BOWNE INTEGRATED TYPESETTING SYSTEM
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Table of Contents
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UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
(cid:0)
(cid:2)
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-14180
LORAL SPACE & COMMUNICATIONS INC.
(Exact name of registrant specified in the charter)
Jurisdiction of incorporation: Delaware
IRS identification number: 87-0748324
600 Third Avenue
New York, New York 10016
(Address of principal executive offices)
Telephone: (212) 697-1105
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common stock, $.01 par value
NASDAQ
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark if the registrant is well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
(cid:0)
(cid:2)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
(cid:0)
(cid:2)
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. Yes
No
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
No
(cid:2)
(cid:0)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. Yes
No
(cid:2)
(cid:0)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
(cid:2)
Accelerated filer
(cid:0)
Non-accelerated filer
(cid:2)
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2 of the Act). Yes
(cid:2)
(cid:0)
No
At March 1, 2007, 20,063,325 common shares of the registrant were outstanding.
As of June 30, 2006, the aggregate market value of the common stock, the only voting stock of the registrant currently issued and
outstanding, held by non-affiliates of the registrant, was approximately $362,535,000
Indicate by a check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the
(cid:0)
(cid:2)
Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes
No
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Phone: (212)924-5500
BNY
002.00.00.00
*Y31806/002/2*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 2
Site: BOWNE OF NEW YORK
[A/E]
CRC: 58013
EDGAR 2
Table of Contents
Item 1. Business
Overview
PART I
THE COMPANY
Loral Space & Communications Inc. (“New Loral”) together with its subsidiaries is a leading satellite
communications company with substantial activities in satellite manufacturing and satellite-based communications
services. New Loral, a Delaware corporation, was formed on June 24, 2005, to succeed to the business conducted by
its predecessor registrant, Loral Space & Communications Ltd. (“Old Loral”), which emerged from chapter 11 of the
federal bankruptcy laws on November 21, 2005 (the “Effective Date”).
We adopted fresh start accounting as of October 1, 2005, in accordance with Statement of Position No. 90-7,
Financial Reporting of Entities in Reorganization Under the Bankruptcy Code (“SOP 90-7”). Accordingly, our
financial information disclosed under the heading “Successor Registrant” for the periods ended and as of
December 31, 2005 and 2006, respectively, is presented on a basis different from, and is therefore not comparable to,
our financial information disclosed under the heading “Predecessor Registrant” for the period ended and as of
October 1, 2005 (the date we adopted fresh-start accounting) or for prior periods.
The terms “Loral,” the “Company,” “we,” “our” and “us” when used in this report with respect to the period
prior to our emergence, are references to Old Loral, and when used with respect to the period commencing after our
emergence, are references to New Loral. These references include the subsidiaries of Old Loral or New Loral, as the
case may be, unless otherwise indicated or the context otherwise requires.
Loral is organized into two operating segments:
Satellite Manufacturing: Our subsidiary, Space Systems/Loral, Inc. (“SS/L”), designs and manufactures
satellites, space systems and space system components for commercial and government customers whose
applications include fixed satellite services (“FSS”), direct-to-home (“DTH”) broadcasting, mobile satellite services
(“MSS”), broadband data distribution, wireless telephony, digital radio, digital mobile broadcasting, military
communications, weather monitoring and air traffic management.
Satellite Services: Our subsidiary, Loral Skynet Corporation (“Loral Skynet”), operates a global fixed satellite
services business. Loral Skynet leases transponder capacity to commercial and governmental customers for video
distribution and broadcasting, high-speed data distribution, Internet access and communications, as well as provides
managed network services to customers using a hybrid satellite and ground-based system. Loral Skynet has four in-
orbit satellites and has one satellite under construction at SS/L. It also provides professional services to other satellite
operators such as fleet operating services.
Recent Developments
Telesat Canada Acquisition
On December 16, 2006, a joint venture company (“Acquireco”) formed by Loral and its Canadian partner, the
Public Sector Pension Investment Board (“PSP”), entered into a definitive agreement with BCE Inc. to acquire 100%
of the stock of Telesat Canada and certain other assets from BCE Inc. for CAD 3.25 billion (approximately
$2.79 billion based on an exchange rate of $1.00/ CAD 1.1652), which purchase price is not subject to adjustment for
Telesat Canada’s performance during the pre-closing period. Under the terms of this purchase agreement, the
economic value of Telesat Canada’s business is, subject to certain exceptions, being operated for Acquireco’s benefit
beginning from December 16, 2006. Telesat Canada is the leading satellite services provider in Canada and earns its
revenues principally through the provision of broadcast and business network services over seven in-orbit satellites.
This transaction is subject to various closing conditions, including approvals of the relevant Canadian and
U.S. government authorities, and is expected to close in mid-2007. Loral and PSP have agreed to guarantee 64% and
36%, respectively, of Acquireco’s obligations under the Telesat share purchase agreement, up to CAD 200 million.
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 3
Site: BOWNE OF NEW YORK
[A/E]
CRC: 33180
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Table of Contents
Phone: (212)924-5500
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At the time of, or following the Telesat acquisition, substantially all of Loral Skynet’s assets and related
liabilities will be transferred to a subsidiary of Acquireco at an agreed upon enterprise valuation, subject to
downward adjustment under certain circumstances (the “Skynet Transaction”). This subsidiary will be combined
with Telesat Canada and the resulting new entity (“New Telesat”) will be a Canadian company that will be
headquartered in Ottawa. Following the completion of the Skynet Transaction, New Telesat will be the world’s
fourth largest operator of telecommunications satellites, with a combined fleet of eleven in-orbit satellites and four
additional satellites to be placed in service over the next four years. New Telesat will feature a management team to
be drawn from both Telesat Canada and Loral Skynet.
This combined Telesat-Loral Skynet company will offer its customers expanded satellite and terrestrial coverage
and continue to offer superior customer service. Loral Skynet’s satellite fleet provides an array of video and data
services primarily outside of North America, and will complement Telesat Canada’s North American fleet, which
hosts video and data distribution services across North America, as well as serving as the platform for Canada’s two
premier direct-to-home video services.
We and PSP have arranged for the parent company of Acquireco (“Holdings”) to obtain $3.1 billion of
committed debt financing from a group of financial institutions, of which up to approximately $2.8 billion is
available to fund the purchase price of the Telesat acquisition. PSP has agreed to contribute approximately CAD
595.8 million in cash to Holdings, of which $150 million (or CAD 174.8 million based on an exchange rate of
$1.00/CAD 1.1652) will be for the purchase of a Holdings fixed rate senior non-convertible mandatorily redeemable
preferred stock. In addition to Loral’s agreement to transfer the Loral Skynet assets to New Telesat, Loral will have
net cash funding requirements in connection with the transaction, which, had the Telesat acquisition and the Skynet
Transaction occurred on December 31, 2006, would have amounted to approximately $207 million. Loral Skynet’s
existing 12% preferred stock and 14% senior notes will be redeemed in connection with the Skynet Transaction. To
the extent necessary, there will be an appropriate cash true-up at closing between us, PSP and New Telesat to reflect
the amount of our relative contributions, after giving effect to, among other things, the exchange rate then in effect,
gains and/or losses on hedging transactions, the spending on Telstar 11N, and in the event of a material adverse
change to Loral Skynet’s business during the interim period, the resulting diminution in the agreed upon value of
Loral Skynet.
Upon the closings of the Telesat acquisition and the Skynet Transaction, which closings we currently expect to
occur simultaneously, we would hold equity interests in Holdings, the ultimate parent company of New Telesat,
effectively representing 64% of the economic interests and 331/3% of the voting power of New Telesat. PSP would in
turn acquire the preferred stock described above, and equity interests effectively representing 36% of the economic
interest, and together with two other Canadian investors, 662/3% of the voting power, of New Telesat.
For further discussions on Telesat Canada and the related transactions, and Loral’s obligations in respect thereof,
including in the case where the Telesat acquisition and the Skynet Transaction do not close simultaneously, see
“Segment Overview — Telesat Canada”, “Management’s Discussion and Analysis of Financial Condition and
Results of Operations — The Telesat Canada Transaction” and “Risk Factors — Financial and Telesat Transaction
Risk Factors.”
Preferred Stock Financing
On February 27, 2007, Loral completed a $300 million preferred stock financing pursuant to the securities
purchase agreement (“Securities Purchase Agreement”) entered into with MHR Fund Management LLC (“MHR”) on
October 17, 2006. Loral sold 136,526 shares of its 7.5% Series A-1 perpetual preferred stock (the “Series A-1
Preferred Stock”) and 858,486 shares of its 7.5% Series B-1 perpetual preferred stock (the “Series B-1 Preferred
Stock” and together with the Series A-1 Preferred Stock, the “Loral Series-1 Preferred Stock”) at a purchase price of
$301.504 per share to various funds affiliated with MHR. Each share of the Series A-1 Preferred Stock is convertible,
at the option of the holder, into ten shares of Loral common stock at an initial conversion price of $30.1504 per share.
Following shareholder approval of the creation of a new class of Class B-1 non-voting common stock, each share of
the Series B-1 Preferred Stock will be convertible, at the option of the holder, into ten shares of this Class B-1 non-
voting common stock at an initial conversion price of $30.1504 per share. Under certain circumstances, the
Series B-1 Preferred Stock and the Class B-1 non-voting common stock may also be converted
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 4
Site: BOWNE OF NEW YORK
[A/E]
CRC: 57071
EDGAR 2
Table of Contents
Phone: (212)924-5500
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by the holder into Loral common stock, in the case of the Series B-1 Preferred Stock at the same conversion price,
and in the case of the Class B-1 non-voting common stock, on a share for share basis. The initial conversion price
reflects a premium of 12% to the closing price of Loral’s common stock on the day before the Securities Purchase
Agreement was entered into. Pursuant to the terms of this financing, MHR has the right to nominate one additional
member to the Loral board. Loral plans to use the proceeds from this financing, together with its existing resources,
to pursue both internal and external growth opportunities in the satellite communications industry and strategic
transactions or alliances, including completion of the Telesat acquisition. See Notes 15 and 23 to the consolidated
financial statements.
Reorganization
On July 15, 2003, Old Loral and certain of its subsidiaries (the “Debtor Subsidiaries” and collectively with Old
Loral, the “Debtors”), including Loral Space & Communications Holdings Corporation (formerly known as Loral
Space & Communications Corporation), Loral SpaceCom Corporation (“Loral SpaceCom”), SS/L and Loral Orion,
Inc. (now known as Loral Skynet Corporation), filed voluntary petitions for reorganization under chapter 11 of
title 11 (“Chapter 11”) of the United States Code (the “Bankruptcy Code”) in the U.S. Bankruptcy Court for the
Southern District of New York (the “Bankruptcy Court”) (Lead Case No. 03-41710 (RDD), Case Nos. 03-41709
(RDD) through 03-41728 (RDD)) (the “Chapter 11 Cases”). Also on July 15, 2003, Old Loral and one of its
Bermuda subsidiaries (the “Bermuda Group”) filed parallel insolvency proceedings in the Supreme Court of
Bermuda (the “Bermuda Court”), and, on that date, the Bermuda Court entered an order appointing certain partners
of KPMG as Joint Provisional Liquidators (“JPLs”) in respect of the Bermuda Group.
The Debtors emerged from Chapter 11 on November 21, 2005 pursuant to the terms of their fourth amended
joint plan of reorganization, as modified (the “Plan of Reorganization”). The Plan of Reorganization had previously
been confirmed by order (the “Confirmation Order”) of the Bankruptcy Court entered on August 1, 2005. Pursuant to
the Plan of Reorganization, among other things, the business and operations of Old Loral were transferred to New
Loral, and Loral Skynet and SS/L emerged intact as separate subsidiaries of reorganized Loral (see Notes 2 and 3 to
the consolidated financial statements).
Certain appeals (the “Appeals”) filed by Old Loral shareholders acting on behalf of the self-styled Loral
Stockholders Protective Committee (“LSPC”) seeking, among other things, to revoke the Confirmation Order and to
rescind the approval of the Federal Communications Commission (“FCC”) of the transfer of our FCC licenses from
Old Loral to New Loral remain outstanding. We believe that these Appeals are completely without merit and will not
have any effect on the completed reorganization (see Note 19 to the consolidated financial statements).
