Loral Reports Third Quarter 2011 Financial Results

Nov 9, 2011

Loral Space & Communications Inc. announced its financial results for the three months and nine months ended September 30, 2011. Revenue and Adjusted EBITDA1 for the third quarter and first nine months at Telesat continued to be strong. Revenue and Adjusted EBITDA1 for the third quarter and first nine months at Space Systems/Loral (SS/L) were in line with the company's expectations, although lower than for the same periods in 2010.

Revenues and Adjusted EBITDA for all segments before eliminations for the third quarter of 2011 were $473 million and $180 million, respectively, compared to $527 million and $207 million, respectively, for the third quarter of 2010. Combined segment revenues and Adjusted EBITDA for the first nine months of the year were $1.42 billion and $560 million, respectively, compared to $1.43 billion and $546 million, respectively, for the first nine months of 2010. All of Telesat's revenue and Adjusted EBITDA are included in these segment results2. Loral's income statement, however, reflects its 64 percent economic interest in Telesat under the equity method of accounting.

Loral's revenues and Adjusted EBITDA for the quarter after eliminations were $269 million and $23 million, respectively, compared to $323 million and $52 million, respectively, in the third quarter of 2010. Revenues and Adjusted EBITDA for the first nine months of 2011 after eliminations were $801 million and $83 million, respectively, compared to $832 million and $94 million, respectively, for the first nine months of 2010. The eliminations include all of Telesat's results.

Driven by a large swing in the U.S. dollar versus Canadian dollar exchange rate, Loral reported a net loss in the current quarter of $77 million compared to net income of $72 million in the third quarter of 2010. For the first nine months of 2011, net income was $20 million compared to net income for the first nine months of 2010 of $82 million. Diluted loss per share for the quarter was $2.52 compared to diluted earnings per share for the third quarter of 2010 of $2.29. For the first nine months of 2011 diluted earnings per share was $0.63 compared to diluted earnings per share of $2.63 for the first nine months of 2010. Loral's available cash increased to $239 million compared to $166 million at the end of 2010, and liquidity continues to be enhanced by the availability of the SS/L $150 million revolver which remains undrawn.

Business Unit Review

Satellite Manufacturing

In the third quarter of 2011, SS/L reported revenue before eliminations of $269 million which compares to $325 million in the third quarter of 2010. Revenue before eliminations for the first nine months of 2011 was $802 million compared to $837 million for the first nine months of 2010. Adjusted EBITDA for the third quarter of 2011 was $27 million compared to $56 million in the third quarter of 2010 and Adjusted EBITDA for the first nine months of 2011 was $96 million compared to Adjusted EBITDA of $106 million for the first nine months of 2010.

During the third quarter, SS/L was awarded a contract from Intelsat for two large and powerful satellites that will be used by DIRECTV in Latin America, driving a strong quarter end backlog of $1.5 billion. Last month, the SS/L-built ViaSat-1 was successfully launched, and the company shipped AsiaSat 7 to the launch base a month ahead of the contracted date for delivery. AsiaSat 7 is scheduled for launch on November 26.

"From an operating perspective, SS/L continues the excellent performance of recent quarters delivering a 10 percent Adjusted EBITDA margin, notwithstanding a less than optimal mix of satellite production work in the factory during the quarter," said Michael B. Targoff, Chief Executive Officer of Loral Space & Communications. "Comparisons to last year are skewed by the unusually high 17 percent Adjusted EBITDA margin achieved in the third quarter of 2010 and do not alter management's outlook for the fourth quarter of this year or for next year."

Satellite Services

Telesat revenue for the third quarter of 2011 was $204 million and Adjusted EBITDA was $157 million, reflecting a small increase over revenue of $202 million and Adjusted EBITDA of $154 million in the third quarter of 2010. Telesat revenue and Adjusted EBITDA for the first nine months of 2011 was $617 million and $476 million, respectively, also higher than revenue and Adjusted EBITDA of $593 million and $450 million, respectively, in the first nine months of 2010.

Third quarter financial metrics at Telesat continue to be strong. Backlog of $5.3 billion remains strong, and cash, including short-term investments, of $189 million, with $146 million of borrowing availability under its revolving credit facility, continue to demonstrate Telesat's financial soundness.

Future growth at Telesat will be driven by the Nimiq 6 satellite, which we expect to be launched in the first half of 2012, and the Anik G1 satellite, which is expected to launch in the second half of 2012. The Canadian payload on ViaSat-1, fully leased to Xplornet (previously Barrett Xplore) for broadband services in rural Canada, is expected to go into service by the end of the year and will also contribute to growth in 2012.

As a result of the solar array anomaly on Telstar 14R following its launch in May, Telesat filed an insurance claim for approximately $125 million. The claim is currently under review by the insurers and any proceeds that are received are expected to be invested in new satellites.

Strategic Alternatives

With regard to the previously announced process to explore strategic alternatives for Telesat, Telesat and its shareholders have explored, but have concluded not to pursue, a significant dividend recapitalization at this time. Telesat may from time to time continue to evaluate strategic alternatives and explore other refinancing or recapitalization opportunities. With regard to strategic alternatives for SS/L, Loral is continuing to focus primarily on a spin-off.