 million, resulting in net bookings of $649 million versus
net bookings last year of nearly $2 billion. The year-to-year
bookings decline and increase in de-bookings reflects the global
economic downturn as well as customers’ financing issues and the
postponement or rescheduling of certain projects, most of them related
to the delivery of broadband data services. De-bookings had no
substantial impact on revenue or earnings this year; their impact will
be spread over a number of years, during which anticipated re-bookings
of the freed-up capacity will further mitigate any impact.
FSS segment bookings in 2000 were unusually high because of the
then-recent addition of four satellites to Skynet’s fleet.
SS/L booked a total of five new satellite contracts in 2001, a nearly
25 percent global market share. Its bookings were $405 million during
the fourth quarter compared to last year’s fourth quarter bookings of
$460 million, and $795 million for the year, down from $1.4 billion in
2000. During the quarter SS/L converted authorizations to proceed
(ATPs) into firm contracts for the construction of SpainSat, XTAR-EUR
and MBSAT.
Loral continues to have a healthy backlog in its core businesses. The
company ended 2001 with a net funded backlog of $2.7 billion compared
to $3.2 billion a year ago. At year-end, Loral Skynet’s backlog
totaled $1.4 billion, nearly four times annual revenue. SS/L’s backlog
at year-end was $1.6 billion, down slightly from a year earlier. The
data business ended the year with a backlog of $98 million, down from
the year-end 2000 level, but equivalent to about one year’s revenue.
Business Unit Year in Review
Fixed Satellite Services (FSS)
Loral Skynet is the company’s largest cash generator and, as expected,
it delivered excellent results in 2001. Compared to 2000, Skynet’s
annual revenue rose 20 percent to $389 million, EBITDA increased 35
percent to $276 million, and the EBITDA margin increased 8 percentage
points to 71 percent.
The FSS segment as a whole also turned in a good year-over-year
performance, with some softness at Satmex more than offset by Skynet’s
gains. FSS 2001 revenue totaled $531 million, up 15 percent, and
EBITDA was $347 million, up 23 percent over last year. The FSS EBITDA
margin for the year was 65 percent, up from 61 percent in 2000. For
the fourth quarter, FSS revenues were up modestly versus last year and
EBITDA increased 7 percent. The EBITDA margin for the quarter
improved from 61 to 65 percent.
Loral Global Alliance fleet utilization (excluding Europe*Star) was 71
percent in the fourth quarter. Overall, regional market conditions
remained consistent with the previous quarter: Ku-band experienced
steady demand in Europe, North America and trans-Atlantic markets, and
in parts of Asia. Oversupply continues to weaken Ku-band demand in
Latin America, and in several C-band markets.
Overall, Loral’s average transponder pricing remained stable during
the fourth quarter at about $1.6 million per transponder. There was
some erosion in Western Hemisphere C-band rates but because of its
desirable orbital locations, Loral’s Ku-band rates have been constant.
Skynet has three satellites in late stages of construction: Telstar
13, a “condo” satellite shared with Echostar and scheduled to launch
and enter service in the fourth quarter of 2002; Estrela do Sul,
expected to launch at the end of this year or early 2003; and Telstar
8, scheduled for launch in the first quarter of 2003. All three are
large, high-powered satellites based on SS/L’s 1300 satellite bus.
These satellites will expand Skynet’s geographic reach to Brazil and
Latin America, increase its on-orbit back-up capacity, and provide
Ka-band capacity for two-way data transmission, all important
enhancements for the Loral Global Alliance.
Satellite Manufacturing and Technology
Financial performance in the satellite manufacturing industry suffered
in 2001 for numerous reasons. There is more capacity in the industry
than needed at a time when, because of economic conditions, customers’
capital investment programs have been stretched over longer
time-frames and demand for new satellites and satellite systems has
slowed. In addition, the introduction of new technologies required
by customer applications has increased development costs. To counter
these factors, SS/L has increased productivity, reducing its workforce
by 11 percent over the last three quarters. The company also is
streamlining certain internal processes and has instituted tighter
controls to ensure that subcontracted components are received on time
and meet all customer requirements, in turn bringing stability and
predictability to Loral’s manufacturing performance. The benefits of
these and other changes are expected to positively effect SS/L’s
financial performance over the course of 2002.
SS/L booked orders for five new satellites, nearly 25% of all
contracts awarded worldwide in 2001 for large commercial geostationary
satellites. SS/L is building DirecTV-7S, a spot beam satellite capable
of operating in either of two orbital positions, which provides the
direct-to-home operator with unique flexibility. XTAR-EUR and
Spainsat, two X-band defense communications satellites, will provide
services for government and military agencies in the US, Spain and
other allied countries. Loral is leading the way in exploiting this
attractive new commercial opportunity to serve government
organizations. SS/L also booked Apstar V for Hong Kong-based APT
Satellite, and MBSAT for Japan’s Mobile Broadcasting Company.