Segment Overview
Satellite Manufacturing Operations
For more than 40 years, SS/L has been designing, manufacturing and integrating satellites and space systems for
a wide variety of commercial and government customers. Our products include high-powered satellites designed for
applications such as direct-to-home television, weather monitoring, digital audio radio service, mobile telephony and
spot-beam satellites for data networking applications. SS/L customers include such satellite service providers and
government organizations as APT Satellite, AsiaSat, DIRECTV, EchoStar, Hisdesat, ICO Satellite Management,
Intelsat, Japan’s Ministry of Transport and Civil Aviation Bureau, Loral Skynet, the National Oceanic &
Atmospheric Administration (NOAA) of the U.S. Department of Commerce, Optus (SingTel), PanAmSat, Shin
Satellite, Sirius Satellite Radio, Telesat Canada, TerreStar Networks, XTAR and XM Satellite Radio. Since its
inception, SS/L has delivered more than 220 satellites, which together have achieved more than 1,300 years of
cumulative on-orbit service; many of these satellites significantly exceeded design life expectations. SS/L’s broad
product line meets the vast majority of customer requirements for satellites with up to 25 kilowatts of power. The
capacity offered on these satellites ranges from one to as many as 150 transponders. According to Futron, global
satellite manufacturing revenue was $7.8 billion in 2005 of which $2.3 billion was for commercial satellites.
SS/L has a history of technical innovation that includes the first three-axis spin stabilized satellite, which has
since become an industry standard for large communications satellites. In addition, SS/L has pioneered research in
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 5
Site: BOWNE OF NEW YORK
[A/E]
CRC: 50875
EDGAR 2
Phone: (212)924-5500
BNY
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Table of Contents
electric propulsion systems, lithium-ion power systems and the use of advanced composites on commercial satellites,
which permit significant increases in the size and power of a satellite’s payload and extend the satellite’s on-orbit
lifetime. SS/L is an industry leader in developing new service-enhancing technologies such as super power systems
for direct-to-user applications and ground-based beam forming, a technology that uses both satellite and terrestrial
assets to provide mobile users with increased coverage and capacity capabilities.
Market and Competition
SS/L competes in the highly competitive commercial satellite manufacturing industry principally on the basis of
superior customer value, technical excellence, reliability and pricing with such manufacturers as Boeing, Lockheed
Martin, Alcatel Alenia Space, EADS Astrium, Orbital Sciences and Mitsubishi Electric Corp. SS/L’s continued
success depends on its ability to provide highly reliable satellites on a cost-effective and timely basis. The number of
satellite manufacturing contracts awarded varies annually and is difficult to predict. After a period of nearly two
years without being awarded a new satellite construction contract, SS/L received orders for the construction or
completion of 16 satellites between October 2004 and December 2006.
Satellite Manufacturing Performance
Successor Registrant
Predecessor Registrant
For the Year
Ended
December 31,
2006
For the Period
October 2,
For the Period
January 1,
2005 to
2005 to
December 31,
October 1,
2005
2005
For the Year
Ended
December 31,
2004
Total segment revenues
Eliminations
Revenues from satellite manufacturing as reported
Segment Adjusted EBITDA before eliminations(1)
$
$
$
697 $
(60 )
637 $
66 $
(in millions)
162 $
(1 )
161 $
12 $
330 $
(11 )
319 $
15 $
437
(137 )
300
(14 )
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1
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1
(1) See Consolidated Operating Results in Management’s Discussion and Analysis of Financial Condition and Results of Operations for significant
items that affect comparability between the periods presented (see Note 20 to the consolidated financial statements for the definition of
Adjusted EBITDA).
Total SS/L assets were $945 million and $872 million as of December 31, 2006 and 2005, respectively. Backlog
at December 31, 2006 was $1.1 billion. This includes $118 million of backlog for the construction of Nimiq 5 for
Telesat Canada and intercompany backlog of $116 million, primarily for the construction of Telstar 11N for Loral
Skynet. Backlog at December 31, 2005 was $815 million, including intercompany backlog of $0.3 million.
Satellite Services Operations
Through Loral Skynet, which owns and operates our Satellite Services business, we are a global satellite
operator, providing our customers with a wide range of video and data transmission services. Our four globally-
positioned satellites operate in geosynchronous earth orbit approximately 22,000 miles above the equator. In this
orbit, satellites remain in a fixed position relative to points on the earth’s surface. They provide reliable, high-
bandwidth services anywhere in their coverage areas and serve as the backbone for many forms of
telecommunications. Our satellites operate in the C-band and Ku-band frequencies, and our affiliate XTAR operates
in X-band. According to Euroconsult, the global FSS industry generated revenues of approximately $7.6 billion in
2005.
Transponder Leasing
We lease C- and Ku-band transponder capacity on our international satellite fleet to a variety of customers,
including television broadcasters, cable programmers, direct-to-home (DTH) service providers, Internet service
providers (ISPs), telecommunications carriers, corporations and government agencies. These customers include
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 6
Site: BOWNE OF NEW YORK
[A/E]
CRC: 44689
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Table of Contents
Phone: (212)924-5500
BNY
006.00.00.00
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Y31806
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Date: 15-MAR-2007 18:01:35.60
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some of the world’s largest video and data service providers, including HBO, Disney, Cable & Wireless, Singapore
Telecom (SingTel), MCI, Global Crossing, BT North America, Globecomm Systems, UPC and China Central
Television (CCTV).
Network Services
We also provide our customers with access services and transmission platforms that enable rapid and reliable
networking solutions. Our hybrid satellite and ground-based network services capabilities allow our customers to
address their communications requirements quickly and easily through a combination of applications that include
broadband transport, bandwidth-on-demand, broadcast SCPC (single channel per carrier) platforms and teleport
services. In addition, Loral Skynet offers its customers SkyReachSM, a group of IP (Internet Protocol)-based network
services that provide enterprise-level customers with access to regional and global private networking and public
Internet services, including broadband WAN (wide area network) extension for terrestrial providers, Internet access
for ISPs (Internet Service Providers), voice over IP (VoIP) and managed data services. Loral Skynet provides its
SkyReach services through IP hubs at facilities in North America, Europe and Asia, each with access to major
satellite and terrestrial communications networks.
Loral Skynet’s network services are provided through an integrated satellite and fiber network that interconnects
terrestrially with customer networks through points of presence (POPs) in San Jose, California; Ashburn, Virginia;
New York, New York; and London, England and interconnects via satellite and VSAT (very small aperture
terminals) services through teleports in Mount Jackson, Virginia; Aflenz, Austria; Hong Kong; Kapolei, Hawaii; and
London, England.
Professional Services
Our team of world-class network architects, engineers, program managers and satellite operations professionals,
provides customized services tailored to unique customer requirements for deploying satellites and network services,
including providing other satellite operators with spacecraft operational services (TT&C), satellite construction
oversight services, network architecture design, regulatory management including orbital slot acquisition, and the
coordination and customization of distribution solutions.
Market and Competition
Loral Skynet operates in a highly competitive market with larger, well-established satellite service companies
including Intelsat, SES Global and Eutelsat, as well as regional operators such as APT Satellite Company Limited
(“APT”), AsiaSat, Satelites Mexicanos, S.A. de C.V., Star-One, ShinSat, Optus and MEASAT. Following the
completion of the Skynet Transaction and the acquisition of Telesat Canada, New Telesat will be the fourth largest
satellite service operator in the world with a strong North American presence. In our network services business, we
compete with companies such as Hughes Network Systems, Gilat and Globecomm. While we also compete with
fiber optic cable and other terrestrial delivery systems, primarily for point-to-point applications, Loral Skynet has
been able to combine the inherent advantages of each technology to provide its customers with complete end-to-end
services. Since FSS satellites remain in a fixed point above the earth and can provide service to broad geographic
regions, they are considerably more efficient than terrestrial systems for certain applications, such as broadcast or
point-to-multipoint transmission of video and broadband data. A satellite offers instant infrastructure. It can cover
large geographic areas, sometimes entire hemispheres, and can not only deliver services to populated areas, but also
can better serve areas with inadequate terrestrial infrastructures, low-density populations or difficult geographic
terrain.
Competition in the satellite services market has historically been intense in recent years due to a number of
factors, including transponder over-capacity in certain geographic regions and increased competition from fiber. This
competition has put pressure on prices, depending on market conditions in various geographic regions and frequency
bands. A stronger economy and an increase in capital available for expanded consumer and enterprise-level services
have more recently led to an improvement in demand in certain markets. Much of Loral Skynet’s currently unleased
capacity, however, is over geographic regions where the market is characterized by excess
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
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Site: BOWNE OF NEW YORK
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Table of Contents
Phone: (212)924-5500
BNY
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capacity, coupled with weak demand, or where regulatory obstacles are such that we find ourselves at a competitive
disadvantage as compared to local operators.
Satellite Fleet & Ground Resources
Loral Skynet’s satellite fleet currently consists of four satellites in orbit, as well as leased capacity on other
satellite operators’ spacecraft. In addition, we lease fiber capacity around the world for use in developing hybrid
terrestrial/satellite data networks for our network services customers.
Our ground facilities are located around the world, providing both control services to our satellite fleet, as well
as to the satellites of other operators as part of our professional services offerings. We own two primary control
centers located in Hawley, Pa. and Mt. Jackson, Va. and lease a teleport in Kapolei, Hawaii. In addition, we lease
three other technical facilities that provide our customers with a host of teleport and hub services.
The following chart provides details on Loral Skynet’s in-orbit satellites and satellites under construction(1).
Satellite
Telstar 10/Apstar IIR(3)
Location
76.5º E.L.
Telstar 12
15º W.L.
Telstar 14/Estrela do Sul-1(4)
63º W.L.
36 MHz Equivalent
Available Transponders(2)
Ku-band
C-band
26.8
14.5
0
0
51
26.6
Telstar 18(5)
138º E.L.
15.2
5.6
Telstar 11N(6)
37.5º W.L
0
58.5
Actual
or Planned
In Service
Date
Planned
End of
Life(2)
Satellite
Model
12/1997
9/2012
SS/L 1300
12/1999
9/2016
SS/L 1300
4/2004
7/2010
SS/L 1300
8/2004
11/2018
SS/L 1300
Late 2008
Estimate
2026 Estimate
SS/L 1300
Geographic
Coverage
Asia and portions of
Europe, portions of
Africa and Australia
Eastern U.S., SE
Canada, Europe, Russia,
Middle East, North
Africa, portions of South
and Central America
Brazil and portions of
Latin America,
North America, Atlantic
Ocean
India, South East Asia,
China, Australia and
Hawaii
North and Central
America, Europe, Africa
and the maritime
Atlantic Ocean region
(1) In addition, we lease a total of 17.4 36 MHz equivalent transponders from other satellite operators in regions where we currently do not
have our own assets.
(2) Our satellite fleet has experienced anomalies and malfunctions as further described in Note 19 to the consolidated financial statements. The
number of available transponders and expected end of life shown in this table reflects our estimate of the effect of such anomalies on each
affected satellite’s capacity and useful life.
(3) Loral Skynet has a fully-paid-up leasehold interest in this satellite through the end of the satellite’s life from APT.
(4) Estrela do Sul-1 was launched in January 2004 and did not fully deploy one of its solar arrays, which resulted in a substantial loss of the
satellite’s available transponder capacity and reduced its expected life to 2010. See Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
(5) Telstar 18 went into commercial service in August 2004. This satellite carries additional transponders, not shown on the table, that APT
acquired in 2004 in return for funding a portion of the satellite’s cost. This transponder sale was accounted for as a sales-type lease,
because substantially all of the benefits and risks incident to the ownership of the leased property were transferred to the lessee. Loral will
re-acquire four additional transponders from APT in 2008 for $18.1 million and two additional transponders for $9.1 million in 2009.
(6) This satellite is under construction at SS/L and is a replacement satellite to Loral Skynet’s Telstar 11, which is currently operating in
inclined orbit and generating minimal revenues.
