Loral Space & Communications Inc. reported its financial results for the fourth quarter and full year ended December 31, 2011.

 

 

 

Combined segment revenues and Adjusted EBITDA(2) for the year were $1.926 billion and $750 million, respectively, compared to $1.962 billion and $732 million, respectively, for 2010. Combined segment revenues and Adjusted EBITDA for the fourth quarter of 2011 were $506 million and $190 million, respectively, compared to $533 million and $186 million, respectively in the fourth quarter of 2010. All of Telesat's revenue and Adjusted EBITDA are included in these segment results. Loral's income statement, however, reflects its 64 percent economic interest in Telesat under the equity method of accounting, and accordingly, does not consolidate Telesat's financial results with those of the company.

 

Loral's revenues and Adjusted EBITDA for the year after eliminations were $1.107 billion and $120 million, respectively, compared to $1.159 billion and $124 million respectively in 2010. Revenues and Adjusted EBITDA for the quarter after eliminations were $306 million and $37 million respectively, compared to $327 million and $30 million respectively, in the fourth quarter of 2010. The eliminations include all of Telesat's results.

 

Loral reported net income of $127 million compared to net income of $487 million in 2010, which included the accounting recognition of a $335 million tax benefit in the fourth quarter of 2010. For the fourth quarter of 2011, net income was $107 million compared to net income of $405 million for the fourth quarter of 2010.

 

Net income also includes equity in net income of affiliates, comprised substantially of Loral's share of Telesat's net income, which was $106 million for the year compared to $86 million in 2010 and $113 million in the fourth quarter of 2011 compared to $45 million in the fourth quarter of 2010. Telesat's results included a net foreign exchange charge of $30 million in 2011 compared with a net foreign exchange gain of $82 million in 2010. Telesat's fourth quarter results include a net foreign exchange gain of $54 million, compared with $63 million in 2010. The fourth quarter of 2011 also benefitted from insurance proceeds received of $133 million.

 

As a result of the above, diluted income per share for 2011 was $3.92 compared to diluted income per share of $15.63 in 2010. For the fourth quarter of 2011 diluted earnings per share was $3.28 compared to $12.87 in the fourth quarter of 2010.

 

Loral's cash position finished strong, at $197 million at the end of 2011 compared to $166 million at the end of 2010. There continue to be no drawings against the available $150 million revolving credit facility at SS/L.

 

Business Unit Review

 

Satellite Manufacturing
SS/L's revenue for the year was $1.108 billion, compared to $1.165 billion for the year in 2010. Adjusted EBITDA for the year was $138 million, compared to $143 million for the year in 2010. SS/L's revenue and Adjusted EBITDA for the fourth quarter of 2011 were $306 million and $42 million respectively compared to revenue and Adjusted EBITDA of $328 million and $38 million respectively for the fourth quarter of 2010. Backlog on December 31, 2011 remained strong at $1.426 billion compared to $1.625 billion at the end of 2010.

"In 2011 we continued to deliver excellent operating performance with EBITDA margins in the 12 percent range," said Michael B. Targoff, chief executive officer of Loral Space & Communications. "While the results are relatively flat as compared to 2010, the benefits of our ongoing process improvements have allowed us to deliver comparable performance despite the softer contribution from bookings in 2011."

 

Space Systems/Loral (SS/L) reinforced its position as the world's leading provider of high-power commercial satellites. In 2011, the company booked six satellite contracts, which accounted for approximately 50 percent of the worldwide mid-to-high power commercial satellite contracts awarded through competitive bids. With four satellites successfully launched, SS/L continued to have more geostationary commercial satellite transponders on orbit than any other manufacturer.

 

In the fourth quarter of 2011, SS/L was selected to provide two satellites to Hong Kong satellite operator, Asia Satellite Telecommunications Company Limited (AsiaSat), which will be used for service in Asia, the Middle East and Australia. Other satellite contracts awarded in 2011 were for two powerful DTH satellites for Intelsat, to provide service for DIRECTV Latin America; a multi-mission satellite for Norwegian operator Telenor; and a broadcast satellite for Australian operator SingTel Optus.

 

In early 2012, SS/L booked three additional satellite contract awards. In January it announced an award for an established satellite operator, and then, in February, confirming its broadband leadership position, the company was awarded a contract for approximately $600 million by NBN Co, the Australian government entity responsible for the national broadband network. The contract is for two large broadband satellites and related activities.

"On the strategic front, alternatives other than a spin-off for separating SS/L from Loral have taken front stage," said Mr. Targoff. "As a result, we have decided to defer work on finalizing spin-off terms."

 

Satellite Services
Telesat revenue for the year was $817 million compared to $797 million in 2010. Adjusted EBITDA was $629 million compared to $607 million in 2010. Telesat's revenue for the fourth quarter of 2010 was $200 million compared to $205 million in the fourth quarter of 2010. Adjusted EBITDA for the fourth quarter was $153 million compared to Adjusted EBITDA in the fourth quarter of 2010 of $156 million. Much of the change in revenue and Adjusted EBITDA for 2011 is a result of changes in foreign exchange rates.

 

Year end financial metrics at Telesat continue to be strong. Backlog remains robust at $5.333 billion compared to $5.477 at the end of 2010, and cash, including short-term investments was $272 million at the end of the year compared to $221 at the end of 2010. An additional $150 million of undrawn borrowing is also available under its revolving credit facility.

 

During the course of the year Telesat launched Telstar 14R/Estrela do Sul 2, which replaced Telstar 14 and provided some incremental capacity, which is gradually being filled. Because a solar array anomaly on the satellite diminished its power capability and will shorten its life, Telesat collected insurance proceeds of $133 million in the fourth quarter.

 

The ViaSat-1 broadband satellite was launched in October 2011 and entered commercial service early this year. Telesat owns the nine Canadian beams on ViaSat-1 and has entered into a fifteen year service agreement with Xplornet Communications Inc., which will use the satellite to expand the quality and availability of high speed broadband services to rural Canada.

Further growth at Telesat will be enhanced by two satellites that are nearing the completion of construction and test. Nimiq 6 will launch in the first half of 2012 and Anik G-1 is scheduled to launch in the second half of the year.

 

Telesat's reported Adjusted EBITDA margin was 77 percent in 2011, increased from 76 percent in 2010. For the fourth quarter, Adjusted EBITDA margin remained constant at 76 percent.

 

Telesat had interest expense of $221 million for the year and $54 million for the quarter compared to $235 million for the year in 2010 and $58 million for the fourth quarter of 2010. The company continues to reduce leverage through the growth of Adjusted EBITDA and the accumulation of cash. During 2011 the ratio of net debt to Adjusted EBITDA decreased from 4.6 times to 4.4 times as calculated for covenant purposes. In addition, Adjusted EBITDA exceeded interest expense by $409 million.

 

Telesat is pursuing a refinancing and recapitalization transaction which could include CAD 530 million of increased debt, resulting in a distribution of approximately CAD 705 million to Telesat shareholders and option holders, of which approximately CAD 420 million would be paid to Loral.

 

"Telesat continues to be a very solid predictable business," said Mr. Targoff. "With two satellites scheduled to launch in 2012 and ViaSat-1 now in service, we can expect the results to improve throughout the year and into 2013. The recent decision to pursue paying Telesat's shareholders a sizeable distribution reflects our focus on sharing the success of the Telesat acquisition and growth with Loral shareholders by setting a path for delivering value directly to our owners."