Telesat reports second quarter results


	Telesat reports second quarter results Revenue grows as BCE-owned satellite operator shows continued profitability OTTAWA,July 24 2002 --Telesat Canada, a wholly-owned subsidiary of BCE Inc., released its financial results today for the six months ending June 30, 2002. The company, which owns and operates satellites serving the Americas and provides a wide range of consulting services, posted a 7% revenue increase for the first six months compared with the same period in 2001. Consolidated operating revenue increased by $3.7 million to $77.8 million for the second quarter and by $10 million to $155.0 million for the first six months of 2002, compared with the same periods last year. Telecommunications revenue for the second quarter increased $3.4 million compared to 2001, thanks to higher broadcast and VSAT sales, as well as increased South American and North-to-South revenue on the Anik F1 satellite. Earnings from operations were $22.5 million for the second quarter, a $4.7 million increase from the comparable period in 2001 due to higher revenue and lower depreciation, operations and administration expenses. Earnings from operations were $45.3 million for the first half of 2002, $12.1 million higher than the same period in 2001. Unaudited consolidated net earnings applicable to common shares reached $16.8 million for the second quarter and $29.4 million for the first six months of 2002. These figures decreased by $2.6 million and $4.3 million, respectively, compared with the same periods in 2001, as a result of higher taxes. Cash flow from operating activities for the first six months of 2002 was $56.9 million, compared with $56.8 million in 2001. Highlights of the quarter: - Telesat launched its high-speed business Internet service, offering comprehensive coverage throughout Canada and the continental U.S. The new Telesat High Speed Internet (HSi) service, offered with Spacenet Inc. -- a subsidiary of Gilat Satellite Networks Ltd. -- is a two-way satellite turnkey service ideally suited for Web-based Internet/Intranet access, supporting most data and IP multicast applications. - Construction of Telesat's Nimiq 2 direct broadcast satellite remains on target at Lockheed Martin Commercial Space Systems, with launch of the spacecraft scheduled for December. - The construction of Telesat's Anik F2 satellite is proceeding at Boeing Satellite Systems. The majority of bus and payload units have been manufactured and the satellite is being assembled prior to the start of spacecraft level tests in the 4th quarter of 2002. Anik F2 is scheduled for launch in 2003. About Telesat Telesat (www.telesat.ca) is a world leader in satellite operations and systems management. The company made history in 1972 with the launch of the first domestic commercial communications satellite in geostationary orbit. Today, Telesat competes with other top international satellite fleets in providing telecommunications and broadcasting services throughout the Americas. Telesat is a wholly-owned subsidiary of BCE Inc., one of the world's premier communications companies. << Telesat Canada Consolidated Statement of Earnings (unaudited) Three months to Six months to (in millions of dollars, June 30 June 30 except per share amounts) Notes 2002 2001 2002 2001 ----------------------------------------------------- ------------------- (1) (restated) (restated) Operating revenues (2) 77.8 74.1 155.0 145.0 ----------------------------------------------------- ------------------- Operating expenses Depreciation 23.7 24.3 47.9 45.3 Operations and administration 31.6 32.0 61.8 66.5 ----------------------------------------------------- ------------------- 55.3 56.3 109.7 111.8 ----------------------------------------------------- ------------------- Earnings from operations (2) 22.5 17.8 45.3 33.2 ----------------------------------------------------- ------------------- Other expense (income) Interest expense 7.1 8.7 14.4 18.2 Other income (11.7) (6.3) (17.4) (10.0) ----------------------------------------------------- ------------------- (4.6) 2.4 (3.0) 8.2 ----------------------------------------------------- ------------------- Earnings before income taxes 27.1 15.4 48.3 25.0 Income taxes 9.8 (4.6) 17.7 (10.0) ----------------------------------------------------- ------------------- Net earnings 17.3 20.0 30.6 35.0 Dividends on preferred