SS/L’s revenue was $219 million in the fourth quarter and $815 million
for the year, a decline in each case of about $80 million from earlier
expectations. Absent the $12 million charge for the settlement
relating to the China matter, SS/L’s EBITDA would have been a loss of
$1 million for the quarter and a profit of $36 million for the year.
In 2001, SS/L began delivering the Intelsat IX series of satellites
with the successful launches of Intelsat 901 and 902. The remaining
five Intelsat spacecraft are scheduled for launch in 2002 and early
2003, with Intelsat 904 in the final stages of launch preparation at
Arianespace’s Kourou, French Guiana, spaceport for a scheduled launch
on an Ariane-4 rocket this month. In 2002, SS/L expects to launch
eight or nine of the 22 satellites that are currently under
construction at the company’s Palo Alto, California facilities. The
$1.6 billion backlog softens the impact of the economic slowdown.
Data Services
Results for the data services segment were in line with expectations.
Fourth quarter EBITDA, projected to be breakeven, was $4 million. For
the year, the EBITDA loss was $13 million, a significant improvement
over the 2000 EBITDA loss of $52 million which included $22 million in
broadband investment costs. Revenue for the year totaled $98 million,
a decline from $130 million in 2000.
During 2001, CyberStar continued the rollout of its ClearStream suite
of IP-based services, including the introduction of ClearStream
OverNet, Webcast and Live providing enhanced video and streaming media
applications to the desktop. CyberStar also continued its heritage
VSAT and Internet connectivity businesses.
Financing Activities in 2001
Loral completed three successful financing initiatives in 2001 to
strengthen its liquidity and increase its financial flexibility. A
preferred stock exchange in April resulted in savings of about $277
million in mandatory redemptions in 2006 and 2007, and eliminated $17
million in annual dividend payments. In a debt-for-debt exchange
offer in December, Loral reduced its principal amount of debt by $228
million when Loral CyberStar issued $613 million in new 10 percent
senior notes in exchange for $841 million principal amount of
higher-rate senior notes. This exchange will reduce Loral’s annual
cash interest payments by $39 million. Finally, Loral amended both of
its major bank credit facilities in December, extending the maturities
to early 2005 for $1.1 billion in credit.
Outlook for 2002
The satellite industry is expected to face continued challenges this
year as economic uncertainties, pricing pressures in both the
manufacturing and services sectors, new technology introductions and
industry consolidation activities continue.
Loral Skynet, with three satellites under construction, is poised for
growth when those satellites enter revenue service in 2003. Skynet is
expected to achieve single-digit growth in revenue and EBITDA in 2002.
Space Systems/Loral has eight or nine satellites scheduled to be
shipped this year. Revenue in 2002 is expected to increase 15 to 20
percent over 2001. SS/L’s EBITDA margin should also improve in 2002.
Expectations for new satellite orders worldwide in 2002 are
conservative, driven both by softness in many satellite services
markets as operators review their capacity needs and by consolidation
in the FSS sector.
Overall, Loral expects 2002 as-reported revenues to increase
approximately 20 percent and EBITDA to rise approximately 15 percent.
Because of the requirements of generally accepted accounting
principles, interest paid on the new Loral CyberStar notes will not be
accounted for as an expense; instead, the book value of the notes will
be reduced as interest is paid on them. As a result, cash interest
for 2002 will be about $150 million, depending on interest rates,
while interest expense will be about $70 million lower.
Along with most public companies, Loral is evaluating its recorded
goodwill balance of $892 million in connection with new accounting
requirements beginning in 2002. As a result of this evaluation, Loral
will record a non-cash charge in the first quarter to write off a
portion or all of its goodwill. In addition, under the new accounting
rules, annual amortization of goodwill amounting to approximately $27
million will no longer be required.
Capital spending in 2002 is budgeted at $160 million, which includes
the near completion of three satellites and ground-based spending of
$50 million.
At the bottom line, Loral expects a net loss per common share of $0.40
to $0.50 in 2002, before the goodwill write-off – a substantial
improvement over 2001 results.
Loral Space & Communications is a high technology company that
concentrates primarily on satellite manufacturing and satellite-based
services. For more information, visit Loral’s web site at
www.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, 2000,
entitled “Certain Factors That May Affect Future Results,” and the
company’s other filings with the Securities and Exchange Commission.
With regard to forward-looking statements concerning Loral CyberStar,
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 CyberStar’s
annual report on Form 10-K for the fiscal year ended December 31,
2000, 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.
