-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ezy9bwM0PIjkQWF0Mh5AswkL6bVtFbWrGE8qQJDLqiU1zgDJWEQDbOlw7ebGtW4z ywdWL1gsKUn2OClvf7OnMw== /in/edgar/work/0001005150-00-500016/0001005150-00-500016.txt : 20001115 0001005150-00-500016.hdr.sgml : 20001115 ACCESSION NUMBER: 0001005150-00-500016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LORAL CYBERSTAR INC CENTRAL INDEX KEY: 0001029850 STANDARD INDUSTRIAL CLASSIFICATION: [3663 ] IRS NUMBER: 522008654 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22085 FILM NUMBER: 765484 BUSINESS ADDRESS: STREET 1: 2440 RESEARCH BLVD STE 400 CITY: ROCKVILLE STATE: MD ZIP: 20850 BUSINESS PHONE: 3012588101 MAIL ADDRESS: STREET 1: 2440 RESEARCH BLVD STREET 2: SUITE 400 CITY: ROCKVILLE STATE: MD ZIP: 20850 FORMER COMPANY: FORMER CONFORMED NAME: LORAL ORION INC DATE OF NAME CHANGE: 19990809 FORMER COMPANY: FORMER CONFORMED NAME: ORION NETWORK SYSTEMS INC/NEW/ DATE OF NAME CHANGE: 19970404 FORMER COMPANY: FORMER CONFORMED NAME: ORION NEWCO SERVICES INC DATE OF NAME CHANGE: 19961231 10-Q 1 0001.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000 Commission file number 0-22085 ------- LORAL CYBERSTAR, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 52-1564318 - -------------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2440 Research Boulevard, Suite 400, Rockville, Maryland 20850 - ------------------------------------------------------- ----------------- (Address of principal executive offices) (Zip Code)
301-258-8101 - -------------------------------------------------------------------------------- (Registrant's telephone number including area code) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H (1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING WITH THE REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTION H (2) OF FORM 10-Q. 1 PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS LORAL CYBERSTAR, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PAR AMOUNTS)
SEPTEMBER 30, DECEMBER 31, 2000 1999 --------------- -------------- (Unaudited) Note ASSETS Current assets: Cash and cash equivalents $ 26,468 $ 24,117 Restricted and segregated cash -- 187,315 Accounts receivable, net 24,995 16,797 Prepaid expenses and other current assets 12,481 11,716 Due from Loral companies 2,000 181 --------------- -------------- Total current assets 65,944 240,126 Property and equipment, net 713,165 767,477 Costs in excess of net assets acquired 581,588 593,219 Deferred income taxes 46,865 49,223 Other assets, net 31,105 34,242 --------------- -------------- TOTAL ASSETS $ 1,438,667 $1,684,287 =============== ============== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Current portion of long-term debt $ 2,366 $ 2,071 Accounts payable 4,262 3,098 Satellite purchase price payable -- 181,928 Accrued and other current liabilities 14,153 13,995 Customer deposits 6,466 9,069 Deferred revenue 17,889 2,624 Interest payable 10,385 22,842 Note payable to Loral SpaceCom 97,491 74,114 Due to Loral companies 4,124 51,538 --------------- -------------- Total current liabilities 157,136 361,279 Long-term debt 989,151 963,299 Deferred revenue -- 5,957 Customer deposits 4,642 -- Other long-term liabilities 125 448 Due to Space Systems/Loral 5,900 5,900 Commitments and contingencies Stockholder's equity: Common stock, $.01 par value -- -- Capital in excess of par value 588,198 544,176 Unearned compensation (204) (1,804) Accumulated other comprehensive loss (1,981) (824) Accumulated deficit (304,300) (194,144) --------------- -------------- Total stockholder's equity 281,713 347,404 --------------- -------------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $1,438,667 $1,684,287 =============== ==============
- ---------------------- Note: The December 31, 1999 balance sheet has been derived from audited consolidated financial statements at that date. See notes to condensed consolidated financial statements. 2 LORAL CYBERSTAR, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------------- ---------------------------- 2000 1999 2000 1999 ----------- ------------- ------------- ---------- Revenues $ 43,517 $ 25,168 $ 126,819 $ 71,778 Operating expenses: Direct 15,250 9,900 48,507 24,097 Sales and marketing 5,416 5,581 18,311 17,798 Engineering and technical services 2,663 2,436 7,755 6,817 General and administrative 5,771 3,482 16,617 10,793 Depreciation and amortization 27,108 17,741 80,953 51,644 ----------- ------------- ------------- ---------- Total operating expenses 56,208 39,140 172,143 111,149 Loss from operations (12,691) (13,972) (45,324) (39,371) Interest income 340 2,182 3,343 4,253 Interest expense (24,754) (19,434) (72,572) (50,853) Other income 152 88 514 446 ----------- ------------- ------------- ---------- Loss before income taxes (36,953) (31,136) (114,039) (85,525) Income tax benefit (provision) 1,946 (486) 3,882 2,153 ----------- ------------- ------------- ---------- Net loss $ (35,007) $ (31,622) $(110,157) $(83,372) =========== ============= ============= ==========
