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Loral Reports 1998 Year-end Results



NEW YORK--- Loral Space and Communications today reported results for the three months and year ended December 31, 1998. EBITDA performance was better than the company's expectations for both the quarter and the year.
Loral's fourth quarter revenues from its business segments prior to intercompany and affiliate eliminations totaled 552 million, an increase of 45 percent over revenues in the same quarter last year of 380 million.
Total EBITDA for Loral's operating segments prior to development costs, corporate expenses and eliminations rose to 90 million from EBITDA of 56 million reported in last year's final quarter, a 62 percent improvement demonstrating an increase in profit performance momentum during the year.
The improvements in quarterly revenues and EBITDA resulted from a net increase in sales at Space Systems/Loral and higher utilization rates on the company's Telstar satellites during the period. In addition, the company's 1998 fourth quarter results include SatMex and Loral Orion for the whole period whereas 1997 fourth quarter results did not include Loral Orion and included only 1.5 months of SatMex results.
"We're pleased with our year-to year growth, driven chiefly by adding satellites to our networks in space and increasing satellite utilization,'' stated Bernard L. Schwartz, Loral chairman and chief executive officer. "We've exhibited steady growth in EBITDA and margins in the manufacturing and fixed satellite services segments and, at the same time, increased our investments in the further development of Loral's new businesses - global mobile telephony and data services.
"In 1998, Loral took its building block strategy a significant step further, organizing and integrating its businesses to form four distinct segments. Each of the segments - satellite manufacturing and technology, fixed satellite services, data services and global mobile telephony - has a well-defined mission designed to create global networks and to exploit the increasing demand for satellite-delivered information services. Expanding and strengthening our networks, the results of which are already evident in our 1998 performance, will add substantially to our revenue and profit base potential in the near future.
"Our recent successful 350 million financing equips Loral with the resources to further its networking strategy and take advantage of the emerging opportunities in the satellite-based communications and information services industry,'' Mr. Schwartz concluded.
Total development costs for the quarter, including 100 percent of Globalstar, increased to 57 million in 1998 from 35 million in the final quarter of 1997, resulting in segment EBITDA after development costs for the 1998 and 1997 fourth quarters of 33 million and 21 million, respectively, an increase of 56 percent.
Loral reported a net loss for the quarter of 65 million or 0.23 per share, versus net income in the 1997 fourth quarter of 43 million or 0.17 per share which was attributable primarily to an 80 million gain on the sale of Loral's interests in K&F Industries in 1997. The 1998 results also reflect investment in Europe*Star and data services, an increase in depreciation, amortization and interest expense due to the Orion acquisition and a write-off of non-strategic investments of approximately 30 million. Year Ended December 31, 1998
Total revenues for Loral's business segments for the year prior to intercompany and affiliate eliminations were 1.7 billion versus 1.5 billion a year earlier. This increase is attributable to the inclusion of SatMex for the full year, Loral Orion for nine months and higher utilization rates on Loral's Telstar satellites. Loral's fixed satellite services segment grew threefold in 1998. A modest decline in manufacturing revenue resulted from the debooking of three satellites for Asian customers at the end of 1997. An increase in intercompany and affiliate eliminations resulted in reported revenues of 1.3 billion for the year.
Total EBITDA (earnings before interest, taxes, depreciation and amortization) for the operating segments rose to 265 million before development costs, corporate expenses and intercompany and affiliate eliminations, from the equivalent EBITDA in 1997 of 152 million, a year-over-year increase of 75 percent. Total development and start-up costs rose substantially in 1998 to 178 million, a 49 percent increase over 1997 spending of 120 million. Investment in CyberStar remained constant year-over-year at approximately 33 million, while costs related to the further development of Globalstar rose to 145 million from 87 million the previous year. After corporate expenses and all eliminations, EBITDA as reported was 101 million versus EBITDA as reported last year of 76 million, a 33 percent gain.
The company recorded certain non-recurring events in both 1998 and 1997 that affect its results. In the final quarter of 1997 Loral posted a gain on the sale of its interests in K& F Industries of nearly 80 million. In the third quarter of 1998 a gain of 35 million was realized on a transaction with the Soros funds. Offsetting this 1998 gain is a write-off of non-strategic investments of approximately 30 million in the fourth quarter.
As a result of the non-recurring transactions and increased development costs in 1998, the company reported a net loss of 185 million or 0.68 per share versus net income in 1997 of 14 million or 0.06 per share. Results also reflect investment in Europe*Star and data services, and an increase in depreciation, amortization and interest expense due to the Orion acquisition.
Per share calculations are based on 273.4 million weighted shares of Loral common stock in 1998 compared with 243.6 million in 1997.
Funded backlog at December 31, 1998, net of eliminations was 2.1 billion versus net funded backlog 1.6 billion at year-end 1997. Total bookings for the final quarter were 683 million and for the year totaled almost 2.0 billion, up from 1.9 in 1997.
Loral's cash balance on December 31, 1998 was approximately 620 million, including 73 million restricted to interest payments on Orion's outstanding debt. The company's total debt of approximately 1.6 billion includes almost 934 million of Orion debt, which is non-recourse to Loral.
After the close of the year, Loral successfully completed a private offering of senior notes, raising 350 million of which 150 million was used to invest in recently issued Globalstar convertible preferred stock, maintaining Loral's ownership position. The remainder will be used for general corporate purposes, including investments in its other core businesses and to pursue emerging satellite services opportunities worldwide.
Business Unit Review

