Loral Slashes Forecasts, Shares Plunge

Satellite communications firm Loral Space & Communications Ltd. on Tuesday slashed earnings and revenue expectations due to the drought in telecommunications spending, and its shares plunged by nearly 40 percent to a seven-year low.

Loral's debt also took a hammering as its bonds fell 20 cents on the dollar across the board, traders said.

The New York-based company, which sells satellites and satellite communications services, said it would not be able to achieve profitability in late 2003 as previously forecast, but dismissed analyst concerns it was headed for bankruptcy or delisting.

"We're not concerned about bankruptcy ... We're not aware of concerns about delisting," Loral Chairman and Chief Executive Bernard Schwartz told analysts on a conference call.

Although the company's share price has plunged well below the New York Stock Exchange $1 minimum trading requirement, Schwartz said the stock market also looks at sales backlog and operating and financial issues, which he said are not problems.

Loral shares were down 34 cents, or nearly 35 percent, at 64 cents on Tuesday afternoon, off an earlier low at 60 cents. Its shares have fallen by 68 percent so far this year.

The company, which has been hit hard by a slump in telecommunications and a downturn in satellite demand, did not indicate how soon it foresees profitability.

Vijay Jayant, an analyst with Morgan Stanley Dean Witter, said the company's earnings warning heightened his concerns about Loral's liquidity position.

"Managing growth and liquidity has always been my concern with Loral," Jayant said. "What happens in 2003? How are they going to run their business?"

Loral said it still expected to end the year with $80 million to $90 million in cash and available credit after capital spending of $160 million.

"All our covenants are covered," Schwartz said, in response to analyst concerns about Loral's ability to meet its debt covenants. "We don't think it will be a bumpy year (regarding) covenants ... As the economy improves, we should improve."

The company said it now expects a full-year loss of $190 million, or 50 cents a share, compared with its previous forecast of a loss of 40 cents to 50 cents. The new estimate includes a charge of 11 cents per share related to preferred securities but excludes a goodwill charge.

Loral said it expects revenue of $1.2 billion for 2002, a 15 percent increase over last year but lower than its previous forecast for a 20 percent increase.

The company blamed much of the shortfall on its Skynet satellite services business, which it said has been hurt by the economic slowdown and delay in demand for new applications and services, especially high-speed data services.

Loral still expects revenue from its satellite manufacturing business to increase 20 percent based on expectations that satellite construction will pick up later this year.

But that recovery has not yet materialized. Loral said only one order was placed across the industry for construction of a new commercial geosynchronous satellite in the last nine months, compared with a total of 25 orders during 2001.

William Kidd, an analyst with Lehman Brothers, said, "Although the manufacturing business is large, Loral's equity story is driven by the satellite services business. The fact that the Skynet guidance is so much weaker is pretty disappointing."

Loral said earnings before interest, taxes, depreciation and amortization, or EBITDA, would be down about 5 percent from 2001's $223 million, compared with previous expectations for a 15 percent increase. Analysts on average were expecting EBITDA of $271.1 million for 2002, according to research firm Multex.

Loral now expects Skynet revenue in 2002 to decline to $340 million from $389 million in 2001, contrary to expectations for single-digit growth. Skynet EBITDA is expected to decline about 15 percent from $276 million last year. (with Yukari Iwatani in Chicago)

LORAL ISSUES NEW GUIDANCE FOR 2002

NEW YORK - July 2, 2002 - Loral Space & Communications (NYSE: LOR) has revised some of its performance expectations for 2002 and issued new guidance for the year.

The continuation of the general economic slowdown, particularly in telecommunications, is affecting Loral's performance this year. Loral's operations remain healthy and EBITDA positive. They continue to generate substantial amounts of cash, but the growth expected this year in the fixed satellite services segment has not yet materialized. Consequently, the company is issuing new guidance for the year.

Current guidance for the full year is as follows:

Loral's reported revenues for the year are expected to rise to approximately $1.2 billion, a 15 percent increase over last year; previous guidance called for a 20 percent increase.

Loral's EBITDA is expected to decline approximately five percent from the $223 million reported last year; previous guidance called for a 15 percent increase.

Consistent with previous guidance, Loral continues to expect to end the year with $80 - $90 million in cash and available credit, after capital spending of $160 million ($125 million for satellite construction, $35 million for ground systems), dividend and interest payments, and an investment of $30 million in XTAR.

The net loss is expected to improve from $276 million last year to approximately $190 million this year before a previously reported first-quarter goodwill charge.