See notes to condensed consolidated financial statements. 3 LORAL CYBERSTAR, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ----------------------------------- 2000 1999 --------------- -------------- OPERATING ACTIVITIES Net loss $ (110,157) $ (83,372) Non-cash items: Deferred income tax provision 2,358 3,168 Depreciation and amortization 80,953 51,644 Provision for bad debts 4,117 1,969 Non-cash interest expense 27,552 25,088 Interest earned on restricted assets (3,518) (970) Other 65 795 Changes in operating assets and liabilities: Accounts receivable 15,147 (5,164) Prepaid expenses and other current assets (765) (5,341) Other assets 43 (5,028) Accounts payable, accrued liabilities and other current liabilities 118 (2.014) Interest payable (12,457) (12,456) Customer deposits 2,040 1,984 Deferred revenue (18,214) (142) Due from Loral companies (2,000) -- Due to Loral companies (37,452) -- Due to Space Systems/Loral (9,750) -- --------------- -------------- Net cash used in operating activities (61,920) (29,839) INVESTING ACTIVITIES Increase in restricted and segregated cash (64) (1,920) Uses of and transfers from restricted and segregated cash 190,898 143,879 Property and equipment, net (190,269) (276,978) --------------- -------------- Net cash provided by (used in) investing activities 565 (135,019) FINANCING ACTIVITIES Gain on sale of orbital slots 34,260 -- Equity contributed from Loral 10,750 51,561 Increase in note payable to Loral SpaceCom 23,081 96,247 Repayment of senior notes and notes payable (1,031) (902) Payment of satellite incentive obligation (207) (181) Other (3,147) (1,208) --------------- -------------- Net cash provided by financing activities 63,706 145,517 Net increase (decrease) in cash and cash equivalents 2,351 (19,341) Cash and cash equivalents at beginning of period 24,117 35,861 --------------- -------------- Cash and cash equivalents at end of period $ 26,468 $ 16,520 =============== ==============
See notes to condensed consolidated financial statements. 4 LORAL CYBERSTAR, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE A. BASIS OF PRESENTATION ORGANIZATION AND BUSINESS The principal business of Loral CyberStar, Inc. (the "Company" or "Loral CyberStar"), formerly known as Orion Network Systems, Inc. ("Orion" or the "Predecessor Company"), and its subsidiary guarantors is providing satellite-based communications services for private communications networks and video distribution and other satellite transmission services. Loral CyberStar is organized into two distinct operating segments as follows: Fixed Satellite Services: Leasing transponder capacity and providing value-added services to customers for a wide variety of applications, including the distribution of broadcast programming, news gathering, Internet access and transmission, business television, distance learning and direct-to-home services. Loral Skynet, a division of Loral SpaceCom Corporation, which is a subsidiary of Loral Space & Communications Corporation, which is in turn a subsidiary of Loral Space & Communications Ltd. ("Loral"), manages the Company's Fixed Satellite Services ("FSS") assets. Data Services: Providing managed communications networks and Internet and intranet services, using transponder capacity primarily on the Loral Skynet and Loral CyberStar fleets. GENERAL The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules of the Securities and Exchange Commission ("SEC") and, in the opinion of the Company, include all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the results of operations, financial position and cash flows for the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to SEC rules. The Company believes that the disclosures made are adequate to keep the information presented from being misleading. The results of operations for the three and nine months ended September 30, 2000 are not necessarily indicative of the results to be expected for the full year. It is suggested that these financial statements be read in conjunction with the Company's latest Annual Report on Form 10-K. 5 LORAL CYBERSTAR, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED COMPREHENSIVE LOSS Comprehensive loss is as follows (in thousands):
NINE MONTHS ENDED SEPTEMBER 30, --------------------------------- 2000 1999 -------------- -------------- Net loss $ 110,157 $ 83,372 Cumulative translation adjustment 1,157 1,095 -------------- -------------- Comprehensive loss $ 111,314 $ 84,467 ============== ==============
NOTE B. LONG-TERM DEBT Long-term debt consists of the following (in thousands):
SEPTEMBER 30, DECEMBER 31, 2000 1999 --------------- ------------- Senior notes (including premium of $54.0 million and $58.7 million at September 30, 2000 and December 31, 1999 respectively) $ 497,005 $ 501,734 Senior discount notes (principal amount at maturity $484 million and accreted principal amount of $414 million and $378 million at September 30, 2000 and December 31, 1999, respectively) 480,690 448,408 Notes payable - TT&C Facility 2,699 3,729 Satellite incentive obligation 10,921 11,129 Other 202 370 --------------- ------------- Total debt 991,517 965,370 Less current portion (2,366) (2,071) --------------- ------------- Long-term debt $ 989,151 $ 963,299 =============== =============