Satellite Manufacturing and Technology
Strong fourth quarter revenues of 469 million at Space Systems/Loral, the company's satellite manufacturing and technology subsidiary, led to reported 1998 revenues for SS/L of approximately 1.4 billion reflecting increased sales to Globalstar and other commercial satellite customers. EBITDA for the year climbed to 107 million from 100 million in 1997. For the final quarter, EBITDA rose 62 percent to 52 million from 32 million during the fourth quarter last year. Funded backlog for SS/L at December 31, 1998, was nearly 1.4 billion net of intercompany eliminations.
SS/L's recent reliability improvement is an indication of its commitment to quality. This was validated recently by the achievement of ISO 9001 certification, a rigorous internationally accepted quality management standard. Also during the quarter, SS/L was selected by INTELSAT to build the fifth in a series of high-powered communications satellites for the international consortium.
Loral anticipates a modest improvement in annual SS/L revenues and profit in 1999. SS/L expects to ship at least eight geosynchronous (GEO) satellites and 44 low-earth-orbit (LEO) satellites for Globalstar during 1999. Consistent with the business unit's commitment to extend its competitive and technological leadership in satellite design and manufacturing, SS/L recently announced that it will offer a new satellite platform, known as the 20.20(TM), the most powerful commercial communications satellite platform ever to fly. Available for launch in 2002, the 20.20 will deliver up to 25 kW of total satellite power and carry more than 150 transponders, or the equivalent, in on-board digital signal processing power. Its modular design promotes reliability while decreasing costs and product cycle time.