Net loss per share (excluding the goodwill write-off) is expected to be approximately $0.50 versus last year's loss of $0.86. Without an $0.11 per share non-cash accounting charge related to the preferred exchanges in the second quarter, the expected loss would have been slightly better than previous guidance of $0.40-0.50 per share.
These estimates are better than, or equal to, last year's results, reflecting an improvement in operating performance at Loral's satellite manufacturing business. Skynet's business, however, has been negatively affected by the economic climate and the delay in demand for new applications and services, especially broadband. This industry-wide trend is evidenced, for example, by the postponement of broadband projects due to lack of funding. In addition, recent events like the early-June bankruptcy filing by one of Skynet's customers, a direct-to-consumer broadband company, have adversely affected Skynet's near-term growth. The company has assessed Skynet's current book of business and does not believe that its future growth will be affected by similar defaults. Skynet is expected to maintain its share of the market this year.

These factors translate for Skynet into an expected capacity utilization rate of 60 percent at year-end 2002 versus 68 percent at the end of last year. Lease rates for new capacity have declined recently by about 10 percent. The effect on the year-end average annual revenue per transponder, however, is a slight decline from $1.6 million to $1.5 million due to Skynet's existing, contracted long-term leases. The cost of insurance - both launch and on-orbit - rose dramatically after the events of September 11 and has not returned to traditional levels as expected, adding to satellite operators' costs. Following is 2002 Skynet guidance:

Skynet revenue is expected to decline to approximately $340 million versus $389 million last year. The company had previously expected single-digit growth for this unit in 2002.

Skynet's EBITDA is expected to decline approximately 15 percent from $276 million last year. Its EBITDA margin is expected to be about 68 percent, down from 71 percent last year.

Skynet backlog at the end of the year is expected to be $1.3 billion or nearly four times revenue, compared to $1.4 billion at the end of the prior year.
With regard to the satellite manufacturing business, 2002 guidance for Space Systems/Loral is as follows:

SS/L revenue is expected to increase about 20 percent over last year's revenue of $815 million, in line with previous guidance.

SS/L EBITDA is expected to exceed $40 million, an improvement of 67 percent over last year's $24 million. SS/L has aggressively reduced costs to match the current business environment and is beginning to see benefits from improved production processes put in place last year. As a result, it expects that the year-end EBITDA margin will be an improvement over last year's performance.

SS/L is scheduled to deliver four more geosynchronous satellites (for a total of eight, an SS/L record) by the end of the year.

Across the satellite manufacturing industry worldwide, only one order for the construction of a new commercial geosynchronous satellite has been placed in the last nine months. By contrast, 25 contracts were awarded in all of 2001. A recent increase in requests for proposals (RFPs) along with recent customer activity, reaffirm Loral's confidence that orders for satellite construction will pick up in the second half and that SS/L will capture at least its market share. SS/L's year-end backlog is expected to be approximately $800 million.
Loral continues to progress but at a slower pace than expected. The company is managing its operations to match current and expected business conditions, protect its margins and preserve liquidity and financial flexibility. The current economic environment, however, would indicate a delay in Loral's ability to achieve net profit in late 2003 as previously forecast.

Loral will issue a release reporting its second quarter performance at the end of July.

Loral Space & Communications is a high technology company that concentrates primarily on satellite-based services and satellite manufacturing, including broadcast transponder leasing and value added services, domestic and international corporate data networks, broadband data transmission and Internet services.

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This document contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In addition, from time to time, Loral Space & Communications Ltd. or its representatives have made or may make forward-looking statements, orally or in writing. Such forward-looking statements may be included in, but are not limited to, various filings made by the company with the Securities and Exchange Commission, press releases or oral statements made with the approval of an authorized executive officer of the company. Actual results could differ materially from those projected or suggested in any forward-looking statements as a result of a wide variety of factors and conditions. These factors and conditions have been described in the section of the company's annual report on Form 10-K for the fiscal year ended December 31, 2001, entitled "Certain Factors That May Affect Future Results," and the company's other filings with the Securities and Exchange Commission. With regard to forward-looking statements concerning Loral Orion, Inc. and its business, financial condition, results of operations and prospects, the factors and conditions which could materially affect these statements are described in the section of Loral Orion's annual report on Form 10-K for the fiscal year ended December 31, 2001, entitled "Certain Factors That May Affect Future Results." The reader is specifically referred to these documents regarding the factors and conditions that may affect future results.

CONTACT:
Jeanette Clonan or Tony Doumlele
212/697-1105

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