In connection with the Company's merger with a subsidiary of Loral, Loral did not assume the Company's outstanding debt. Such debt remains outstanding and is non-recourse to Loral. 6 LORAL CYBERSTAR, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE C. NOTE PAYABLE TO LORAL Loral CyberStar has obtained additional financing (via an intercompany note from Loral SpaceCom) to complete the construction of its satellite fleet and meet its operating requirements. Borrowings under this note can be made for periods of 1, 2, 3 or 6 months and bear interest at LIBOR (6.72% at September 30, 2000) plus 275 basis points. The note can be prepaid at any time without penalty and is payable on demand. All borrowings under this note are subject to Loral's approval. At September 30, 2000, the outstanding amount under this note was $97.5 million (including accrued interest of $10.1 million) and is reflected on the balance sheet as a note payable to Loral SpaceCom. NOTE D. DUE (TO) FROM LORAL COMPANIES Due from Loral companies consist of the following (in thousands):
SEPTEMBER 30, DECEMBER 31, 2000 1999 ------------- ------------ Due from Space Systems/Loral $ 1,327 $ -- Due from Loral Space and Communications Corp. 608 -- Due from Loral Communications Services 65 -- Due from CyberStar L.P. -- 181 ------------- ------------ $ 2,000 $ 181 ============= ============
Due to Loral companies consist of the following (in thousands):
SEPTEMBER 30, DECEMBER 31, 2000 1999 -------------- -------------- Due to Space Systems/Loral $ -- $ 9,750 Due to Loral Skynet 4,052 41,788 Due to CyberStar L.P. 72 -- -------------- -------------- $ 4,124 $ 51,538 ============== ==============
NOTE E. INCOME TAXES The Company is included in the consolidated U.S. Federal income tax return of Loral Space & Communications Corporation. Pursuant to a tax sharing agreement for the current year with Loral Space & Communications Corporation, the Company is entitled to reimbursement for the use of its tax losses, when such losses are utilized by the consolidated group; otherwise, the Company is required to pay its separate company income tax liability to Loral Space & Communications Corporation. The Company has a net receivable under this tax sharing agreement of approximately $2.8 million and $6.4 million, and a deferred tax provision of $0.8 million and $2.4 million, resulting in a net tax benefit of $1.9 million and $3.9 million for the three and nine months ended September 30, 2000, respectively. The Company's effective tax rate of 3.4 percent for the nine months ended September 30, 2000 differs from the federal statutory rate of 35 percent primarily due to the valuation allowance established for the carryforward of the current year tax loss and the non-deductible amortization of costs in excess of net assets acquired. The deferred tax asset of $46.9 million as of September 30, 2000 on the accompanying consolidated balance sheet arises primarily from the tax effect of the temporary differences between the carrying amount of the senior notes and the senior discount notes payable for financial and income tax purposes. 7 LORAL CYBERSTAR, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE F. SEGMENTS The Company's two operating segments are Fixed Satellite Services and Data Services (see Note A). In evaluating financial performance, management uses revenues and earnings before interest, taxes and depreciation and amortization ("EBITDA") as the measure of a segment's profit or loss. Summarized financial information concerning the Company's operating segments is as follows (in millions): THREE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED)
FIXED TOTAL SATELLITE DATA REPORTABLE SERVICES SERVICES SEGMENTS ELIMINATIONS CONSOLIDATED ----------- ---------- ----------- ------------ ------------ Revenue from external customers $ 21.5 $ 22.6 $ 44.1 $ (0.6) $ 43.5 Intersegment revenue 7.6 0.6 8.2 (8.2) -- ----------- ---------- ----------- ------------ ------------ Gross revenue $ 29.1 $ 23.2 $ 52.3 $ (8.8) $ 43.5 =========== ========== =========== ============ ============ EBITDA (1) $ 22.3 $ (7.3) $ 15.0 $ (0.6) $ 14.4 Depreciation and amortization 22.5 4.6 27.1 -- 27.1 ----------- ---------- ----------- ------------ ------------ Loss from operations $ (0.2) $ (11.9) $ (12.1) $ (0.6) $ (12.7) =========== ========== =========== ============ ============ Total assets $1,359.5 $ 79.2 $ 1,438.7 $ -- $ 1,438.7 =========== ========== =========== ============ ============
THREE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) FIXED TOTAL SATELLITE DATA REPORTABLE SERVICES SERVICES SEGMENTS ELIMINATIONS CONSOLIDATED --------- --------- ---------- ------------ ------------ Revenue from external customers $ 8.1 $ 17.1 $ 25.2 $ -- $ 25.2 Intersegment revenue 1.8 -- 1.8 (1.8) -- --------- --------- ---------- ------------ ------------ Gross revenue $ 9.9 $ 17.1 $ 27.0 $ (1.8) $ 25.2 ========= ========= ========== ============ ============ EBITDA (1) $ 6.1 $ (2.4) $ 3.7 $ -- $ 3.7 Depreciation and amortization 13.7 4.0 17.7 -- 17.7 --------- --------- ---------- ------------ ------------ Loss from operations $ (7.6) $ (6.4) $ (14.0) $ -- $ (14.0) ========= ========= ========== ============ ============ Total assets $ 1,608.5 $ 71.4 $1,679.9 $ -- $1,679.9 ========= ========= ========== ============ ============
