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Loral’s Financial Results Show Steep Slide

By | August 25, 2003

      New York-based Loral Space and Communications’ financial performance slipped during the second quarter, reflecting a continuing deterioration of the company’s condition that led it to seek Chapter 11 bankruptcy court protection last month.

      Loral’s satellite manufacturing subsidiary, Space Systems/Loral, was the biggest drag on the company’s performance, while traditionally strong Loral Skynet also performed poorly.

      Loral filed for Chapter 11 bankruptcy court protection July 15, the same day it reached an agreement to sell its six North American satellites and orbital slots to rival Intelsat for an estimated $1 billion in cash. In the coming weeks, Loral is expected to submit a reorganization plan to the bankruptcy court.

      The use of a bankruptcy court auction would allow other bidders to make offers of their own for Loral’s assets. Loral confirmed last week that EchoStar Communications [Nasdaq: DISH] expressed interest in bidding for the bankrupt company’s assets. EchoStar soon may begin a due diligence process to assess its next move.

      Steve Symonds, a Wilton, Conn.-based consultant, said, “Loral’s latest results are what you’d expect from a bankrupt company. Nevertheless, it is sad to watch the depths to which this once-mighty company, with a one-time book value of $8 billion, has fallen.”

      The rise and fall of the satellite company is reminiscent of a Charles Dickens novel that might best fit the title, “A Tale of Two Loral’s,” Symonds opined. The “meteoric rise” of a company built through a brilliant string of mergers and acquisitions that generated more than 100 quarters of profitability was the best of times, he explained.

      Following the sale of the company’s defense-related units to Lockheed-Martin [NYSE: LMT], Loral endured the worst of times – a “nuclear winter” that has hammered the entire commercial satellite sector, Symonds said.

      “As the bankruptcy auction proceeds, it will certainly be interesting to see how the marketplace assesses the value of Loral’s assets. Orbital slots certainly top the list here, followed by the in-service fleet and book of business,” he said.

      The weak demand for satellite orders likely will curb interest from outside buyers in Space Systems/Loral as a going concern, but there could be pieces of the manufacturer that would be of interest to Lockheed-Martin or Boeing [NYSE: BA].

      It will be “fascinating” to watch whether EchoStar or any other company formally offers to buy all of Loral’s assets, then sells off whatever operations don’t fit their business plan, Symonds said.

      A dearth of satellite-manufacturing orders caused Loral’s second quarter revenues to plunge to $143 million, less than half the $316 million for the same quarter a year ago. Second quarter revenue at Space Systems/Loral slipped to $81 million, compared to $250 million for the same time a year earlier. Fixed satellite service revenue at Loral Skynet during the second quarter dipped to $73 million, down from $103 million for the same period last year.

      The bottom-line performance at each Loral operating unit also slid.

      Space Systems/Loral incurred a second quarter operating loss, before depreciation and amortization, of $89 million, compared with operating income of $10 million for the same quarter last year. Loral Skynet had a second quarter operating income, before depreciation and amortization, of $44 million, down from $60 million in the same period last year.

      –Paul Dykewicz

      (Steve Symonds, 203/834-2766)

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