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Phone: (212)924-5500
BNY
008.00.00.00
*Y31806/008/5*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
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BOWNE INTEGRATED TYPESETTING SYSTEM
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Table of Contents
Satellite Services Performance
Successor Registrant
Predecessor Registrant
For the Year
Ended
December 31,
2006
For the Period
October 2,
2005 to
For the Period
January 1,
2005 to
December 31,
October 1,
2005
2005
For the Year
Ended
December 31,
2004
Satellite services revenues
Satellite services sales-type lease arrangement(1)
Total segment revenues
Eliminations
Revenues from satellite services as reported
$
Segment Adjusted EBITDA before eliminations(2) $
$
164 $
—
164
(3 )
161 $
68 $
(in millions)
37 $
—
37
(1 )
36 $
12 $
115 $
—
115
(4 )
111 $
40 $
141
87
228
(5 )
223
23
(1) See Note 8 to the consolidated financial statements.
(2) See Management’s Discussion and Analysis of Financial Condition and Results of Operations for significant items that affect
comparability between the periods presented (see Note 20 to the consolidated financial statements for the definition of Adjusted EBITDA).
Total satellite services assets were $750 million and $741 million as of December 31, 2006 and 2005,
respectively. As of December 31, 2006 and 2005, backlog was $355 million and $453 million, respectively,
including intercompany backlog, representing business arrangements between SS/L and Loral Skynet, of $10 million
and $20 million, respectively.
Telesat Canada
Telesat Canada, the leading satellite services provider in Canada, currently has a fleet of seven in-orbit satellites
occupying prime orbital slots comprised of five owned-and-operated satellites and two leased-and-operated satellites.
In addition, Telesat Canada has three additional satellites under construction that are currently expected to be placed
in service in 2007 to 2010. Telesat Canada earns the majority of its revenues by providing video and data services
using its satellite transponder capacity. It also earns revenue by providing end-to-end communication network
services in Canada and the United States, as well as providing consulting services in the field of satellite
communications. Its largest customer grouping in terms of revenue is DTH service providers in both Canada (Bell
Express Vu and Star Choice) and the United States (EchoStar). Other significant customers include WildBlue
Communications, Canadian Broadcasting Corporation, Lockheed Martin, Bell Canada, NorthwesTel, Government of
Canada and XM Satellite Radio as well as a number of Fortune 500 companies.
Telesat Canada owns and operates an extensive ground infrastructure across Canada and the United States,
including a primary satellite control center in Ottawa, Ontario, its main earth station and back-up facility in Allan
Park, Ontario, six teleports in Canada, one teleport in the United States, one teleport in Brazil, and a tracking,
telemetry and command facility in Perth, Australia.
Upon closing of the Telesat acquisition and the Skynet Transaction, Loral and PSP will hold a 64% and 36%
economic interest, respectively, in Holdings, the ultimate parent company of New Telesat. Consistent with Canadian
law, Loral’s total voting power will be 331/3%, with PSP and other Canadian investors having 662/3% of the voting
power of Holdings.
Telesat Canada provides satellite capacity to customers under long-term contracts, often entered into before the
satellite is launched, and extending through the satellite’s life. Payment terms vary, but generally include payments
due as services are rendered, as well as amounts payable prior to launch as customer prepayments. These customer
prepayments are recorded as revenues over the term of the contract, as services are provided. In the event of a launch
or in-orbit failure, the remaining unamortized portion of these customer prepayments are typically refundable to the
customer. Absent a satellite malfunction, these contracts typically provide that if the customer
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 9
Site: BOWNE OF NEW YORK
[A/E]
CRC: 5490
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Phone: (212)924-5500
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Y31806
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Table of Contents
terminates the contract, it must pay Telesat Canada the net present value of all the contracted service payments that
would have been due over the remaining life of the satellite.
The following chart provides details on Telesat Canada’s in-orbit satellites and satellites under construction.
Upon completion of the Skynet Transaction, New Telesat’s fleet will be comprised of these satellites, together with
the Loral Skynet satellites described in the table above:
Satellite
Nimiq 1(2)
Location
91º W.L.
Nimiq 2(3)
82º W.L.
Anik F1(4)
107.3º W.L.
Anik F2(5)
111.1ºW.L.
Anik F1-R(6)
107.3º W.L.
Nimiq 3(1)(7)
Nimiq 4i(8)
Anik F3(9)
82º W.L.
91º W.L.
118.7º W.L.
Nimiq 4(10)
Nimiq 5(11)
82º W.L.
72.7º W.L.
36 MHz Equivalent Available Transponders(1)
C-band
Ku-band
Ka-band
0
0
12
24
24
0
0
24
0
0
21.3
13.3
12
24
24
10.7
10.7
24
21.3
21.3
0
2
@500MHz
(unavailable due to
power constraints)
31
@56/112MHz
6 @500 MHz
1@56/112
MHz
2 L-band
transponders;
@20MHz
2@75MHz
8@54MHz
0
Actual or Planned
In Service
Date
Satellite
Planned
End of Life(1) Model
6/1999
2/2003
2024
LM A2100AX
2023
LM A2100AX
Geographic Coverage
Canada, Continental
United States
Canada, Continental
United States
Canada, Continental
United States, South
America
Canada, Continental
United States
2/2001
2012
BSS 702
8/2004
2028
BSS 702
North America
10/2005
2024
Astrium E3000
Canada
Canada
Canada, Continental
United States
Canada
Canada
7/1995
9/1994
Early 2007 (est.)
2010
2007
2025 (est.)
BSS 601
BSS 601
Astrium E3000
Mid 2008 (est.)
2026 (est.)
Early 2010 (est.) 2027 (est.)
Astrium E3000
SS/L 1300
(1) Certain of the satellites in Telesat Canada’s fleet have experienced anomalies affecting the available power on the spacecraft and
intermittent anomalies with certain amplifiers in the Ka-band and Ku-band payloads. The number of available transponders and expected
end of life shown in the table reflects an estimate of the effect of such anomalies on a satellite’s current capacity and useful life. See notes
below for additional information on the effects of these anomalies.
In addition, Nimiq 3 has suffered the failure of its prime satellite computer processor and is now operating on the backup processor. A
number of Boeing’s BSS 601 series of satellites have suffered in orbit failures of both their satellite computer processors, resulting in a
total loss of the satellite. Boeing has identified the root cause of the failure and believes that the probability of this type of failure decreases
with time in orbit. If the satellite suffers a failure of the backup processor, it could have a material adverse effect on Telesat Canada’s
business.
In certain instances insurance proceeds have been received for these anomalies. In one instance, insurance proceeds have been received and
a balance of up to $20 million is expected to be received in 2007 if the power level on the satellite degrades as expected. In the event that
the power level on such satellite is better than predicted, the amount of this payment will be adjusted by applying a formula that could
result in either a pro-rated payment to Telesat Canada or a pro-rated repayment of up to a maximum of $14.1 million by Telesat Canada to
the insurers.
(2) The lifetime transponder capacity on Nimiq 1 was contracted for by Bell ExpressVu. The Ka-band payload on the satellite is a small
demonstration payload and is currently not available due to power limitations.
(3) The lifetime transponder capacity on Nimiq 2 was contracted for by Bell ExpressVu. The capacity of Nimiq 2 is expected to decrease to
11.3 (36 MHz equivalent) transponders by 2016. The Ka-band payload on the satellite is a small demonstration payload.
(4) Anik F1 initially covered both North America and South America from the 107.3º W.L. orbital slot. Telesat Canada now uses Anik F1 to
provide coverage only of South America. The power available for the South American payload is expected to decrease to 5 C-band
transponders by end of life. Telesat Canada’s current plan is to retain Anik F1 to provide service to customers in South America for an
additional four to five years.
(5) Telesat Canada has sold 13.5 of the 24 Ku-band channels (36 MHz equivalent) on Anik F2 with Cancom (Star Choice) for the life of the
satellite. In addition, Telesat Canada has licensed the Ka-band capacity covering the United States (30 of 45 spot beams) exclusively to
WildBlue in exchange for service payments, which have been fully prepaid by Wildblue and a minority ownership interest in WildBlue,
which ownership interest was transferred from Telesat Canada to BCE Inc.
In 1999, Telesat Canada was awarded a $60 million contract from the Canadian Space Agency to build and integrate signal processing
technology on the Ka-band payload in partnership with key Canadian space segment equipment manufacturers. As part of that agreement,
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 10
Site: BOWNE OF NEW YORK
[A/E]
CRC: 20158
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Table of Contents
Phone: (212)924-5500
BNY
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Telesat Canada agreed to provide specific engineering services and to provide a portion of the Ka-band capacity to the Government of
Canada for multi-media services for a 10-year period that will expire in 2014.
(6) Anik F1-R, with a 15-year contract service life, was constructed to provide service to Telesat Canada’s North American customers
previously being serviced on the Anik F1 satellite. Telesat Canada has entered into a 10-year services agreement with Cancom (Star
Choice) for 21 of the 24 Ku-band transponders (36 MHz equivalent) on Anik F1-R.
Anik F1-R also includes a North American Wide Area Augmentation System, or WAAS, payload for which Telesat Canada has a 10-year
utilization contract with Lockheed Martin Corporation. The WAAS payload enhances North American Air Traffic Control systems, and
represents a continued expansion of Telesat Canada’s North American customer base.
(7) Telesat Canada entered into a lease agreement with DIRECTV, under which that operator’s in-orbit DBS satellite (DIRECTV 3) was
moved to one of the Nimiq orbital positions for use by Telesat Canada’s customer, Bell ExpressVu. The satellite was subsequently named
Nimiq 3. Telesat Canada continues to lease and operate the satellite from the 82.0º WL position. The lease with DIRECTV for the Nimiq 3
satellite extends until the end of life of the satellite, except that DIRECTV has a right to terminate the lease early if there is a significant
failure of one or more of its satellites. All of the Nimiq 3 transponders have been leased to Bell ExpressVu.
(8) Telesat Canada entered into a lease agreement with DIRECTV, under which that operator’s in-orbit DBS satellite (DIRECTV 2) would be
moved to one of the Nimiq orbital positions for use by its customer, Bell ExpressVu. Telesat Canada continues to lease and operate the
satellite from the 91.0º WL position. The lease with DIRECTV for the Nimiq 4i satellite extends until the end of life of the satellite. All of
the Nimiq 4i transponders have been leased to Bell ExpressVu. Like Nimiq 3, Nimiq 4i is in the BSS 601 series of satellite. Unlike
Nimiq 3, however, both of Nimiq 4i’s satellite computer processors are operational. Nimiq 4i is currently being operated in inclined orbit.
Telesat Canada plans to replace Nimiq 4i in the second quarter of 2007 with another leased satellite from DirecTV provided regulatory
approvals are obtained to operate such replacement satellite at the 91.0º W.L. position.
(9) Construction of Anik F3 is complete, but due to delays resulting from the investigation by the launch provider, International Launch
Services, or ILS, of the failure of a Proton rocket launch early in 2006, Anik F3 has been placed in storage. ILS has now resolved the issue
and resumed launches, and Telesat Canada expects Anik F3 to be launched during the first half of 2007. Telesat Canada has contracted all
24 Ku-band transponders (36 MHz equivalent) to EchoStar, covering the life of Anik F3.
(10) Telesat Canada entered into contractual arrangements with EADS Astrium for the construction of Nimiq 4, currently scheduled to be
available for service in mid-2008. Telesat Canada has contracted the entire payload of the lifetime capacity of Nimiq 4 to Bell ExpressVu.
(11) Telesat Canada entered into contractual arrangements with SS/L for the construction of Nimiq 5, currently scheduled to be available for
service in 2010. Telesat Canada has contracted the entire payload of the lifetime capacity of Nimiq 5 to Bell ExpressVu.
Investment in Affiliates
XTAR
We own 56% of XTAR, L.L.C. (“XTAR”), a joint venture between us and Hisdesat Servicios Estrategicos, S.A.
(“Hisdesat”) of Madrid. We account for our investment in XTAR under the equity method since we do not control
certain of its significant operating decisions. Our interest in XTAR is currently held by Loral Skynet, however, this
interest will be retained by Loral and not transferred to New Telesat as part of the Skynet Transaction.