- ------------------------- (1) EBITDA (which is equivalent to operating income (loss) before depreciation and amortization, including amortization of unearned compensation) is provided because it is a measure commonly used in the communications industry to analyze companies on the basis of operating performance, leverage and liquidity and is presented to enhance the understanding of the Company's operating results. However, EBITDA should not be construed as an alternative to net income as an indicator of a company's operating performance, or cash flow from operations as a measure of a company's liquidity. EBITDA may be calculated differently and, therefore, may not be comparable to similarly titled measures reported by other companies. 8 LORAL CYBERSTAR, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NINE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED)
FIXED TOTAL SATELLITE DATA REPORTABLE SERVICES SERVICES SEGMENTS ELIMINATIONS CONSOLIDATED --------- -------- ---------- ------------ ------------ Revenue from external customers $ 57.2 $ 71.0 $ 128.2 $ (1.4) $ 126.8 Intersegment revenue 17.8 0.6 18.4 (18.4) -- --------- -------- ---------- ------------ ------------ Gross revenue $ 75.0 $ 71.6 $ 146.6 $ (19.8) $ 126.8 ========= ======== ========== ============ ============ EBITDA(1) $ 53.2 $ (16.2) $ 37.0 $ (1.4) $ 35.6 Depreciation and amortization 67.4 13.5 80.9 -- 80.9 --------- -------- ---------- ------------ ------------ Loss from operations $ (14.2) $ (29.7) $ (43.9) $ (1.4) $ (45.3) ========= ======== ========== ============ ============
NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
FIXED TOTAL SATELLITE DATA REPORTABLE SERVICES SERVICES SEGMENTS ELIMINATIONS CONSOLIDATED ---------- --------- ---------- ------------ ------------ Revenue from external customers $ 22.9 $ 48.9 $ 71.8 $ -- $ 71.8 Intersegment revenue 5.3 -- 5.3 (5.3) -- ---------- --------- ---------- ------------ ------------ Gross revenue $ 28.2 $ 48.9 $ 77.1 $ (5.3) $ 71.8 ========== ========= ========== ============ ============ EBITDA(1) $ 17.4 $ (5.1) $ 12.3 $ -- $ 12.3 Depreciation and amortization 40.6 11.0 51.6 -- 51.6 ---------- --------- ---------- ------------ ------------ Loss from operations $ (23.2) $ (16.1) $ (39.3) $ -- $ (39.3) ========== ========= ========== ============ ============
9 LORAL CYBERSTAR, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE G. COMMITMENTS AND CONTINGENCIES Telstar 11 (formerly Orion 1) -- In November 1995, a component on Telstar 11 malfunctioned, resulting in a 2-hour service interruption. The malfunctioning component supported nine transponders serving the European portion of Telstar 11's footprint. Full service was restored using a back-up component. If that back-up component fails, Telstar 11 would lose a significant amount of useable capacity. In such event, while the Company would be entitled to insurance proceeds of approximately $195 million as of September 30, 2000 and would seek to lease replacement capacity and function as a reseller with respect to such capacity, the loss of capacity would have a material adverse effect on the Company. Telstar 12 (formerly Orion 2) -- Telstar 12, a high power satellite with 38 Ku-band transponders, expands Loral CyberStar's European coverage and extends coverage to portions of the former Soviet Union, Latin America, the Middle East and South Africa. Telstar 12 was launched aboard an Ariane launch vehicle in October 1999 into 15 degrees W.L., and commenced operations in January 2000. Although Telstar 12 was originally intended to operate at 12 degrees W.L., Loral CyberStar reached an agreement with Eutelsat to operate Telstar 12 at 15 degrees W.L. while Eutelsat continued to develop its services at 12.5 degrees W.L. Eutelsat has in turn agreed not to use its 14.8 degrees W.L. orbital slot and to assert its priority rights at such location on Loral CyberStar's behalf. As part of this coordination effort, Loral CyberStar agreed to provide to Eutelsat four transponders on Telstar 12 for the life of the satellite and retained the risk of loss. Eutelsat also has the right to acquire, at cost, four transponders on the next replacement satellite for Telstar 12. As part of the international coordination process, the Company continues to conduct discussions with various administrations regarding Telstar 12's operations at 15 degrees W.L. If these discussions are not successful, Telstar 12's useable capacity may be reduced. Agreements with Loral Skynet -- Loral CyberStar and Loral Skynet have entered into agreements (the "Loral Skynet Agreements") effective January 1, 1999, whereby Loral Skynet provides to Loral CyberStar (i) marketing and sales of satellite capacity services on the Loral CyberStar satellite network and related billing and administration of customer contracts for those services (the "Sales Services") and (ii) telemetry, tracking and control services for the Loral CyberStar satellite network (the "Technical Services", and together with the Sales Services, the "Services"). Loral CyberStar is charged Loral Skynet's costs for providing these services plus a 5 percent administrative fee. Litigation -- The Company is party to various litigation arising in the normal course of its operations. In the opinion of management, the ultimate liability for these matters, if any, will not have a material adverse effect on the Company's financial position or results of operations. Based upon its current expectations for growth, Loral CyberStar anticipates it will have additional funding requirements over the next three years to fund