Satellite Manufacturing Gains Help Loral Post Third Quarter Profit

Nearly a year after emerging from bankruptcy, Loral Space & Communications Inc. posted a profit in its 2006 third quarter as revenues jumped 42 percent, the company announced Nov. 13.

Driven by an upturn in the commercial satellite manufacturing industry, Loral reported a profit of $1.2 million in the 2006 third quarter on revenues of $227 million. In the 2005 third quarter, Loral lost $27.8 million on revenues of $160 million.

Loral emerged from bankruptcy Nov. 21, 2005, and its financial statements reflect fresh-start accounting effective Oct. 1, 2005.

SS/L Continues Strong Growth

Loral’s satellite manufacturing unit, Space Systems/Loral (SS/L), reported revenue before eliminations of $191 million, in the 2006 third quarter, up 55 percent from the same period a year ago. SS/L’s third quarter operating earnings were $15.9 million in the most recent three-month period, which closed Sept. 30, up from $4.8 million in the 2005 third quarter.

To date in 2006, SS/L has won five commercial satellite manufacturing contracts and delivered four for launch. A fifth, Wildblue-1, is scheduled to be place into orbit in early December.

SS/L backlog stood at $1.2 billion at the end of the 2006 third quarter. The figure includes intercompany backlog of $147 million, much of which is accounted for by the Telstar 11N satellite being built for Loral Skynet.

"We believe that both short- and long-term opportunities for SS/L continue to evidence the recovery of the satellite manufacturing industry," Michael Targoff, Loral’s CEO, said in a statement.

Loral Skynet, Loral’s satellite services unit, reported revenues of $52.2 million before intercompany eliminations in the 2006 third quarter. In the 2005 third quarter, Loral Skynet recorded revenue of $41.1 million. The unit’s operating earnings were $28 million, up from $18.9 million in the 2005 third quarter.

The increase reflects the proceeds from a $14.9 million one-time gain from Boeing Co. from the termination of its Connexion by Boeing service. Boeing has been leasing capacity aboard the Estrela do Sul satellite to deliver its satellite broadband service to aircraft, but will shut down Connexion before the end of the year.

On Sept. 29, an affiliate of Boeing had signed an agreement with Loral Skynet to lease transponder capacity on Estrela do Sul from January 207 through August 2008, and the $14.9 million payment covered the termination option in the contract. Boeing had prepaid $4 million that is recognized as deferred revenue, and Loral Skynet recognized $10.9 million of the payment as revenues in the 2006 third quarter.

Utilization on Loral Skynet’s fleet at the end of the third quarter was 74 percent, compared to 67 percent at the end of the third quarter of 2005. The unit’s backlog stood at $358 million at the end of the 2006 third quarter.

"We foresee continued steady results from our core transponder leasing business," Targoff said.

Plans Future Equity Moves

On Nov. 13, Loral filed a universal shelf registration statement with the U.S. Securities and Exchange Commission for the sale of up to $500 million of securities. The proceeds will be used for general corporate purposes including debt repayment, expansion and working capital, Loral said. The filing also covers any future offers and sales of 7.2 outstanding shares of Loral common stock owned by affiliates of MHR Fund Management LLC, Loral’s largest shareholder.

Loral had announced Oct. 17 that it would sell $300 million of stock to MHR, which was founded by Mark Rachesky, chairman of Loral’s board, but the company had made efforts to modify that deal "in response to certain shareholders’ expressions of interest in participating in our financing plans."

A pair of investors in Loral, investment firms Highland Capital Management LP and Murray Capital Management Inc. had raised concerns over the MHR deal, labeling it a "sweetheart deal" that would allow a "stealth take-over" of Loral.

On Oct. 27, Loral announced it would ask MHR to consider alternatives to the previously announced equity financing deal and that MHR is developing a response.