shares 0.5 0.6 1.2 1.3 ----------------------------------------------------- ------------------- Net earnings applicable to common shares 16.8 19.4 29.4 33.7 ----------------------------------------------------- ------------------- ----------------------------------------------------- ------------------- Net earnings per common share 2.46 2.84 4.30 4.93 ------------------- ------------------- ------------------- ------------------- Telesat Canada Consolidated Statement of Retained Earnings (unaudited) Three months to Six months to June 30 June 30 (in millions of dollars) Notes 2002 2001 2002 2001 ----------------------------------------------------- ------------------- (1) (restated) (restated) Balance at beginning of period, as previously reported 206.5 166.3 196.9 168.6 Adjustment for change in accounting policies - - (3.0) (0.4) ----------------------------------------------------- ------------------- Balance at beginning of period, as restated 206.5 166.3 193.9 168.2 Net earnings 17.3 20.0 30.6 35.0 Dividends on common shares - (2.6) - (18.8) Dividends on preferred shares (0.5) (0.6) (1.2) (1.3) Infosat redemption of shares - (0.2) - (0.2) ----------------------------------------------------- ------------------- Balance at end of period 223.3 182.9 223.3 182.9 ----------------------------------------------------- ------------------- ----------------------------------------------------- ------------------- Telesat Canada Consolidated Balance Sheet (unaudited) December June 30 31 (in millions of dollars) Notes 2002 2001 ------------------------------------------------------------------------- (1) (restated) Assets Property, plant and equipment, net 1,226.2 1,136.6 Investments 55.2 55.2 Receivables 49.0 57.3 Other assets 68.3 53.0 Cash and cash equivalents 3.6 17.3 ------------------------------------------------------------------------- 1,402.3 1,319.4 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Shareholders' Equity and Liabilities Shareholders' equity Capital stock - common shares 111.9 111.9 Retained earnings 223.3 193.8 Cumulative translation adjustment (2.0) (0.5) ----------------------------------------------------------------------- Total common equity 333.2 305.2 Capital stock - preferred shares 50.0 50.0 ----------------------------------------------------------------------- 383.2 355.2 Bank loans 152.4 36.2 Debt financing 293.1 369.4 Future tax liabilities 77.2 70.8 Other liabilities 489.5 487.8 Bank overdraft 6.9 - ------------------------------------------------------------------------- 1,402.3 1,319.4 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Telesat Canada Consolidated Cash Flow Statement (unaudited) Three months to Six months to June 30 June 30 (in millions of dollars) Notes 2002 2001 2002 2001 ----------------------------------------------------- ------------------- (1) (restated) (restated) Cash flows from operating activities Net earnings 17.3 20.0 30.6 35.0 Items not affecting cash: Depreciation 23.7 24.3 47.9 45.3 Capitalized interest (5.8) (3.3) (12.2) (8.3) Future income taxes 4.3 (11.9) 6.4 (12.5) Other (27.5) 11.8 (15.8) (2.7) --------------------------------------------------- ------------------- 12.0 40.9 56.9 56.8 --------------------------------------------------- ------------------- Cash flows from investing activities Proceeds on disposal of assets 0.1 9.7 0.2 11.0 Proceeds on transponders 14.4 - 17.0 71.0 Satellite programs (69.9) (63.6) (137.3) (122.1) Property additions (1.7) (6.5) (5.2) (8.4) --------------------------------------------------- ------------------- (57.1) (60.4) (125.3) (48.5) ----------------------------------------------------------------------- Cash flows from financing activities Bank loans 26.2 (103.4) 116.2 (123.5) Note repayment - - (75.0) - Customer prepayments 5.5 126.5 8.9 127.5 Satellite performance incentive payments (0.3) (0.1) (0.3) (0.4) Office buildings financing (0.7) (5.5) (1.3) (6.2) Common and preferred dividends paid (0.7) (3.2) (0.7) (19.5) Sale of Infosat shares - (0.2) - (0.2) --------------------------------------------------- ------------------- 30.0 14.1 47.8 (22.3) --------------------------------------------------- ------------------- Increase (decrease) in cash and cash equivalents (15.1) (5.4) (20.6) (14.0) Cash and cash equivalents, beginning of period 11.8 3.7 17.3 12.3 ----------------------------------------------------- ------------------- Cash