the streaming media investment, the purchase of VSATs, senior note interest payments, other capital expenditures and other operating needs. Loral CyberStar will need to secure funding from Loral, or raise additional financing to fund these requirements. Sources of additional capital may include public or private debt, equity financings or strategic investments. To the extent that Loral CyberStar seeks to raise additional debt financing, its indentures limit the amount of such additional debt and prohibit Loral CyberStar from using Telstar 11, Telstar 10/Apstar IIR and Telstar 12 as collateral for indebtedness for money borrowed. If Loral CyberStar requires additional financing and is unable to obtain such financing from Loral or from outside sources in the amounts and at the times needed, there would be a material adverse effect on Loral CyberStar. NOTE H. SALE OF KA-BAND SLOTS On March 24, 2000, Loral CyberStar entered into an agreement with a subsidiary of Loral to assign to the Loral subsidiary, pending regulatory approval, its Ka-band orbital slots located at 89 degrees W.L., 81 degrees W.L., 78 10 LORAL CYBERSTAR, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED degrees E.L. and 47 degrees W.L. In connection with this transaction, Loral CyberStar also agreed to transfer to the Loral subsidiary all agreements, including satellite construction contracts, related to such slots. The total sale price for the slots and these agreements was $36.5 million, of which $34.5 million was received in the first quarter of 2000 and applied by Loral CyberStar towards the last installment payment on Telstar 10/Apstar IIR. The remaining $2.0 million was received in the second quarter of 2000. In connection with the sale, the Company recorded a gain of approximately $34 million. Since the sale was to a subsidiary of Loral, the gain was credited directly to equity. NOTE I. RECLASSIFICATIONS Certain prior period amounts have been reclassified to conform to the current period presentation. 11 LORAL CYBERSTAR, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS Except for the historical information contained herein, the matters discussed in this Management's Narrative Analysis of Results of Operations are not historical facts, but are 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 CyberStar, Loral or their 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 Loral CyberStar or Loral with the Securities and Exchange Commission ("SEC"), press releases or oral statements made by or with the approval of an authorized executive officer of Loral CyberStar or Loral. They can be identified by the use of forward-looking words such as "believes", "expects", "plans", "may", "will", "should" or "anticipates" or their negatives or other variations of these words or other comparable words, or by discussions of strategy that involve risks and uncertainties. The forward-looking statements are only predictions, and actual events or results could differ materially from those projected or suggested in any forward-looking statements as a result of a wide variety of factors or conditions, many of which are beyond the Company's control. Some of these factors and conditions include: (i) the Company has substantial debt; (ii) the Company's debt imposes restrictions and otherwise affects the Company's ability to undertake certain actions; (iii) the Company has funding requirements; (iv) the Company's satellites may fail prematurely; (v) the Company cannot guarantee successful coordination for its satellites; and (vi) the Company faces severe competition. For a detailed discussion of these factors and conditions, please refer to the Company's most recent Annual Report on Form 10-K filed with the SEC. GENERAL The principal business of Loral CyberStar, Inc. (the "Company" or "Loral CyberStar"), formerly known as Orion Network Systems, Inc. ("Orion" or the "Predecessor Company"), and its subsidiaries is providing satellite-based communications services for private communications networks and video distribution and other satellite transmission services. Loral CyberStar is organized into two distinct operating segments as follows: Fixed Satellite Services: Leasing transponder capacity and providing value-added services to customers for a wide variety of applications, including the distribution of broadcast programming, news gathering, Internet access and transmission, business television, distance learning and direct-to-home services. Loral Skynet, a division of Loral SpaceCom Corporation, which is a subsidiary of Loral Space & Communications Corporation, which is in turn a subsidiary of Loral Space & Communications Ltd. ("Loral"), manages the Company's Fixed Satellite Services ("FSS") assets. Data Services: Providing managed communications networks and Internet and intranet services, using transponder capacity primarily on the Loral Skynet and Loral CyberStar fleets. KA-BAND SLOTS On March 24, 2000, Loral CyberStar entered into an agreement with a subsidiary of Loral to assign to the Loral subsidiary, pending regulatory approval, its Ka-band orbital slots located at 89 degrees W.L., 81 degrees W.L., 78 degrees E.L. and 47 degrees W.L. In connection with this transaction, Loral CyberStar also agreed to transfer to the Loral subsidiary all agreements, including satellite construction contracts, related to such slots. The sale price for the slots and these agreements was $36.5 million, of which $34.5 million was received in the first quarter of 2000 and applied by Loral CyberStar towards the last installment payment on Telstar 10/Apstar IIR. The remaining $2.0 million was received in the second quarter of 2000. 