Fixed Satellite Services
Loral's fixed satellite services (FSS) segment is positioned to be Loral's chief growth driver in 1999. This business unit leases transponder capacity and provides value-added services to customers for applications including the distribution of broadcast programming, news gathering, distance learning, and direct-to-home and business television. The company's FSS assets, managed by Loral Skynet, include the Telstar and Orion satellites and those in the 49%-owned SatMex network - a total of seven high-powered GEO satellites. Loral will expand it FSS geographic coverage and its capacity by adding three additional satellites to this fleet over the next seven months.
Revenues and EBITDA for the fixed satellite services segment more than tripled over the previous year. FSS revenue for 1998 (including Loral Skynet and 100 percent of SatMex for the full year plus nine months of Loral Orion's revenue from leasing) was 254 million versus 83 million last year. EBITDA on the same basis was 171 million, a margin of 67 percent, up from EBITDA of 52 million, or 62 percent of revenues, for 1997. Funded backlog in the fixed satellite services segment totaled 746 million, almost double the 396 million in backlog at year-end 1997.
In early December 1998, SatMex launched its SatMex 5 satellite, the highest-powered satellite over the Western Hemisphere with a ``footprint'' that extends from the Canadian border to Argentina, providing Spanish programming customers access to a population of 500 million Spanish-speaking people.
Also in December, Alcatel and Loral completed the formation of Europe*Star Limited, a new satellite-services company. Europe*Star adds an important European-based component to the Loral Global Alliance, the banner under which Loral has grouped and will market its capacity on the Telstar, Orion, Solidaridad and SatMex satellites. Europe*Star's initial two-satellite fleet will provide a sophisticated range of video broadcast and telecommunications services throughout Europe, the Middle East, South Africa, India and Southeast Asia beginning in mid-2000.
Value-added service offerings such as the Skynet Direct and SkyVista programs, joint efforts of Loral Skynet and direct-to-home supplier EchoStar, are gathering momentum. Several programmers have entered into long-term contracts to use the Skynet Direct platform to distribute ethnic or specialty broadcasts to targeted audiences. Subscribers to EchoStar's SkyVista distribution package on which the specialty programming is available, number approximately 7,500 now and are expected to total more than 40,000 by year end.
Loral Skynet's Telstar 6 satellite was successfully launched yesterday, February 15, aboard a Proton rocket. Telstar 7 and Orion 3 are scheduled for launch by the end of the second quarter. The projected utilization rates on the in-service dates for Telstars 6 and 7 are approximately 46 percent each and for Orion 3, 35 percent. Orion 2 is scheduled to be launched at the end of the third quarter of 1999, extending Loral's FSS fleet to 10 satellites by the end of this year.
During the fourth quarter, Loral transferred management of Loral Orion's satellite capacity leasing and engineering operations to Loral Skynet. In addition to increasing the capacity, flexibility and marketing reach of Loral's FSS offerings, the realignment permits Loral Orion to focus on and leverage its experience in the global data services market.
Data Services
In order to align all of Loral's resources and activities in the data services area, CyberStar's broadband business and Loral Orion's Internet and VSAT (very small aperture terminal) businesses have been organized under group vice president Neal Bauer, Loral Orion president. This alignment allows the business units to continue to operate independently while taking advantage of the synergies they share.
The reported results for the data services segment include Loral Orion operations related to the provision of data services, exclusive of transponder leasing, along with the results of CyberStar, the broadband data services company formed by Loral.
Revenues for the data services segment in 1998 were approximately 40 million, primarily from the corporate data networking and Internet services businesses in which Loral Orion is engaged. EBITDA before development costs was a loss of 13 million. Total development and start-up costs for CyberStar and the segment were 33 million.
In the fourth quarter, CyberStar announced the commercial availability of its broadband satellite-based business communications service. One of its first customers, National Cinema Networks, selected CyberStar to deliver in-theater media to its nationwide cinema network. CyberStar is conducting pilot programs with other enterprise customers in markets such as entertainment, finance, real estate, training, insurance and retail.
Loral Orion in December completed negotiations to license technology from The Fantastic Corporation that will enable it to provide broadband infrastructure for multicast delivery of multimedia products and services to corporations, content developers, broadcasters, Internet Service Providers (ISPs) and other enterprises that have time sensitive and complex data requirements.
Loral Orion continues to introduce new products that capitalize on the strengths satellites bring to the global Internet access market. For example, during the fourth quarter, the company rolled out its WorldCast Business Edition, which supplies high-bandwidth satellite capacity to improve businesses' access to the U.S. Internet backbone from foreign locations. Recently, Loral Orion introduced a new multicast service, called WorldCast Newsfeed, that will enable ISPs to receive high-bandwidth news from the Internet efficiently using Loral satellites, thereby minimizing terrestrial network costs.

Global Mobile Telephony
Globalstar resumed its launch campaign by lofting four Globalstar satellites aboard a Soyuz-Ikar launch vehicle on February 8, from the Baikonur Cosmodrome in Kazakhstan. For the remainder of 1999, the company's current launch plan includes 10 additional launches of four satellites each, using a mix of Delta and Soyuz rockets. According to the plan, Globalstar will deploy an operational constellation of a minimum of 32 satellites by this summer and a total of 52 satellites by year end.
The company plans to begin a regional roll-out of commercial service in the third quarter of 1999 with a minimum of eight gateways in operation and 45,000 user terminals in the distribution pipeline. By the end of 1999, Globalstar expects to have a total of at least 16 gateways in operation and 135,000 terminals available. All of the 38 gateways on order have been manufactured and are ready for installation. They are scheduled to come on stream throughout 1999.
An additional 350 million in financing was obtained by Globalstar in January 1999 through a private offering of convertible preferred stock bringing to 3.3 billion the total funds raised to date.

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Loral Reports 1998 Year-end Results