XTAR owns and operates an X-band satellite, XTAR-EUR located at 29º E.L., which entered service in March
2005. The satellite is designed to provide X-band communications services exclusively to United States, Spanish and
allied government users throughout the satellite’s coverage area, including Europe, the Middle East and Asia. The
government of Spain granted XTAR rights to an X-band license, normally reserved for government and military use,
to develop a commercial business model for supplying X-band capacity in support of military, diplomatic and
security communications requirements. XTAR also leases up to eight 72 MHz X-band transponders on the Spainsat
satellite located at 30º W.L. owned by Hisdesat, which entered commercial service in April 2006. These
transponders, designated as XTAR-LANT, allow XTAR to provide its customers in the U.S. and abroad with
additional X-band services and greater flexibility. XTAR currently has contracts to provide X-band services to the
U.S. Department of State, the Spanish Ministry of Defense and the Danish armed forces, but the take-up rate in its
service has been slower than anticipated. For more information on XTAR see Note 9 to the Loral consolidated
financial statements and the XTAR financial statements.
Globalstar
On November 1, 2006, Globalstar, Inc. (“Globalstar”), a low-earth-orbit mobile satellite telephone operator,
completed an initial public offering, at which time we owned 1,609,896 shares of Globalstar. We have agreed not to
sell 70% of our Globalstar holdings for at least 180 days following the completion of its offering. As of
December 31, 2006, we owned 1,168,934 shares of Globalstar.
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 11
Site: BOWNE OF NEW YORK
[A/E]
CRC: 50970
EDGAR 2
Phone: (212)924-5500
BNY
011.00.00.00
*Y31806/011/3*
Y31806
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Date: 15-MAR-2007 18:01:35.60
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Table of Contents
We also hold various indirect ownership interests in three foreign companies that currently serve as exclusive
service providers for Globalstar satellite telephone service in Brazil, Mexico and Russia. We account for these
ownership interests using the equity method of accounting. Because we have no future funding requirements relating
to these investments and these investments have previously been written off, there is no requirement for us to provide
for our allocated share of these companies net losses. We are, however, considering whether to make an additional
investment of up to $15 million in one of these companies. We also owned an indirect 25% ownership interest in a
U.S. based distributor that has the exclusive right to sell Globalstar services to certain agencies within the
U.S. Government. In connection with the settlement of a litigation matter involving this business, on October 17,
2006, we agreed to transfer this interest to Globalstar for $500,000. We had previously written-off our interest in
such investment.
Satmex
In November 2006, Satelites Mexicanos, S.A. de C.V. (“Satmex”) successfully reorganized. While our
investment in the company, which we had written off in 2003, was reduced from 49% to approximately 1.3% in
connection with this reorganization, our end-of-satellite life rights to four transponders on Satmex 6, and three
transponders on Satmex 5 were affirmed in these proceedings. For more information on Satmex, see Note 9 to the
consolidated financial statements.
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Phone: (212)924-5500
BNY
012.00.00.00
*Y31806/012/2*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
5/2
BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 12
Site: BOWNE OF NEW YORK
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CRC: 22189
EDGAR 2
Table of Contents
REGULATION
Telecommunications Regulation
As an operator of a privately owned global satellite system, we are subject to: the regulatory authority of the
U.S. government; the regulatory authority of other countries in which we operate and the frequency coordination
process of the International Telecommunication Union (“ITU”). Our ability to provide satellite services in a
particular country or region is subject also to the technical constraints of our satellites, international coordination,
local regulatory approval and any limitation to those approvals.
U.S. Regulation
The FCC regulates our U.S.-licensed satellites as well as our non-U.S. licensed satellites authorized to operate in
the U.S. We are subject to the FCC’s jurisdiction primarily for the licensing of satellites and earth stations, avoidance
of interference with radio stations and compliance with FCC rules. Violations of the FCC’s rules can result in various
sanctions including fines, loss of authorizations, forfeiture of bonds, or the denial of new or renewal authorizations.
We are not regulated as a common carrier and, therefore, are not subject to rate regulation or the obligation not to
discriminate among customers. We must pay FCC filing fees in connection with our space station and earth station
applications and annual fees to defray the FCC’s regulatory expenses. We must file annual status reports with the
FCC and, to the extent Loral is deemed to be providing interstate/international telecommunications, we must
contribute funds supporting universal service. Loral has petitioned the FCC for exemptions from having to pay
certain of such fees and contributions. These petitions are under review by the FCC.
Authorization to Launch and Operate Satellites
Pursuant to satellite licensing rules issued in 2003, the FCC grants satellite authorizations on a first-come, first-
served basis to satellite operators that meet its legal and technical qualification requirements. The FCC often receives
multiple applications to operate a satellite at a given orbital slot. There can be no assurance that applications will be
granted. Most satellite authorizations include specific construction and launch milestones; failure to meet them may
result in license revocation. Under licensing rules, we must post a bond for up to $3 million when we are granted a
satellite authorization. Some or the entire amount of the bond may be forfeited if we fail to meet any of the
milestones for satellite construction, launch and commencement of operation. In accordance with the current
licensing rules, the FCC will issue new satellite licenses for an initial 15-year term and will provide a licensee with
an “expectancy” that a subsequent license will be granted for the replacement of an authorized satellite using the
same frequencies. At the end of a 15-year term, a satellite that has not been replaced, or that has been relocated to
another orbital location following its replacement, may be allowed to continue operations for a limited period of time
subject to certain restrictions.
We have final FCC authorization for two existing satellites which operate in the Ku-band: Telstar 11 at 37.55º
W.L. and Telstar 12 at 15º W.L. In addition, we have final FCC authorization for Telstar 11N which will operate in
the Ku-band at 37.55º W.L and replace Telstar 11. Certain of our authorizations may be subject to pending petitions
for reconsideration or review submitted to the FCC by third parties. The final FCC authorizations for certain of the
satellites that are not yet in orbit also do not cover certain possible design changes and require adherence with FCC
milestones stated within the authorizations. There can be no assurance that any design changes or milestone
extensions which may be sought will be granted by the FCC. The failure to obtain a requested milestone extension
could result in the loss of the related FCC authorization. If we are unable to obtain FCC approval to implement
requested technical modifications for any particular authorization, we will be obligated to operate the related satellite
in accordance with the original authorization.
Coordination Requirements
The FCC requires applicants to demonstrate that their proposed satellites would be compatible with the
operations of adjacent satellites. Adjacent satellite operators must coordinate with one another to minimize frequency
conflicts. The FCC reserves the right to require that an FCC-licensed satellite be relocated if it deems such a change
to be in the public interest.
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
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Site: BOWNE OF NEW YORK
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Phone: (212)924-5500
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Regulation by Non-U.S National Telecommunications Authorities
Foreign laws and regulatory practices governing the provision of satellite services to licensed entities and
directly to end-users vary substantially from country to country. Some countries may require us to confirm that we
have successfully completed technical consultation with other satellite service providers before offering services on a
given satellite. In addition, we may be subject to varying communications and/or broadcasting laws with respect to
our provision of international satellite services.
Foreign laws and regulatory practices may be applied or changed in ways that may adversely affect our ability to
operate or provide service. There are no guarantees that other countries will grant our applications to construct,
launch, operate or provide service via satellites, or extend construction or launch milestones, or that we will be
permitted to retain or renew our authorizations. As in the U.S., violations of other countries’ laws and rules may
result in sanctions, fines, loss of authorizations or denial of applications for new or renewal authorizations.
Application and other administrative fees may be required in other countries. License terms for
non-U.S. authorizations held by Loral vary but generally authorize operation for at least the life of the satellite and
include rights to operate a replacement satellite. Loral’s failure to operate or maintain operation of a satellite pursuant
to a non-U.S. authorization may result in revocation.
Many countries have liberalized their regulations for the provision of voice, data or video services. This trend
should accelerate with the commitments by many World Trade Organization (“WTO”) members, in the context of
the WTO Agreement on Basic Telecommunications Services, to open their satellite markets to competition. Other
countries, however, have maintained strict monopoly regimes. In such markets, the provision of service from Loral
and other U.S.-licensed satellites may be more complicated.
In addition to the orbital slots licensed by the FCC, Loral has been assigned orbital slots by certain other
countries. For example, we have been authorized to use numerous C-, Ku- and Ka-band orbital slots by the Isle of
Man government. These Isle of Man authorizations are (1) at 15º W.L. and 47º W.L. for use of the Ka-band
frequencies, and (2) at 9.9º E.L., 16.1º E.L., 22.3º E.L., 115.5º E.L., 37.5º W.L., 89º W.L., 97º W.L. and 115º W.L.
for the use of C-, Ku- and Ka-band frequencies. We also have Isle of Man authorizations at 96.5º W.L. and 123.5º
W.L. for Broadcast Satellite Service. From time to time Loral may file for additional orbital slots, and/or relinquish
the rights to orbital slots that have been assigned to Loral.
In March 1999, Loral won Brazil’s auction for its 63º W.L. Ku-band orbital slot. Telstar 14/Estrela do Sul-1 is
licensed by Brazil and is authorized to operate in the U.S. by the FCC from this orbital slot. Pursuant to a lease, Loral
operates all of the capacity (with the exception of one transponder) on the Telstar 10/Apstar IIR C/Ku-band satellite
licensed by China and located at 76.5º E.L. We also operate the C/extended C-band and Ku-band payloads on Telstar
18 at 138º E.L. using licenses provided to APT by Tonga and China, respectively.
Access to certain of these international orbital slots and authorizations are subject to our payment of various
ongoing fees to the applicable licensee or licensing authority, which in the case of the Isle of Man authorizations,
include a revenue-based fee that would commence at the time we place a satellite into an Isle of Man slot.
The ITU Frequency Coordination Process
All satellite systems are subject to ITU frequency coordination requirements and must obtain appropriate
authority to provide service in a given territory. The required international coordination process may limit the extent
to which all or some portion of a particular authorized orbital slot may be used for commercial operations, with a
corresponding impact on the useable capacity of a satellite at that location.
All of our satellite registrations are or will be subject to the ITU coordination process. There may be more than
one ITU filing submitted for a particular orbital slot, or one adjacent to it, thus requiring coordination between or
among the affected operators. Loral cannot guarantee successful frequency coordination for its satellites.
Export Regulation
Commercial communication satellites and certain related items, technical data and services, are subject to United
States export controls. These laws and regulations affect the export of products and services to foreign
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 14
Site: BOWNE OF NEW YORK
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CRC: 4800
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Table of Contents
Phone: (212)924-5500
BNY
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Y31806
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Date: 15-MAR-2007 18:01:35.60
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launch providers, subcontractors, insurers, customers, potential customers, and business partners, as well as to
foreign Loral employees, foreign regulatory bodies, foreign national telecommunications authorities and to foreign
persons generally. Commercial communications satellites and certain related items, technical data and services are on
the United States Munitions List and are subject to the Arms Export Control Act and the International Traffic in
Arms Regulations. Export jurisdiction over these products and services resides in the U.S. Department of State. Other
Loral exports are subject to the jurisdiction of the U.S. Department of Commerce, pursuant to the Export
Administration Act and the Export Administration Regulations. In addition, if a satellite project involves countries
that are subject to U.S. trade sanctions or is intended to provide services to such countries, licenses or other approvals
from the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) may be required.
U.S. Government licenses or other approvals generally must be obtained before satellites and related items,
technical data and services are exported and may be required before they are re-exported or transferred from one
foreign person to another foreign person. For example, after completion of the Telesat acquisition, U.S. Government
licenses or approvals generally will have to be obtained for the transfer of technical data and defense services
between Loral and New Telesat, and between New Telesat and its U.S. subsidiaries. There can be no assurance that
such licenses or approvals will be granted. Also, licenses or approvals may be granted with limitations, provisos or
other requirements imposed by the U.S. Government as a condition of approval, which may affect the scope of
permissible activity under the license or approval. See Item 1A — Risk Factors below.
PATENTS AND PROPRIETARY RIGHTS
SS/L relies, in part, on patents, trade secrets and know-how to develop and maintain its competitive position. It
holds 196 patents in the United States and has applications for seven patents pending in the United States. SS/L
patents include those relating to communications, station keeping, power control systems, antennae, filters and
oscillators, phased arrays and thermal control as well as assembly and inspection technology. The SS/L patents that
are currently in force expire between 2007 and 2022.
Loral Skynet has 13 patents in the United States and has five patents abroad. Our satellite services segment has
six patents pending in the United States. Satellite services patents that are currently in force expire between 2016 and
2020.