12 LORAL CYBERSTAR, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS (CONTINUED) COMMITMENTS AND CONTINGENCIES Telstar 11 (formerly Orion 1) -- In November 1995, a component on Telstar 11 malfunctioned, resulting in a 2-hour service interruption. The malfunctioning component supported nine transponders serving the European portion of Telstar 11's footprint. Full service was restored using a back-up component. If that back-up component fails, Telstar 11 would lose a significant amount of useable capacity. In such event, while the Company would be entitled to insurance proceeds of approximately $195 million as of September 30, 2000 and would seek to lease replacement capacity and function as a reseller with respect to such capacity, the loss of capacity would have a material adverse effect on the Company. Telstar 12 (formerly Orion 2) -- Telstar 12, a high power satellite with 38 Ku-band transponders, expands Loral CyberStar's European coverage and extends coverage to portions of the former Soviet Union, Latin America, the Middle East and South Africa. Telstar 12 was launched aboard an Ariane launch vehicle in October 1999 into 15 degrees W.L., and commenced operations in January 2000. Although Telstar 12 was originally intended to operate at 12 degrees W.L., Loral CyberStar reached an agreement with Eutelsat to operate Telstar 12 at 15 degrees W.L. while Eutelsat continued to develop its services at 12.5 degrees W.L. Eutelsat has in turn agreed not to use its 14.8 degrees W.L. orbital slot and to assert its priority rights at such location on Loral CyberStar's behalf. As part of this coordination effort, Loral CyberStar agreed to provide to Eutelsat four transponders on Telstar 12 for the life of the satellite and retained the risk of loss. Eutelsat also has the right to acquire, at cost, four transponders on the next replacement satellite for Telstar 12. As part of the international coordination process, the Company continues to conduct discussions with various administrations regarding Telstar 12's operations at 15 degrees W.L. If these discussions are not successful, Telstar 12's useable capacity may be reduced. Agreements with Loral Skynet -- Loral CyberStar and Loral Skynet have entered into agreements (the "Loral Skynet Agreements") effective January 1, 1999, whereby Loral Skynet provides to Loral CyberStar (i) marketing and sales of satellite capacity services on the Loral CyberStar satellite network and related billing and administration of customer contracts for those services (the "Sales Services") and (ii) telemetry, tracking and control services for the Loral CyberStar satellite network (the "Technical Services", and together with the Sales Services, the "Services"). Loral CyberStar is charged Loral Skynet's costs for providing these services plus a 5 percent administrative fee. Litigation -- The Company is party to various litigation arising in the normal course of its operations. In the opinion of management, the ultimate liability for these matters, if any, will not have a material adverse effect on the Company's financial position or results of operations. Based upon its current expectations for growth, Loral CyberStar anticipates it will have additional funding requirements over the next three years to fund the streaming media investment, the purchase of VSATs, senior note interest payments, other capital expenditures and other operating needs. Loral CyberStar will need to secure funding from Loral, or raise additional financing to fund these requirements. Sources of additional capital may include public or private debt, equity financings or strategic investments. To the extent that Loral CyberStar seeks to raise additional debt financing, its indentures limit the amount of such additional debt and prohibit Loral CyberStar from using Telstar 11, Telstar 10/Apstar IIR and Telstar 12 as collateral for indebtedness for money borrowed. If Loral CyberStar requires additional financing and is unable to obtain such financing from Loral or from outside sources in the amounts and at the times needed, there would be a material adverse effect on Loral CyberStar. 13 LORAL CYBERSTAR, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS In evaluating financial performance, management uses revenues and earnings before interest, taxes, depreciation and amortization ("EBITDA") as a measure of a segment's profit or loss. See Note E to the unaudited condensed consolidated financial statements for additional information on segment results. OPERATING REVENUES (IN MILLIONS):
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------- --------------------- 2000 1999 2000 1999 ---------- ---------- --------- --------- Fixed satellite services $ 29.1 $ 9.9 $ 75.0 $ 28.2 Data services 23.2 17.1 71.6 48.9 Eliminations (8.8) (1.8) (19.8) (5.3) ---------- ---------- --------- --------- Operating revenues $ 43.5 $ 25.2 $ 126.8 $ 71.8 ========== ========== ========= =========
