RADARSAT Constellation Mission
Late last Friday MacDonald, Dettwiler and Associates Ltd. (MDA) announced it had formally closed the deal to acquire Space Systems/Loral (SS/L) after it had received regulatory approval and secured the necessary financing. MDA announced in their quarterly call yesterday that on the same day of the closing it had been contacted by the Canadian government with a request for proposal for the build phase, Phase D, for the oft-delayed RADARSAT Constellation Mission.
The SS/L acquisition is being financed by a combination of cash on hand, a three-year promissory note of US$101,000,000, a new twelve-year senior secured note of US$250,000,000 with two major U.S. financial institutions, an existing senior secured note of US$100,000,000, and approximately $600,000,000 of variable rate term and revolving loans under a new four-year US$850,000,000 senior secured syndicated credit facility.
Bank of America Merrill Lynch acted as lead financial advisor to MDA in connection with the transaction. RBC Capital Markets and BMO Capital Markets also provided financial advice to MDA related to this transaction.
Loral Space & Communications Inc., the parent company of SS/L as at September 30, 2012, expects to issue its third quarter U.S. GAAP financial results on or about November 8, 2012.
With the deal being closed comes the opportunity to bid on NASA and U.S. defence-related satellite opportunities under development. And to showcase that point SS/L announced a deal earlier last week to develop affordable design concepts for next generation Protected Military Satellite Communications (MILSATCOM) for the U.S. Air Force Space and Missile Systems Center (SMC).
Unfortunately MDA was unable to answer many questions related to SS/L having only had the weekend to prepare for the conference call after the deal closed. However by law MDA has to release a Business Acquisition Report within 70 days of the acquisition being completed. The report when released will include complete financials from MDA and SS/L from the first three quarters of this year and 2011 including segmentation.
Going forward MDA sees 2/3 of its total revenue coming from the commercial side of the business after the acquisition as it relies less on Canadian government orders.
"The transaction (SS/L acquisition) also gives us critical mass in the United States, one of the worlds largest markets for our capabilities, finally opening the door for our traditional business in surveillance, intelligence and robotics" said CEO Daniel Friedmann.
With respect to to its previous on-orbit servicing initiative which had been on hold, Friedmann said that the commercial venture was still on hold as it works on the U.S. government side having recently received a DARPA Phoenix contract. With the acquisition MDA now thinks it's also positioned to "hopefully" bid on any NASA on-orbit servicing proposal. Going forward and after any potential government programs have been bid-out with winners selected Friedmann said MDA will then "relook" at the commercial prospects. he also noted that the DARPA program was also looking at the commercial side of on-orbit servicing.
With respect to the RADARSAT Constellation Mission (RCM), MDA said it had received a request for proposal last Friday and was working hard to reply within the next "5-10 days" and that it hoped it would hear back from the government within two months.
This news comes after Canadian Space Agency president Steve MacLean signaled in early October that the delayed RCM contracts would be coming soon. It appears that is the case now.
It is clear that the new MDA now has greater ability to compete globally in its areas of expertise. What is unclear is whether this translate into new jobs in Canada going forward.
MDA Reports Third Quarter 2012 Results
For continuing operations, third quarter operating earnings1 were $28 million ($0.89 per share) on revenues of $171 million. This is compared to operating earnings of $30 million ($0.73 per share) and revenues of $182 million for the third quarter of 2011. Net earnings this quarter were $41 million ($1.30 per share) compared to $41 million ($0.98 per share) for the third quarter of last year.
Funded order backlog at September 30, 2012 was $752 million (June 30, 2012 - $656 million). Orders booked during the third quarter included contracts to provide the communications payload solution for the HYLAS-3 satellite and to extend surveillance services for the Australian Defence Force. The Company continues to work on the communications payload solution for the AMOS-6 satellite under an authorization to proceed as the terms of the contract are being finalized.
1 See section "Non-IFRS Financial Measures" in this earnings release.
2 On October 4, 2011, the Company repurchased and cancelled 9,433,962 of its common shares at a price of $53 per common share under a substantial issuer bid. The shares repurchased represented approximately 22.9% of the common shares outstanding at October 4, 2011.
MDA's unaudited consolidated financial statements and management's discussion and analysis for the three and nine months ended September 30, 2012 are available at: http://www.mdacorporation.com/corporate/investor/financial_reports.cfm
MDA is a unique global communications and information company providing operational solutions to commercial and government organizations worldwide.
MDA's business is focused on markets and customers with strong repeat business potential. In addition the Company conducts a significant amount of advanced technology development.
MDA's well-established global customer base is served by more than 5,000 employees operating from 18 offices located in the United States, Canada, and internationally.
The Company's common shares trade under the symbol TSX:MDA.
Investor/Analyst Conference Call
MDA President and CEO Daniel Friedmann and Executive Vice President and CFO
Anil Wirasekara were available on a Conference Call November 5, 2012 at 2:30 p.m. Pacific (5:30 p.m. Eastern) to explain the financial results of the Company and to answer questions.
Listen to the conference call:
Related Websites: www.mdacorporation.com
Non-IFRS Financial Measures
In addition to results reported in accordance with IFRS, the Company discloses operating earnings and operating earnings per share as supplemental indicators of its financial performance. The Company defines operating earnings as net earnings excluding the after-tax effects of specified items affecting comparability, including share-based compensation, fair value adjustments on financial instruments not subject to hedge accounting, write-downs and other gains or losses. Operating earnings per share is calculated using diluted weighted average shares outstanding. The Company uses operating earnings and operating earnings per share as a more meaningful way to compare financial results from one period to another.
Operating earnings and operating earnings per share do not have any standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies. The Company cautions readers to consider these non-IFRS financial measures in addition to, and not as an alternative for, measures calculated in accordance with IFRS.