There can be no assurance that any of our pending patent applications will be issued. Moreover, there can be no
assurance that infringement of existing third party patents has not occurred or will not occur. Additionally, because
the U.S. patent application process is confidential, there can be no assurance that third parties, including competitors,
do not have patents pending that could result in issued patents which we would infringe. In the event of infringement,
we could be required to pay royalties to obtain a license from the patent holder, refund money to customers for
components that are not useable or redesign our products to avoid infringement, all of which would increase our
costs. We may also be required under the terms of our customer contracts to indemnify our customers for damages.
RESEARCH AND DEVELOPMENT
Our research and development expenditures involve the design, experimentation and the development of space
and satellite products. Research and development costs are expensed as incurred.
Research and development costs were $20 million for 2006, $7 million and $5 million for the periods January 1,
2005 to October 1, 2005 and from October 2, 2005 to December 31, 2005, respectively, and $9 million for 2004, and
are included in selling, general and administrative expenses.
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 15
Site: BOWNE OF NEW YORK
[A/E]
CRC: 62441
EDGAR 2
Phone: (212)924-5500
BNY
015.00.00.00
*Y31806/015/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
5/3
Table of Contents
FOREIGN OPERATIONS
Sales to foreign customers, primarily in Asia, Europe and Mexico, represented 13%, 14%, 18% and 42% of our
consolidated revenues for the year ended December 31, 2006, for the period from October 2, 2005 to December 31,
2005, for the period from January 1, 2005 to October 1, 2005 and for the year ended December 31, 2004,
respectively. As of December 31, 2006 and 2005, substantially all of our long-lived assets were located in the United
States with the exception of our in-orbit satellites. See Item 1A — Risk Factors below for a discussion of the risks
related to operating internationally. See Note 20 to the consolidated financial statements for detail on our domestic
and foreign sales.
As of December 31, 2006, we had approximately 2,100 full-time employees, approximately 1% of whom are
subject to collective bargaining agreements and approximately 200 contract employees. We consider our employee
relations to be good.
EMPLOYEES
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 16
Site: BOWNE OF NEW YORK
[A/E]
CRC: 52506
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
016.00.00.00
*Y31806/016/5*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
10/5
AVAILABLE INFORMATION
Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports are available without charge on our web site, www.loral.com, as soon as reasonably
practicable after they are electronically filed with or furnished to the Securities and Exchange Commission. Copies of
these documents also are available in print, without charge, from Loral’s Investor Relations Department, 600 Third
Avenue, New York, NY 10016. Loral’s web site is an inactive textual reference only, meaning that the information
contained on the web site is not part of this report and is not incorporated in this report by reference.
Item 1A. Risk Factors
I. Financial and Telesat Transaction Risk Factors
There can be no assurance that the pending Telesat acquisition will be completed, and the failure to complete
the transaction would adversely affect us.
The completion of our and PSP’s pending acquisition of Telesat Canada depends on the satisfaction or waiver of
a number of conditions, including but not limited to, the receipt of certain regulatory approvals. There can be no
assurance that the receipt of such required regulatory approvals and satisfaction of other required conditions will be
obtained on a timely basis or obtained without modifications to our agreements with PSP. If we are unable to satisfy
or obtain waiver of the closing conditions for the Telesat acquisition by December 16, 2007, our securities purchase
agreement with BCE Inc. could be terminated, and we may, under certain circumstances, be liable for our
proportionate share of the CAD 65 million termination fee, or CAD 41.6 million. Moreover, if the Telesat acquisition
is not completed, our business and financial results could be adversely affected due to, among other things, the focus
of our management’s time and effort on completing the Telesat acquisition rather than pursuing other business
opportunities, and the incurrence of significant costs related to the transaction.
Failure to effect the Skynet Transaction on the terms contemplated would have an adverse effect on us.
The contribution of Loral Skynet assets into New Telesat, like the Telesat acquisition, is also dependent on the
satisfaction or waiver of certain closing conditions, including but not limited to, approval from the Federal
Communications Commission and the redemption of Loral Skynet’s 14% senior secured notes and 12% preferred
stock. If we are unable to effect the Skynet Transaction within one year from the closing of the Telesat acquisition,
we will be required, under the terms of our agreement with our partner, PSP, to contribute the Telstar 11N satellite
(or if not yet then completed, our rights to the Telstar 11N construction contract) and $175 million in cash to New
Telesat. If we default in our obligation to make these contributions, in addition to remedies that may be available to
PSP as a result of such default, Loral will lose certain rights under its shareholders agreement with PSP, subject to
Loral’s right to cure such default within a six month cure period if Loral then owns at least 80% of the shares of
Holdings which it committed to purchase. These rights include Loral’s right to cause the removal of the New Telesat
CEO, its right of first offer in the event other New Telesat shareholders wish to sell their shares, and, if Loral owns
less than 45% of the economic interest in New Telesat at the time of, or as a result of, such default, its rights to
approve certain actions by New Telesat. In addition, in the event of a Loral default, PSP will have the right to call
Loral’s shares in Holdings and the right to cause the sale of Holdings and to drag along the other shareholders in such
sale, subject to Loral’s right to call PSP’s shares at fair market value. A failure or delay in effecting the Skynet
Transaction would also result in increased borrowing costs at New Telesat and prevent us from implementing
operating efficiencies across New Telesat and Loral Skynet, which in turn would adversely affect our financial
results. Moreover, until we have effected the Skynet Transaction, our economic interest in New Telesat would only
be approximately 38%, assuming an exchange rate of $1.00/CAD 1.1652. Our economic interest would be increased
to 64% only upon either the closing of the Skynet Transaction or alternatively, the closing of our contribution of
additional cash and the Telstar 11N satellite as described.
Our joint venture acquisition vehicle will be required to close the Telesat acquisition without any
purchase price adjustment even if Telesat Canada were to experience a satellite loss.
Under the terms of the purchase agreement entered into with BCE Inc., the joint venture formed by us and our
Canadian partner will be obligated to pay BCE Inc. the CAD 3.25 billion purchase price in full and close the
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 17
Site: BOWNE OF NEW YORK
[A/E]
CRC: 14785
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
017.00.00.00
*Y31806/017/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
8/3
acquisition notwithstanding any satellite loss by Telesat Canada prior to closing, so long as the loss does not involve
two or more of the following satellites: Nimiq 1, Anik F1R, Anik F2 and Anik F3. The receipt of insurance proceeds,
if any, from such failure would not fully compensate New Telesat for the loss of revenues that would result from
such a loss.
Changes in the Canadian and U.S. dollar exchange rate can adversely affect us.
While the purchase price of the Telesat acquisition is denominated in Canadian dollars, most of the financing
commitments obtained for the acquisition will be funded with U.S. dollars at closing. Accordingly, to the extent that
the Canadian dollar were to rise relative to the U.S. dollar prior to closing, we and PSP, our Canadian partner, will be
required to fund additional monies to cover that difference. While we and PSP have entered into hedging transactions
that reduce some of this risk, approximately $283 million of the U.S. dollar denominated debt commitment remains
unhedged as of the date of this report. In the event that the Telesat acquisition failed to close, we could be liable for
up to $117.5 million, depending on currency rate fluctuations, to unwind our hedging transactions. Our agreement
with PSP provides that the valuation of our Skynet contribution is denominated in U.S. dollars, and thus, a rise in the
value of the Canadian dollar during the period prior to the Skynet contribution would likewise require us to fund
additional amounts to maintain the 64/36 percent economic split between us and our Canadian partner in the joint
venture. To date, we have not hedged any portion of the risk related to the Skynet contribution valuation.
There can be no assurance that we will be able to fully implement the cost savings we have planned.
In arriving at the purchase price that we agreed to pay for Telesat Canada, we assumed that we would be able to
implement a significant reduction in costs by combining the operations of Telesat Canada and Loral Skynet. There
can be no assurance that this integration will be successful. Moreover, while both we and Telesat Canada have
implemented employee retention programs to promote a successful transition and integration plan, a loss of key
employees or a reduction in their focus on the business would hurt us.
Our equity investment in New Telesat may be at risk because New Telesat will be highly leveraged.
At closing, New Telesat will have approximately $2.8 billion of debt, approximately $1.9 billion of which will
be secured by substantially all of the assets of New Telesat. In addition, New Telesat will have access to
approximately $300 million of additional credit lines for borrowings thereafter. This represents a significant amount
of indebtedness for a company the size of New Telesat. In the event that New Telesat is not able to service this debt,
there would be a significant adverse effect on the value of our equity investment in New Telesat.
We emerged from Chapter 11 in 2005 and have a history of losses.
We sought protection under Chapter 11 of the Bankruptcy Code in July 2003. While we had $293 million of
available cash and short-term investments and $12 million of restricted cash as of December 31, 2006, our operations
and planned capital expenditures will consume a large portion of that cash. Nevertheless, we believe that our cash
and short-term investments, as well as net cash provided by operating activities and the proceeds from the sale of our
convertible perpetual preferred stock, will be adequate to meet our expected cash requirements for activities in the
normal course of business, planned capital expenditures and the Telesat acquisition, through at least the next
12 months. We also have had a history of losses and expect such losses to continue in the near term. We incurred net
losses of approximately $23 million, $15 million, $59 million (not including the gain on discharge of pre-petition
obligations and fresh-start adjustments of $1.101 billion and the related interest expense of $13 million and a tax
benefit of $15 million), and $177 million for the year ended December 31, 2006, for the period from October 2, 2005
to December 31, 2005, for the period from January 1, 2005 to October 1, 2005 and the year ended December 31,
2004, respectively. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
There can be no assurance that Loral will achieve profitability in the near future. Although we have successfully
consummated our Plan of Reorganization and emerged from bankruptcy on November 21, 2005, there is no
assurance that negative publicity surrounding our Chapter 11 reorganization will not adversely affect our results of
operations, our ability to obtain financing, or our business in the future.
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 18
Site: BOWNE OF NEW YORK
[A/E]
CRC: 37559
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
018.00.00.00
*Y31806/018/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
6/3
We are a holding company with no operations; we are dependent on cash flow from our operating
subsidiaries and affiliates to meet our financial obligations.
Loral Space & Communications Inc. is a holding company the assets of which consist principally of the equity
interests we own in our subsidiaries, joint ventures and affiliates. We have no independent operations or operating
assets. The ability of our subsidiaries to make payments or distributions to us, whether as dividends or as payments
under applicable management and shared services agreements, will depend on their operating results, including their
ability to satisfy their own cash flow requirements and obligations. Moreover, covenants contained in the indenture
relating to Loral Skynet’s 14% senior notes currently impose, and upon closing of the Telesat acquisition, the
covenants contained in the loan agreements and other debt instruments of New Telesat, which will have substantial
indebtedness, will impose limitations on such entity’s ability to upstream funds to us. Loral Skynet assets will
likewise become subject to these limitations upon their contribution to New Telesat. Pending this contribution, our
agreement with PSP also imposes limitations on Loral Skynet’s ability to make dividend or other payments to us or
our subsidiaries. We have also agreed with PSP that while we will be receiving a management fee from New Telesat
following the closing of the Telesat acquisition, that fee will be limited to $5 million a year. This amount represents a
substantial reduction from the approximately $10 million in management fees and reimbursement of corporate
overhead allocation costs that Loral Skynet paid to us in 2006. Moreover, New Telesat’s loan documents will permit
this management fee from New Telesat to be paid to us only in the form of notes, and such fee will become payable
in cash only at such time that New Telesat meets certain financial performance criteria as set forth in the loan
documents. Moreover, we will not control New Telesat’s board of directors and will not have the ability to cause
New Telesat to pay dividends to us, even if the applicable loan covenants permit them.
The indenture governing Loral Skynet’s 14% senior secured notes contains restrictions on our
operations and the notes will be required to be redeemed to effect the Skynet Transaction, which
proposed redemption has been objected to by certain noteholders.
The limitations contained in the indenture relating to the $126 million of senior secured notes issued by Loral
Skynet upon its emergence from bankruptcy impose restrictions on our operations and limit our ability to enter into
financial transactions that we may wish to pursue. These restrictions will affect, and in many respects limit, among
other things, Loral Skynet’s and its subsidiaries’ ability to pay dividends, make investments, sell assets, make loans,
repurchase equity interests or engage in mergers or other like transactions. Prior to November 22, 2009, we may
redeem the notes at a redemption price of 110% plus accrued and unpaid interest, unless we receive an objection
notice from holders of two-thirds of the principal amount of the notes. After this period, the notes are redeemable at
our option at a redemption price of 110%, declining over time to 100% in 2014, plus accrued and unpaid interest.