EBITDA(1) (IN MILLIONS):
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------- --------------------- 2000 1999 2000 1999 ---------- ---------- --------- --------- Fixed satellite services $ 22.3 $ 6.1 $ 53.2 $ 17.4 Data services (7.3) (2.4) (16.2) (5.1) Eliminations (0.6) -- (1.4) -- ---------- ---------- --------- --------- EBITDA $ 14.4 $ 3.7 $ 35.6 $ 12.3 ========== ========== ========= =========
- ----------------------------- 1 EBITDA (which is equivalent to operating income (loss) before depreciation and amortization, including amortization of unearned compensation) is provided because it is a measure commonly used in the communications industry to analyze companies on the basis of operating performance, leverage and liquidity and is presented to enhance the understanding of the Company's operating results. However, EBITDA should not be construed as an alternative to net income as an indicator of a company's operating performance, or cash flow from operations as a measure of a company's liquidity. EBITDA may be calculated differently and, therefore, may not be comparable to similarly titled measures reported by other companies. 14 LORAL CYBERSTAR, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS (CONTINUED)) Revenue and Backlog. Total revenues for the three months ended September 30, 2000 and September 30, 1999 were $43.5 million and $25.2 million, respectively. Total revenues for the nine months ended September 30, 2000 and September 30, 1999 were $126.8 million and $71.8 million, respectively. These increases are primarily attributable to improved results in the private communications network services operations, which added 236 and 216 customer sites for the three and nine months ended September 30, 2000, as compared to the same periods in 1999, the service commencement of Telstar 12 and Telstar 10/Apstar IIR after the third quarter of 1999; and an equipment sale of $3.3 million in the first quarter of 2000. At September 30, 2000, the Company had backlog (representing future revenues under contract) of approximately $1,069.8 million compared to $479.7 million at September 30, 1999. Revenue from customer contract backlog is typically earned over two to five years. Direct Expenses. Direct expenses for the three months ended September 30, 2000 and September 30,1999 were $15.3 million and $9.9 million, respectively. Direct expenses for the nine months ended September 30, 2000 and September 30, 1999 were $48.5 million and $24.1 million, respectively. These increases are primarily attributable to Internet access, satellite transponder leasing and terrestrial link charges that support the Worldcast Internet access product, increased in-orbit satellite insurance associated with Telstar 12 and Telstar 10/Apstar IIR and the cost of equipment related to an equipment sale in the first quarter of 2000. Sales and Marketing Expenses. Sales and marketing expenses for the three months ended September 30, 2000 and September 30,1999 were $5.4 million and $5.6 million, respectively. Sales and marketing expenses for the nine months ended September 30, 2000 and September 30, 1999 were $18.3 million and $17.8 million, respectively. Engineering and Technical Services Expenses. Engineering and technical services expenses for the three months ended September 30, 2000 and September 30, 1999 were $2.7 million and $2.4 million, respectively. Engineering and technical expenses for the nine months ended September 30, 2000 and September 30, 1999 were $7.8 million and $6.8 million, respectively. These increases relate to additional headcount to support the Internet services product line. General and Administrative Expenses. General and administrative expenses for the three months ended September 30, 2000 and September 30,1999 were $5.8 and $3.5 million, respectively. General and administrative expenses for the nine months ended September 30, 2000 and September 30, 1999 were $16.6 million and $10.8 million, respectively. These increases primarily relate to additional bad debt costs for the FSS segment, expenses relating to streaming media services and recruiting costs for the data services segment. Depreciation and Amortization. Depreciation and amortization expense for the three months ended September 30, 2000 and September 30, 1999 were $27.1 million and $17.7 million, respectively. Depreciation and amortization expense for the nine months ended September 30, 2000 and September 30, 1999 were $80.9 million and $51.6 million, respectively. These increases were primarily due to the acquisition of Telstar 10/Apstar IIR on September 28, 1999 and from Telstar 12 being placed in service in December 1999. Interest. Interest income for the three months ended September 30, 2000 and September 30, 1999 was $0.3 million and $2.2 million, respectively. Interest income for the nine months ended September 30, 2000 and September 30, 1999 was $3.3 million and $4.3 million, respectively. Interest expense was $24.8 million for the three months ended September 30, 2000, and $19.4 million, net of capitalized interest of $4.8 million, for the three months ended September 30, 1999. Interest expense was $72.6 million for the nine months ended September 30, 2000, and $50.9 million, net of capitalized interest of $15.9 million, for the nine months ended September 30, 1999. The increase in interest expense is primarily due to the interest expense on the intercompany debt from Loral SpaceCom and the decrease in capitalized interest in 2000. 