and cash equivalents, end of period (3.3) (1.7) (3.3) (1.7) ----------------------------------------------------- ------------------- ----------------------------------------------------- ------------------- Telesat Canada Notes to Consolidated Financial Statements (unaudited) 1. Summary of Significant Accounting Policies For a full description of the accounting policies, please refer to the 2001 Telesat Annual Report. There are two changes to these policies that have been adopted effective January 1, 2002. The amendments to the CICA Handbook section 1650, Foreign Currency Translation, eliminate the deferral and amortization of unrealized translation gains and losses on long- term monetary items, and require immediate recognition in income. The 2001 comparatives have been restated to reflect the retroactive application of the amendments. The new requirements of the CICA Handbook section 3062, Goodwill and Other Intangible Assets, replaces the amortization of these assets with a requirement for an annual impairment test. Therefore Telesat is no longer amortizing the $16.5 million of goodwill related to the Infosat Communications, Inc. acquisition in 2001. All amounts are in Canadian dollars unless otherwise indicated. 2. Segmented Information The Company's business segments have been segregated based on the way that management organizes the business for making operating decisions and assessing performance. The following summary briefly describes the operations included in each reportable segment: - Telecommunications - most activities are accounted for in this category which includes television transmit and receive services, occasional use, bundled Digital Video Compression, radio and carrier industry services, business networks (Anikom, VSAT, DirecPC) and the results from the Brazilian subsidiary. - Telecommunications - Equipment Sales - equipment sales associated with the various services outlined in the Telecommunications segment. - International and Consulting Programs - all consulting services related to space and earth segments, government studies, satellite control services, R&D projects as well as management services for TMI Communications and Company, Limited Partnership. - International and Consulting- Equipment Sales - equipment sales related to the International and Consulting Programs segment. - Infosat Communications, Inc. - national full-service provider of mobile and fixed satellite services for voice, fax, paging and data communications. - Infosat - Equipment Sales - equipment sales associated with the Infosat services. - Other - includes Telesat's investment in the Téléport de Montréal Immeuble, a real estate building in Montreal (2001 only) and operations and maintenance for Iridium TTAC stations and the related space segment. Business segments Three months to Six months to June 30 June 30 (in millions of dollars) 2002 2001 2002 2001 ------------------------------------------------- ------------------- (restated) (restated) Total revenues Telecommunications 64.5 61.1 129.0 113.2 Telecommunications - equipment sales 1.8 0.6 3.9 4.0 International and Consulting Programs 4.4 4.9 7.8 10.9 International and Consulting - equipment sales 0.4 0.9 0.8 2.5 Infosat 3.8 4.2 8.2 8.1 Infosat - equipment sales 2.1 1.4 3.8 3.8 Other 0.8 1.0 1.5 2.5 ------------------------------------------------- ------------------- 77.8 74.1 155.0 145.0 ------------------------------------------------- ------------------- ------------------------------------------------- ------------------- Earnings from operations Telecommunications 19.3 14.1 39.3 25.0 Telecommunications - equipment sales 0.3 0.3 0.7 0.5 International and Consulting Programs 1.1 1.3 1.8 3.7 International and Consulting - equipment sales - 0.1 (0.1) 0.5 Infosat 0.2 1.2 1.1 1.3 Infosat - equipment sales 1.1 0.4 1.5 1.0 Other 0.5 0.4 1.0 1.2 ------------------------------------------------- ------------------- 22.5 17.8 45.3 33.2 ------------------------------------------------- ------------------- ------------------------------------------------- ------------------- Revenues by Products and Services Broadcast Services 38.9 42.5 82.3 81.3 Business Network Services 22.7 18.3 44.7 36.8 Carrier Services 10.6 6.4 17.9 10.9 International and Consulting Services 5.6 6.9 10.1 16.0 ------------------------------------------------- ------------------- 77.8 74.1 155.0 145.0 ------------------------------------------------- ------------------- ------------------------------------------------- ------------------- >> 3. Related Party Transactions On August 3, 2000, BCE Inc. (BCE) (the ultimate parent company) advanced $1.35 billion to Telesat in the form of a Demand Loan (the "BCE Demand Loan") to acquire 1,350,000 Preferred Shares of 1431137 Ontario Inc., a wholly-owned subsidiary of BCE (the "1431137 Ontario Preferred Shares"). On March 30, 2001, 1431137 Ontario Inc. redeemed the preferred shares and by way of payment for the redemption, assigned its interest in a receivable from BCE to Telesat. Telesat then offset the receivable from BCE against the BCE Demand Loan. a) The demand loan carried interest at a rate of 7.5%, the prime lending rate of Telesat's leading bank. b) The fixed cumulative preferential dividend rate was set at a rate equal to the interest rate on the BCE Demand Loan. c) As the legal right of offset existed and it was the intention of the financing arrangement to do so, the BCE Demand Loan and the investment in the 1431137 Ontario Preferred Shares were offset on the Balance Sheet. The use of cash for the BCE Demand Loan repayment and the source of cash from the redemption of the preferred shares are presented on a net basis on the Company's Cash Flow Statement. To March 31, 2001 Telesat had received $24.4 million in dividend income from the 1431137 Ontario Preferred Shares and paid $24.4 million in interest expense on the BCE Demand Loan. These elements were treated in a manner consistent with the underlying financial instruments and were offset on the Statement of Earnings. 4. Commitments and Contingencies The outstanding commitments at June 30, 2002 on the existing contracts for the construction and launch of the Anik F2 and Nimiq 2 satellites are US $218 million ($331 million Cdn). Telesat also entered into agreements with various customers for the sale and /or lease of a number of transponders on the Anik F2 and Nimiq 2 satellites which take effect on final acceptance of the respective spacecraft. Telesat shall be responsible for operating and controlling the satellites. Deposits and accrued interest of $333 million at June 30, 2002 (December 31, 2001 - $308 million), refundable under certain circumstances, are reflected in other liabilities. One of Telesat's major customers is disputing the application of the contribution levy, a service surcharge on telecommunications revenues used to subsidize local telephone service in Canada, on certain invoices and has not paid $2.6 million. The Company is pursuing various avenues in order to enforce payment. The CRTC Order 2001-435 which denied Telesat's application for an exemption of Canadian satellite services from the levy did confirm that Telesat can recover the surcharge from its customers. In August 2001, Boeing Satellite Systems ("Boeing"), the manufacturer of the Anik F1 satellite, advised Telesat of a gradual decrease in available power on-board the satellite. Telesat's view was that the anomaly would over time require that some of Anik F1's transponders be turned off and advised its insurers of this fact. On July 19, 2002, Boeing advised Telesat that the amount of available power on- board the satellite continues to decline. The manufacturer is now postulating that the available power could decline beyond levels previously expected. Boeing is investigating the cause of the power loss but, at this time, cannot accurately quantify the eventual extent of the degradation. If the situation does not change, at current observed rates of power degradation, certain core services on the satellite could be affected starting in mid 2005. However, Telesat will immediately begin the planning required to take the appropriate action through back-up or other arrangements to provide its customers with continuous service. Telesat has insurance in place to cover such occurrences and intends to file a claim at the appropriate time. Although management believes that any claim it makes in connection with the power anomaly will be resolved successfully, there can be no assurances on the ultimate timing, amount or success of the settlement of such claim. -30- For further information: Dan Tisch, Argyle Rowland Worldwide, (416) 968-7311 ext. 223, dtisch@argylerowland.com; Ted Ignacy, Telesat Canada, (613) 748-0123

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