The redemption of these notes is a condition to the consummation of our contribution of Loral Skynet’s assets into
New Telesat, and pursuant to the terms of our convertible preferred stock financing, MHR has agreed that it and its
affiliated funds, which hold approximately 44.6% of the Loral Skynet notes, will not object to an optional redemption
of the Loral Skynet notes effected in connection with such transaction. A self-described committee of noteholders,
however, has stated its objection to the proposed redemption of these notes and asserted that funds affiliated with
MHR should be excluded for purposes of determining whether an objection to redemption has been received from
two-thirds of the outstanding principal amount of the notes. We believe that this position is inaccurate as a matter of
law and contrary to the express provisions of the indenture, but any litigation resulting from this assertion could
delay our redemption of the Loral Skynet notes, which may in turn have the effect of delaying the Skynet
Transaction.
The Loral Skynet notes are collateralized by substantially all of Loral Skynet’s assets.
A breach of any of the restrictive covenants contained in the Loral Skynet indenture could result in an event of
default, which would give the noteholders the ability to accelerate repayment of the Loral Skynet notes. If Loral
Skynet is unable to repay the notes when due, the noteholders will have the right to proceed against the collateral
granted to them to secure the Loral Skynet notes, which consists of substantially all of the assets of Loral Skynet and
its subsidiaries.
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 19
Site: BOWNE OF NEW YORK
[A/E]
CRC: 21497
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Table of Contents
Phone: (212)924-5500
BNY
019.00.00.00
*Y31806/019/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
6/3
We may in the future incur significant additional indebtedness, thereby making us more vulnerable to adverse
developments.
Although the indenture governing the Loral Skynet notes contains restrictions on the incurrence of indebtedness
by Loral Skynet and its subsidiaries, there are currently no restrictions on the ability of SS/L to incur additional
indebtedness, and while the terms of the February 2007 Loral preferred stock financing effectively prohibit
borrowing at the Loral parent company level in the near future, such limitations can be waived by MHR. As a result,
we may be able to incur significant additional debt in the future. If new debt is added, such indebtedness would
impose restrictive covenants, which may include requirements to maintain certain financial ratios. If we incur
significant additional indebtedness, we would be more vulnerable to, among other things, adverse changes in general
economic, industry and competitive conditions.
XTAR has not generated sufficient revenues to meet all of its contractual obligations; we may be required to
make additional capital contributions to the venture.
XTAR’s take-up rate in its service has been slower than anticipated and it has been required to defer payments
owed to us and Hisdesat, including payments due under an agreement with Hisdesat to lease certain transponders on
the Spainsat satellite. These lease obligations are $13.2 million in 2007, growing to $23 million per year in 2008 with
increases thereafter to a maximum of $28 million per year through the end of the useful life of the satellite. XTAR is
currently not making these payments to Hisdesat. As of December 31, 2006, XTAR’s lease payables to Hisdesat
were $4.6 million. XTAR’s ability to fund this amount, as well as its ongoing and future lease obligations to
Hisdesat, is dependent on it generating a significant increase in customer orders. Hisdesat has to date not made any
demand on XTAR for payment of the outstanding lease amounts or to insist that XTAR make future lease payments
on a current basis; in fact, it has agreed to defer receivables due from XTAR until March 31, 2008. If that situation
were to change, however, then unless XTAR is able to reach a satisfactory arrangement with Hisdesat to restructure
the terms of the Spainsat lease, we will be faced with the decision of either making additional cash contributions to
XTAR to enable it to meet its obligations or allowing XTAR to default under the lease agreement, which may result
in a loss of our investment in XTAR.
Replacing a satellite upon the end of its useful life will require us to make significant expenditures.
To ensure no disruption in Loral Skynet’s business and to prevent loss of customers, we will be required to
commence construction of a replacement satellite approximately two to three years prior to the end of life of the
satellite then in orbit. For example, we will be required to commence construction of a replacement to our Estrela do
Sul satellite in 2008 to ensure a continuation of our business on this satellite should we decide to replace it. We have
also commenced construction of our Telstar 11N satellite and will incur substantial expenditures in connection with
such effort. We have incurred $59 million in construction related costs for Telstar 11N as of December 31, 2006.
Typically, it costs in excess of $200 million to construct, launch and insure a satellite. We have in the past funded
this cost from a combination of operating cash flow and financing proceeds. There is no assurance that we will be
able to obtain financing to fund such expenditures on favorable terms, if at all.
Significant changes in discount rates, actual investment return on pension assets and other factors could affect
our statement of operations, equity and pension contributions in future periods.
Our statement of operations may be positively or negatively affected by the amount of expense we record for our
pension and other postretirement benefit plans. Generally accepted accounting principles (GAAP) in the United
States of America require that we calculate expense for the plans using actuarial valuations. These valuations reflect
assumptions that we make relating to financial market and other economic conditions. Changes in key economic
indicators can result in changes in the assumptions we use. The most significant year-end assumptions used to
estimate pension or other postretirement expense for the following year are the discount rate, the expected long-term
rate of return on plan assets and expected future medical inflation. In addition, we are required to make an annual
measurement of plan assets and liabilities and at the time of the measurement, we may be required to take a
significant charge to equity through a reduction to other comprehensive income. For a discussion regarding how our
financial statements can be affected by pension and other postretirement plan accounting policies, see
“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 20
Site: BOWNE OF NEW YORK
[A/E]
CRC: 60390
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
020.00.00.00
*Y31806/020/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
2/3
Matters — Pensions and other employee benefits.” In 2006, we contributed $27.5 million to our pension plan. In
accordance with IRS regulations, we are not required to make any contributions to the pension plan in 2007,
however, we expect to resume making contributions thereafter. The amounts of our contributions in the future will
depend, among other things, on the key economic factors underlying these assumptions.
II. Operational Risk Factors
(cid:129) Risk Factors Associated With Satellite Manufacturing
The satellite manufacturing market is highly competitive and fixed costs are high.
SS/L competes with several large, well-capitalized companies such as Boeing, Lockheed Martin and Orbital
Sciences in the United States, Alcatel Alenia Space and EADS Astrium in Europe and Mitsubishi Electric Corp. in
Japan, nearly all of which are larger and better capitalized than we are. We may also face competition in the future
from emerging low-cost competitors in India, Russia and China. The number of annual satellite manufacturing
awards varies and is difficult to predict. In addition, U.S. satellite manufacturers must contend with export control
regulations that put them at a disadvantage when competing for foreign customers. Moreover, as a result of the
Telesat acquisition and the Skynet Transaction, SS/L may experience difficulty in obtaining orders from certain
customers engaged in the satellite services business who compete with the combined Telesat/Skynet business. Our
financial performance is dependent on SS/L’s ability to generate a sustainable order rate and to continue to increase
its backlog. The satellite manufacturing industry has suffered from substantial overcapacity worldwide for a number
of years, resulting in extreme competitive pressure on pricing terms and other material contractual terms, such as
those allocating risk between the manufacturer and its customers. Buyers, as a result, have had the advantage over
suppliers in negotiating prices, terms and conditions resulting in reduced margins and increased assumptions of risk
by SS/L.
SS/L is a large-scale systems integrator, requiring a large staff of highly-skilled and specialized workforce, as
well as specialized manufacturing and test facilities in order to perform under its satellite construction contracts. In
order to maintain its ability to compete as one of the leading prime contractors for technologically advanced space
satellites, SS/L must continuously retain the services of a core group of specialists in a wide variety of disciplines for
each phase of the design, development, manufacture and testing of its products, thus reducing SS/L’s flexibility to
take action in the event of a slowdown or downturn in its business.
SS/L’s contracts are subject to adjustments, cost overruns, risk of non-payment and termination.
SS/L’s major contracts are firm fixed-price contracts under which work performed and products shipped are
paid for at a fixed price without adjustment for actual costs incurred. While cost savings under these fixed-price
contracts result in gains to SS/L, cost increases result in reduction of margins or losses, borne solely by SS/L. Under
such contracts, SS/L may receive progress payments, or it may receive partial payments upon the attainment of
certain program milestones. If performance on these milestones is delayed, SS/L’s receipt of the corresponding
payments will also be delayed. As the prime contractor, SS/L will generally be liable to its customer for cost
overruns, schedule delays and other non-performance by SS/L’s suppliers, which may be largely outside of its
control.
Non-performance, including schedule delays, can increase costs and subject us to damage claims from
customers, including liquidated damages and termination of the contract for our default. If a contract is terminated
for default, we would be liable for a refund of customer payments made to date, and could also have additional
liability for excess re-procurement costs and other damages incurred by our customer, although SS/L would own the
satellite under construction and attempt to recoup any losses through resale to another customer. A contract
termination for default could have a material adverse effect on SS/L and us.
In addition, many of SS/L’s contracts and subcontracts may be terminated at will by the customer or the prime
contractor. In the event of such a termination, SS/L is normally entitled to recover the purchase price for delivered
items, reimbursement for allowable costs for work in process and an allowance for profit or an adjustment for loss,
depending on whether completion of the project would have resulted in a profit or loss.
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 21
Site: BOWNE OF NEW YORK
[A/E]
CRC: 45613
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
021.00.00.00
*Y31806/021/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
3/3
Moreover, some of SS/L’s contracts require SS/L to provide vendor financing to its customers or, more
customarily, for customers to pay a portion of the purchase price for the satellite over time subject to performance of
the satellite, i.e., orbital payments, or a combination of these terms. In some cases, these arrangements are provided
to customers that are start-up companies or companies in the early stages of building their businesses. As of
December 31, 2006, SS/L had recorded vendor financing and orbital receivables of $148 million (of which
$87 million was from start-up or early stage companies). Of this $87 million, SS/L had received payments of
$65 million as of March 2007. Although we expect to be paid, there can be no assurance that these companies or
their businesses will be successful and, accordingly, that they will be able to fulfill their payment obligations under
their contracts with SS/L.
SS/L’s accounting for long-term contracts requires adjustments to profit and loss based on estimates revised
during the execution of the contract. These adjustments may have a material effect on our consolidated financial
position and our results of operations in the period in which they are made. The estimates giving rise to these risks,
which are inherent in long-term, fixed-price contracts, include the forecasting of costs and schedules, contract
revenues related to contract performance and the potential for component obsolescence due to procurement long
before assembly.
SS/L may forfeit payments from customers as a result of satellite failures or losses after launch or may be
liable for penalty payments under certain circumstances, and these losses may be uninsured.
Most of SS/L’s satellite manufacturing contracts provide that some of the total price is contingently payable as
“incentive” payments earned over the life of the satellite, subject to satellite performance. SS/L generally does not
insure for these incentive payments (also known as orbitals) and in some cases agrees with its customers not to insure
them.
SS/L records the present value of orbital payments as revenue during the construction of the satellite. SS/L
generally receives the present value of these incentive payments if there is a launch failure or a failure caused by
customer error. SS/L forfeits some or all of these payments, however, if the loss is caused by satellite failure or as a
result of its own error. As of December 31, 2006, SS/L had orbital receivables of $83 million, which will be received
over 18 years. Since these orbital receivables could be affected by future satellite performance, there can be no
assurance that SS/L will be able to collect all or a portion of these receivables.
Some of SS/L’s contracts call for in-orbit delivery, transferring the launch risk to SS/L. SS/L generally insures
against that exposure. In addition, some of SS/L’s contracts provide that SS/L may be liable to a customer for penalty
payments under certain circumstances, including late delivery or that a portion of the price paid by the customer is
subject to “warranty payback” in the event satellite anomalies were to develop (see Note 19 to the consolidated
financial statements). These contingent liabilities are not insured by SS/L. We have recorded reserves in our financial
statements based on our current estimates of SS/L’s warranty liabilities. There is no assurance that SS/L’s actual
liabilities to its customers in respect of these warranty liabilities will not be greater than the amount reserved for.
Some satellites built by SS/L, including three satellites operated by Loral Skynet or other affiliates, have
experienced minor losses of power from their solar arrays.
Twenty satellites built by SS/L have experienced minor losses of power from their solar arrays. There can be no
assurance that one or more will not experience an additional power loss that could lead to a loss of transponder
capacity and performance degradation. A partial or complete loss of a satellite could result in an incurrence of
warranty payments by, or a loss of orbital incentive payments to, SS/L. SS/L has instituted remedial measures that it
believes will prevent similar anomalies from occurring on satellites under construction or in development. For further
details see Note 19 to the consolidated financial statements.