15 LORAL CYBERSTAR, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS (CONTINUED)) Income Taxes. The Company is included in the consolidated U.S. Federal income tax return of Loral Space & Communications Corporation. Pursuant to a tax sharing agreement for the current year with Loral Space & Communications Corporation, the Company is entitled to reimbursement for the use of its tax losses, when such losses are utilized by the consolidated group; otherwise, the Company is required to pay its separate company income tax liability to Loral Space & Communications Corporation. The Company has a net receivable under this tax sharing agreement of approximately $2.8 million and $6.4 million, and a deferred tax provision of $0.8 million and $2.4 million, resulting in a net tax benefit of $1.9 million and $3.9 million for the three and nine months ended September 30, 2000, respectively. The Company's effective tax rate of 3.4 percent for the nine months ended September 30, 2000 differs from the federal statutory rate of 35 percent primarily due to the valuation allowance established for the carryforward of the current year tax loss and the non-deductible amortization of costs in excess of net assets acquired. The deferred tax asset of $46.9 million as of September 30, 2000 on the accompanying consolidated balance sheet arises primarily from the tax effect of the temporary differences between the carrying amount of the senior notes and the senior discount notes payable for financial and income tax purposes. Net Loss. As a result of the above, the Company incurred net losses of $35.0 million and $31.6 million for the three months ended September 30, 2000 and 1999, respectively. Net losses for the nine months ended September 30, 2000 and 1999 were $110.2 million and $83.4 million, respectively. RESULTS BY OPERATING SEGMENT Fixed Satellite Service FSS revenue for the three months ended September 30, 2000 was $29.1 million versus $9.9 million for the three months ended September 30, 1999. FSS revenue for the nine months ended September 30, 2000 was $75.0 million versus $28.2 million for the nine months ended September 30, 1999. EBITDA for the three months ended September 30, 2000 was $22.3 million, or 77 percent of revenues, versus $6.1 million, or 62 percent of revenues, for the three months ended September 30, 1999. EBITDA for the nine months ended September 30, 2000 was $53.2 million, or 71 percent of revenues, versus $17.4 million or 62 percent of revenues, for the nine months ended September 30, 1999. These increases were due in part to the faster than expected loading of Telstar 12 and Telstar 10/Apstar IIR after the third quarter of 1999 and the intercompany leasing charges to data services for capacity. Data Services Revenues for the Data Services segment for the three months ended September 30, 2000 was $23.2 million versus $17.1 million for the three months ended September 30, 1999. Data Services revenues for the nine months ended September 30, 2000 and 1999 were $71.6 million and $48.9 million, respectively. These increases were mainly due to the added customer sites in 2000, as compared to 1999. EBITDA for the three months ended September 30, 2000 was a loss of $7.3 million versus a loss of $2.4 million for the three months ended September 30, 1999. EBITDA for the nine months ended September 30, 2000 was a loss of approximately $16.2 million versus a loss of $5.1 million for the nine months ended September 30, 1999. The increases in EBITDA losses in 2000 were primarily due to the increased direct costs from both third party and intercompany leasing activities incurred in connection with the expansion of the business. OTHER MATTERS Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement No. 133 Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"), which requires that all derivative instruments be recorded on 16 LORAL CYBERSTAR, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS (CONTINUED)) the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. The Company has not yet completed its review of the impact that the adoption of SFAS 133 will have, however, based on its evaluation to date, the Company does not believe that it will have a significant effect on its earnings or financial position. The Company is required to adopt SFAS 133 on January 1, 2001. 17 LORAL CYBERSTAR, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 27 Financial Data Schedule (b) Reports on Form 8-K: None. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LORAL CYBERSTAR, INC. --------------------- Registrant Date: November 13, 2000 /s/ RICHARD J. TOWNSEND ------------------------------------- Richard J. Townsend Senior Vice President and Chief Financial Officer (Principal Financial Officer and Registrant's Authorized Officer) 18 EX-27 2 0002.txt EXHIBIT 27
5 0001029850 LORAL CYBERSTAR, INC. 1,000 US DOLLAR 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 1 26,468 0 30,911 5,916 0 65,944 864,839 (151,674) 1,438,667 157,136 989,151 0 0 0 281,713 1,438,667 0 126,819 0 172,143 (514) 0 69,229 (114,039) (3,882) (110,157) 0 0 0 (110,157) 0 0
-----END PRIVACY-ENHANCED MESSAGE-----