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Loral
Writes Off Globalstar / Reports Billion Dollar Loss
Loral Space &
Communications Ltd. reported a fourth-quarter loss of US$1.09
billion, after writing down most of its investment in Globalstar.
For the full year, Loral reported a loss of more than  US$1.4
billion. Excluding nonrecurring items, Loral had a loss for the
quarter of US$75.2 million, and for the year of US$142.5 million.
Operating revenue fell to US$289.2 million in the latest period from
US$426.2 million a year earlier, with much of the drop attributed to
the manufacturing business. The company's cash and available credit
on December 31, 2000, was US$459 million, after funding over US$525
million of strategic investments for the full year including the
start of construction on three additional satellites (Telstar 8,
Estrela do Sul 1 and Telstar 13). Loral's total debt of
approximately US$2.5 billion at December 31, 2000, includes US$1.0
billion of Loral CyberStar debt, which is non-recourse to Loral.
Loral had invested
more than US$1.3 billion in Globalstar since the early 1990s.
Loral's took a Globalstar-related charge for the quarter  of
US$907.8 million. Loral does not plan to make additional investments
in Globalstar and may at some point choose to declare as a loss the
remaining portion of its Globalstar investment. Loral now values its
38% Globalstar stake at only US$145 million. However, Loral has not
adjusted its stakes in Globalstar service providers in Brazil,
Canada, Mexico and Russia.
The manufacturing
results were characterized as “disappointing”. Space
Systems/Loral (SS/L) was hit by non-recurring work delays. Revenues
were down for the year due to a weak satellite market and some late
contract starts. The company was forced to take a charge of US$52
million, for “non-recurring costs of manufacturing delays.” A
total of ten SS/L-built satellites, six GSO and four LEOs (Globalstars)
were launched in 2000. In 2000, Space Systems/Loral booked orders
for six satellites: Echostar 8 and 9, MTSAT 1R, iPSTAR-1, Estrela do
Sul 1 (Skynet do Brasil) and Satmex 6, totaling US$1.35 billion. The
backlog at Space Systems/Loral rose 27 percent over the previous
year. Manufacturing backlog at year-end was US$1.7 billion. Two of
the contracts expected in 2000, have just been booked in the last
few weeks, one for APSTAR 5, and the other for an external customer,
not yet made public. Loral says it is reviewing more satellite
proposals than it has ever before.
The U.S. Department
of State Office of Defense Trade Controls (ODTC), on December 23,
1998, suspended the previously approved technical assistance
agreement under which SS/L had been preparing for the launch of the
ChinaSat 8 satellite. According to ODTC, the purpose of the
suspension was to permit that agency to review the agreement for
conformity with newly-enacted legislation (Section 74 of the Arms
Export Control Act) with respect to the export of missile equipment
or technology. SS/L complied with ODTC's stop work order, but
believes that a review of the agreement will show that it complies
with the new law. The ODTC, however, has still not yet completed its
review, and the scheduled launch date for ChinaSat 8 continues to be
delayed. As a result of the suspension, ChinaSat could decide to
terminate the contract. If such a termination were to occur, SS/L
would have to refund advances received from ChinaSat (US$134 million
as of September 30, 2000) and may incur penalties of up to US$11
million and believes it would incur costs of up to approximately
US$38 million to refurbish and retrofit the satellite so that it
could be sold to another customer. Loral is not sure that it will be
able to find a replacement customer for the satellite or the Chinese
Long March launch vehicle. SS/L would record a charge to earnings of
approximately US$35 million if it is unable to find a replacement
customer for the launch vehicle.
Loral's
satellite-services business posted record gains. Revenues
for Loral’s Global Alliance (Skynet, Satmex & Europe*Star)
were US$132.1 million, up 43% year-over-year. Loral is not
“seeing some of the softness” in transponder-leasing costs cited
by competitors, with the possible exception being North American
C-band demand, which appears to be temporarily slow. Loral’s
satellite transponder leasing business increased 40 percent during
2000. Overall fleet capacity utilization was around 80% at the end
of the quarter. Utilization rates announced included Telstar 10
(68%), Telstar 11 (77%) and Telstar 12 (61%). The fleet is operating
with eleven satellites, adding Europe*Star 1 in September (which did
not actually enter service until January 2001). Rates for
Europe*Star 1 to date have been in the US$2.5 million per year per
transponder range, which is very high, a reflection of the value of
the satellite’s GSO location at 45ºE. Loral currently plans to
add four additional GSO satellites to the fleet in the 2002-2003
timeframe, including Telstar 8, Telstar 13, Estrela do Sul and
Satmex 6. Backlog was at US$2.4 billion.
Investment bank C.E. Unterberg Towbin
analyst William Kidd reports, “Loral
remains grossly undervalued and therefore an excellent value
opportunity.”
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