Some satellites built by SS/L have the same design as another SS/L-built satellite that has experienced a
partial failure.
In November 2004, Intelsat Americas 7 (formerly Telstar 7) experienced an anomaly which caused it to
completely cease operations for several days before it was partially recovered. Four other satellites manufactured by
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 22
Site: BOWNE OF NEW YORK
[A/E]
CRC: 55216
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
022.00.00.00
*Y31806/022/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
3/3
SS/L for other customers have designs similar to Intelsat Americas 7 and, therefore, could be susceptible to similar
anomalies in the future. A partial or complete loss of these satellites could result in an incurrence of warranty
payments by SS/L aggregating up to $17 million.
We are subject to export controls, which may result in delays and additional costs.
SS/L is required by the U.S. State Department to obtain licenses and enter into technical assistance agreements
to export satellites and related equipment, and to disclose technical data to foreign persons. In addition, if a satellite
project involves countries that are subject to U.S. trade sanctions or is intended to provide services to such countries,
licenses or other approvals from the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) may be
required. The delayed receipt of or the failure to obtain the necessary U.S. government licenses, approvals and
agreements may interrupt the completion of a satellite contract by SS/L and could lead to a customer’s cancellation
of a contract, monetary penalties and/or the loss of incentive payments.
Some of our customers and potential customers, along with insurance underwriters and brokers have raised
concerns that U.S. export control laws and regulations excessively restrict their access to information about the
satellite during construction and on-orbit. To the extent that our non-U.S. competitors are not subject to these export
control laws and regulations, they may enjoy a competitive advantage with foreign customers, and, to the extent that
our foreign competitors continue to gain market share, it could become increasingly difficult for the U.S. satellite
manufacturing industry, including SS/L, to recapture this lost market share.
The recent trend toward industry consolidation in the satellite services industry may adversely affect us.
The recent industry consolidation trend has resulted in the formation of satellite operators with greater satellite
resources and increased coverage. This consolidation may reduce demand for new satellite construction as operators
may need fewer satellites in orbit to provide back-up coverage or to rationalize the amount of capacity available in
certain geographic regions. It may also result in concentrating additional bargaining power in the hands of large
customers, which could increase pressure on pricing and other contractual terms.
The availability of qualified personnel and facility space may be limited; SS/L will incur costs to upgrade or
expand its facility and these costs may be substantial.
SS/L has recently won a number of satellite construction awards and its backlog has expanded significantly. In
order to complete construction of all the satellites in backlog and to accommodate future growth, SS/L will need to
and is in the process of hiring additional staff and will require an expansion of its existing facilities. There can be no
assurance that SS/L will be able to hire its desired number of employees with the requisite skills and training or to
acquire suitable facility space and, accordingly, may not be able to perform its contracts as efficiently as planned or
grow its business beyond existing levels. The incremental costs of such expansions or upgrades could be up to
$150 million over the next three years.
(cid:129) Risk Factors Associated With Satellite Services
Launch delays or failures have delayed some of our operations in the past and may do so again in the future.
We depend on third parties in the United States and abroad to launch our satellites. Delays in launching satellites
are not uncommon and result from construction delays, the unavailability of appropriate launch vehicles and other
factors. For example, the launch of the XTAR-EUR satellite was significantly delayed while we waited for
Arianespace to complete work on its ECA launch vehicle. The launch of our Telstar 11N satellite may be delayed as
a result of the recent Sea Launch mission failure. In addition, we expect that the contraction of world-wide launch
availability that we have been experiencing will likely continue in the near term, resulting in increased launch costs
and limiting the number of satellite launches per year.
Satellite launches are risky, and some launch attempts have ended in complete or partial failure. On January 10,
2004, for example, our Telstar 14/Estrela do Sul-1 communications satellite was launched by Boeing Sea Launch,
but only partially deployed its North solar array. Although the satellite was insured and we collected insurance
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 23
Site: BOWNE OF NEW YORK
[A/E]
CRC: 32338
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
023.00.00.00
*Y31806/023/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
3/3
proceeds of $205 million, the failed solar array deployment has resulted in a substantial loss of the satellite’s
available transponder capacity, as well as, reducing the expected life to 2010. This reduced capacity and life has
affected the roll out of our Brazilian business and restrained operating revenues.
We ordinarily insure against launch failures but at considerable cost. The cost and the availability of insurance
vary depending on market conditions and the launch vehicle used. Replacing a lost satellite typically requires at least
two years from execution of a manufacturing contract to launch. Moreover, we may be required, in order to maintain
our priority status with respect to our orbital slots, to launch replacement satellites by specified dates. Failure to do so
may result in a material adverse effect on us.
After launch, our satellites remain vulnerable to in-orbit failures which may result in reduced revenues and
profits and other financial consequences.
In-orbit damage to or loss of a satellite before the end of its expected life results from various causes, some
random, including component failure, degradation of solar panels, loss of power or fuel, inability to maintain the
satellite’s position, solar and other astronomical events and space debris.
Satellites are built with redundant components or additional components to provide excess performance margins
to permit their continued operation in case of a component failure, an event that is not uncommon in complex
satellites. Certain of our satellites are currently operating using back-up components because of the failure of primary
components. If the back-up components fail, however, and we are unable to restore redundancy, these satellites could
lose capacity or be total losses, which would result in a loss of revenues and profits.
For example, in July 2005, in the course of conducting our normal operations, we determined that the primary
command receivers on two of our satellites had failed. These satellites, which are equipped with redundant command
receivers designed to provide full functional capability through the full design life of the satellite, continue to
function normally and service to customers has not been affected. Moreover, SS/L, the manufacturer of the satellites,
has successfully completed implementation of a software workaround that fully restored the redundant command
receiver function on both of these satellites.
In addition, three satellites operated by Loral Skynet or its affiliates that were manufactured by SS/L have
experienced minor losses of power from their solar arrays. Although we believe the satellites will fulfill their
designed mission lives, there can be no assurance that one or more of the satellites will not experience an additional
power loss that could lead to a lessening of transponder capacity and performance degradation. During the third
quarter of 2006, due to power loss caused by solar array failures, Loral Skynet removed from service through the end
of life certain unutilized transponders on one of its satellites and will remove additional transponders from service on
this satellite in order to maintain sufficient power to operate the remaining transponders for its specified life. A
partial or complete loss of a satellite would result in the loss of revenues and profit for Loral Skynet and us. For
further details see Note 19 to the consolidated financial statements. Moreover, under the terms of our agreement with
PSP, a loss of 50% or more of the existing transponder capacity on Telstar 12 or a loss of 50% or more of the
aggregate existing transponder capacity on Telstar 10, 14 and 18 would constitute a material adverse change to Loral
Skynet’s business, and will result in a requirement on our part to contribute additional monies to New Telesat to
preserve our 64% economic interest in the company.
Loral Skynet has in the past entered into prepaid leases, sales contracts and other arrangements relating to
transponders on its satellites. Under the terms of these agreements, Loral Skynet may be required to replace
transponders that do not meet operating specifications. Failure to replace such transponders may result in a payment
obligation on the part of Loral Skynet.
It may be difficult to obtain full insurance coverage for satellites that have, or are part of a family of
satellites that has, experienced problems in the past; moreover, not all satellite-related losses will be
covered by our insurance.
While we have in the past typically insured against launch and in-orbit failure of the satellites in our satellite
services segment, insurance will not protect us against all losses. For example, insurance will not protect us against
business interruption, lost revenues or delay of revenues. Our existing launch and in-orbit insurance policies also
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 24
Site: BOWNE OF NEW YORK
[A/E]
CRC: 60239
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
024.00.00.00
*Y31806/024/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
5/3
include, and future policies are expected to include, specified exclusions, deductibles and material change limitations.
Typically, these insurance policies exclude coverage for damage arising from acts of war and other exclusions then
customary in the industry. In addition, they typically exclude coverage for health-related problems affecting our
satellites that are known at the time the policy is written.
We cannot assure that, upon the expiration of an in-orbit insurance policy, which typically has a term of one
year, we will be able to renew the policy on terms acceptable to us. As noted above, insurers may require either
exclusions of certain components or may place similar limitations on coverage in connection with insurance renewals
for satellites that have experienced problems in the past. For example, the insurance coverage for two of our satellites
provides for coverage of losses due to solar array failures only in the event of a capacity loss of 75% or more for one
satellite and 80% or more for the other. The loss of a satellite would likely have a material adverse effect on our
financial performance and may not be adequately mitigated by insurance coverage. Moreover, if we were to
determine in the future that the terms of any particular insurance renewal are uneconomic after taking into account
factors such as cost of the insurance and scope of insurance exclusions and limitations, we may elect to self-insure
against losses of a satellite.
Like other satellite operators, we are faced with increased launch and in-orbit insurance premiums.
The cost of obtaining insurance has increased significantly, primarily due to post-September 2001 insurance
industry developments. This has increased our cost of doing business.
Our fixed satellite services businesses compete for market share, customers and orbital slots against
competitors that are significantly larger than us.
We face significant competition in the transponder leasing business from larger companies such as Intelsat, SES
Global and Eutelsat, all of which are larger and better capitalized than we are. This will continue to be the case
following the Telesat acquisition, if it occurs. We also face competition from smaller, regional operators, which may
enjoy competitive advantages in their local markets. The supply of satellite capacity has increased in recent years,
making it more difficult for us to sell our services in certain markets and to maintain our prices for the capacity that
we do sell. Competition may cause further downward pressure on prices and further reduce the utilization of our fleet
capacity, both of which may have an adverse effect on our financial performance. Our transponder leasing business
also competes with fiber optic cable and other terrestrial delivery systems, which have a cost advantage in
point-to-point applications where such delivery systems have been installed.
Similarly, our network services business faces competition not only from other satellite-based providers, but also
from providers of land-based data communications services, such as cable, DSL (digital subscriber line), wireless
local loop and traditional telephone service providers. We will face further price pressure in this business from these
companies as they continue to compete for our services.
As land-based telecommunications services expand and become more sophisticated, demand for some satellite-
based services may be reduced. New technology could render satellite-based services less competitive by satisfying
consumer demand in other ways. We also compete for local regulatory approval in places where more than one
provider may want to operate and for scarce frequency assignments and fixed orbital positions.
The content of third-party transmissions over our satellites may affect us.
Loral Skynet provides satellite capacity for transmissions by third parties. We do not decide what content is
transmitted over our satellites, although our contracts generally provide us with rights to prohibit certain types of
content or to cease transmission under certain circumstances. Issues arising from the content of transmissions by
these third parties over our satellites could affect our future revenues, operations or our relationship with certain
governments or customers.
Our business is regulated, causing uncertainty and additional costs.
Multiple authorities regulate our business, including the FCC, the International Telecommunication Union
(ITU), the European Union, Brazil, China and Isle of Man. Regulatory authorities can modify, withdraw or impose
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 25
Site: BOWNE OF NEW YORK
[A/E]
CRC: 29148
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
025.00.00.00
*Y31806/025/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
7/3
charges or conditions upon, or deny or delay action on applications for, the licenses we need which may adversely
affect our business or increase our costs.
To prevent frequency interference, the regulatory process requires potentially lengthy and costly negotiations
with third parties who operate or intend to operate satellites at or near the locations of our satellites. For example, as
part of our coordination effort on Telstar 12, we agreed to provide four 54 MHz transponders on Telstar 12 to
Eutelsat for the life of the satellite and have retained risk of loss with respect to those transponders. We also granted
Eutelsat the right to acquire, at cost, four transponders on the replacement satellite for Telstar 12. We continue to
discuss coordination issues with other operators and may need to make additional financial concessions in connection
with future coordination efforts. The failure to reach an appropriate arrangement with a third party having priority
rights at or near one of our orbital slots may result in substantial restrictions on the use and operation of our satellite
at that location. In addition, while the ITU rules require later-in-time systems to coordinate with us, there can be no
assurance that other operators will conduct their operations so as to avoid transmitting any signals that would cause
harmful interference to the operation of our satellites.
Failure to successfully coordinate our satellites’ frequencies or to resolve other required regulatory approvals
could have an adverse effect on our financial condition, as well as on the value of our business.
(cid:129) Risk Associated With Conducting Business Internationally
We face risks in conducting business internationally.
For the year ended December 31, 2006, approximately 13% of our revenue was generated from customers
outside of the United States. We could be harmed financially and operationally by changes in foreign regulations and
telecommunications standards, tariffs or taxes and other trade barriers that may be imposed on our services or by
political and economic instability in the countries in which we conduct business. Almost all of our contracts with
foreign customers require payment in U.S. dollars, and customers in developing countries could have difficulty
obtaining U.S. dollars to pay us due to currency exchange controls and other factors. Exchange rate fluctuations may
adversely affect the ability of our customers to pay us in U.S. dollars. If we need to pursue legal remedies against our
foreign business partners or customers, we may have to sue them abroad where it could be difficult for us to enforce
our rights.
III. Other Risks
We share control of our affiliates with third parties.
We share control of our affiliates with third parties and as a result we do not have control over management of
these entities. For example, Hisdesat enjoys substantial approval rights in regard to XTAR, our X-band joint venture.
In addition, upon consummation of the Telesat acquisition and the Skynet Transaction, while we will own 64% of the
economics of the participating shares of New Telesat’s parent company, we will own only 331/3% of the voting
power. Loral nominees will comprise only three of the ten directors on the New Telesat board, with three directors to
be appointed by PSP and the remainder being independent directors. The rights of these third parties and fiduciary
duties under applicable law could result in others acting or omitting to act in ways that are not in our best interest.
While these entities are or have been customers of SS/L, due to this shared control and the fiduciary duties of the
boards of these entities, there can be no assurance that these entities will continue to be customers of SS/L, and SS/L
does not expect to do business with these entities on other than fair and competitive terms.
We rely on key personnel.
We need highly qualified personnel. Michael Targoff, our chief executive officer, has an employment contract
expiring in December 2010, and several of our key officers have employment contracts expiring in November 2007.
We do not maintain “key man” life insurance. The departure of any of our key executives could have an adverse
effect on our business.
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 26
Site: BOWNE OF NEW YORK
[A/E]
CRC: 26628
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
026.00.00.00
*Y31806/026/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
8/3
MHR is our controlling shareholder and may have conflicts of interest with us in the future.
As of December 31, 2006, MHR Fund Management LLC, through its affiliated funds, beneficially owns
approximately 35.9% of our common stock and is the largest single holder of our common stock. After giving effect
to the $300 million preferred stock financing with MHR, and assuming conversion or exchange of the Loral preferred
stock into voting and non-voting common stock, as applicable, MHR will beneficially own approximately 57% of
our voting and non-voting common stock in the aggregate, based on the number of shares outstanding as of March 1,
2007 (approximately 53% on a fully diluted basis assuming shareholder approval of amendments to our stock
incentive plan to increase the number of shares available for grant thereunder). The Loral Series B-1 preferred stock
and Class B non-voting common stock held by MHR may not be converted into Loral voting common stock giving
MHR the right to vote more than 39.999% of Loral’s voting power unless either MHR acquires majority control of
Loral by other means, without regard to the Loral Series A-1 preferred stock initially issued to it, or the common
stock issued upon conversion thereof, or a third party acquires, other than pursuant to certain prohibited transfers
from MHR, a majority of the common stock that would be outstanding on a fully diluted basis. MHR also owns
38.3% of Loral Skynet’s preferred stock and 44.6% of Loral Skynet’s senior secured notes. Moreover,
representatives of MHR currently occupy three of the nine seats on our board of directors and following appointment
of its additional Board nominee under the terms of the Loral preferred stock financing, MHR representatives or
nominees will occupy four of our nine Board seats. In addition, two of our other directors were selected by the
creditors’ committee in our Chapter 11 Cases, in which MHR served as the chairman. Conflicts of interests may arise
in the future between us and MHR. For example, MHR and its affiliated funds are in the business of making
investments in companies and may acquire and hold interests in businesses that compete directly or indirectly with
us. Under our agreement with PSP, in the event that MHR’s ownership of our voting stock falls below certain levels
or there is a change in the composition of a majority of the members of Loral board of directors over a consecutive
two-year period, we will lose our right to cause the removal of New Telesat’s CEO and our rights to approve certain
actions by New Telesat. In addition, after any of these events, PSP will have certain rights to enable it to exit from its
investment in New Telesat, including a right to cause New Telesat to conduct an initial public offering in which
PSP’s shares would be the first shares offered or, if no such offering has occurred within one year due to a lack of
cooperation from Loral or New Telesat, to cause the sale of Holdings and to drag along the other shareholders in
such sale, subject to our right to call PSP’s shares at fair market value.
Compliance with the Sarbanes-Oxley Act increases our operating expenses.
The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the Securities and Exchange
Commission (“SEC”), have required changes to some of our corporate governance practices. These changes include
developing financial and disclosure processes that satisfy Section 404 of the Sarbanes-Oxley Act. We expect that
these rules and regulations will continue to make some activities more difficult, time-consuming and costly. We also
expect that these rules and regulations could make it more difficult for us to attract and retain qualified members of
our Board of Directors, particularly to serve on our audit committee and to attract and retain qualified executive
officers. If we are unable to comply with the Sarbanes-Oxley Act and related rules and regulations, our business
could be materially adversely affected.
The future use of tax attributes is limited upon emergence from bankruptcy.
As of December 31, 2006, we had net operating loss carryforwards, or NOLs, of approximately $1.0 billion that
are available to offset future taxable income (see Notes 3 and 14 to the consolidated financial statements for a
description of the accounting treatment of such NOLs). As our reorganization on November 21, 2005 constituted an
“ownership change” under Section 382 of the Internal Revenue Code, our ability to use these NOLs, as well as
certain other tax attributes existing at such effective date, is subject to an annual limitation of approximately
$32 million, subject to increase or decrease based on certain factors. If New Loral experiences an additional
“ownership change” during any three-year period after November 21, 2005, future use of these tax attributes may
become further limited. An ownership change may be triggered by sales or acquisitions of Loral equity interests
beyond certain thresholds by shareholders owning five percent or more of our total equity value, ie., the total market
value of our equity interests (whether common or preferred), as determined on any applicable testing date. We
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 27
Site: BOWNE OF NEW YORK
[A/E]
CRC: 41287
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
027.00.00.00
*Y31806/027/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
7/3
would, however, be adversely affected by an additional “ownership change” only if at the time of such change, our
total equity value multiplied by the federal applicable long-term tax exempt rate was less than $32 million.
There is a thin trading market for our common stock.
Our common stock was first issued and listed on the NASDAQ National Market in December 2005. Since that
time, trading activity in our stock has generally been light. Moreover, over 50% of our common stock is effectively
held by MHR and several other shareholders. If any of our significant shareholders should sell some or all of their
holdings, it will likely have an adverse effect on our share price. Although the funds affiliated with MHR have
restrictions on their ability to sell our shares under U.S. securities laws, they have registration rights in respect of the
securities they hold in Loral and Loral Skynet, including our common stock that would, if exercised, eliminate such
restrictions.
The market for our stock could be adversely affected by future issuance of significant amounts of our common
stock.
As of December 31, 2006, 20 million shares of our common stock were outstanding. On that date, there were
1,310,452 stock options outstanding, 353,863 of which were vested and exercisable and 956,589 of which will
become vested and exercisable over the next three years. In addition, subject to stockholder approval at an annual or
special meeting of our stockholders, we have adopted amendments to our 2005 Stock Incentive Plan to increase by
1,165,000 the number of shares available for grant thereunder. These amendments cover the following grants, which
are all subject to stockholder approval of the plan amendments: (v) the grant in March 2006 of options to purchase
825,000 shares to our Chief Executive Officer, Michael B. Targoff, in connection with his entering into an
employment agreement with us (the “Targoff March 2006 Option Grant”), (w) the grant in June 2006 of options to
purchase 20,000 shares to our Chief Financial Officer, Richard J. Townsend, in connection with his entering into an
amendment to his employment agreement, (x) the grant in June 2006 of options to purchase 120,000 shares to our
director, Dean A. Olmstead, in connection with his entering into a consulting agreement, (y) grants of approximately
175,000 shares of restricted stock to employees of SS/L to be issued upon stockholder approval of the plan
amendments and (z) approximately 25,000 shares available for future grant. Moreover, we intend to further amend
our stock option plan in the future to provide for additional increases in the number of shares available for grant
thereunder, including, among others, an increase to cover an option grant which we have agreed, provided he has
earned his target bonus for 2006 and 2007, to grant to Mr. Targoff in 2008 with a Black-Scholes value equal to one-
half of the value of the Targoff March 2006 Option Grant, an increase to cover the component of annual fees to our
directors that consists of restricted stock awards (2,000 shares annually for each director and 5,000 shares annually
for the non-executive chairman) and an increase to cover a target annual option grant to Mr. Townsend having a
Black-Scholes value equal to his base salary then in effect multiplied by 1.4.
In connection with a stipulation entered into with certain directors and officers of Old Loral and a stipulation
entered into with the plaintiffs in a purported class action lawsuit brought by participants in the 401(k) Savings Plan
of Old Loral, certain claims aggregating $77 million may result in the distribution of our common stock in addition to
the 20 million shares being distributed under the Plan of Reorganization. For more detail about these stipulations, see
Note 19 to the consolidated financial statements.
Based on the initial conversion price of $30.1504 per share and assuming stockholder approval of the creation of
the Class B non-voting common stock, the Series A-1 Loral convertible preferred stock and the Series B-1 Loral
convertible preferred stock are convertible by its holders into 1,365,262 shares of common stock and
8,584,858 shares of Class B-1 non-voting common stock, respectively. In addition to seeking stockholder approval
for the creation of Class B non-voting common stock, we also intend to seek approval at our upcoming stockholders
meeting in May 2007, to increase our number of authorized shares of common stock from 40,000,000 shares to
60,000,000 shares.
Sales of significant amounts of our common stock to the public, or the perception that those sales could happen,
could adversely affect the market for, and the trading price of, our common stock.
26
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 28
Site: BOWNE OF NEW YORK
[A/E]
CRC: 21674
EDGAR 2
Phone: (212)924-5500
BNY
028.00.00.00
*Y31806/028/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
5/3
Table of Contents
IV. Litigation and Disputes
We are involved in a number of ongoing lawsuits.
We are involved in a number of lawsuits, details of which can be found in Note 19 to the consolidated financial
statements. In addition, we are involved in a number of disputes which might result in litigation. For further details
see Note 19 to the consolidated financial statements. If any of these lawsuits or disputes are decided against us it
could have a material adverse affect on our financial condition and our results of operations.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Corporate
We lease approximately 26,000 square feet of space for our corporate offices in New York.
Satellite Manufacturing
SS/L’s research, production and testing are conducted in SS/L-owned facilities covering approximately
564,000 square feet on 29 acres in Palo Alto, California. In addition, SS/L leases approximately 463,000 square feet
of space on 23 acres from various third parties primarily in Palo Alto, Menlo Park and Mountain View, California.
Satellite Services
Loral Skynet owns two telemetry, tracking and control stations covering approximately 58,000 square feet on
218 acres in Hawley, Pennsylvania and Mt. Jackson, Virginia. Loral Skynet leases space for two telemetry, tracking
and control stations covering approximately 7,000 square feet in Kapolei, Hawaii and in Rio de Janeiro, Brazil. Loral
Skynet also leases approximately 54,000 square feet of office space in Bedminster, New Jersey and Rockville,
Maryland and 29,000 square feet in various locations around the world. In addition, in March 2006, we sold some of
our excess facilities.
Management believes that the facilities for satellite manufacturing and satellite services are sufficient for their
current operations but is initiating satellite manufacturing facility expansion efforts to accommodate future growth.
Item 3. Legal Proceedings
We discuss certain legal proceedings pending against the Company in the notes to the consolidated financial
statements and refer you to that discussion for important information concerning those legal proceedings, including
the basis for such actions and relief sought. See Note 19 to the consolidated financial statements for this discussion.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
(a) Market Price and Dividend Information
New Loral Common Stock
New Loral has authorized 40 million shares of common stock, $0.01 par value per share, 20 million of which are
outstanding as of December 31, 2006. Subject to the preferences and other rights of the Loral Series-1 Preferred
Stock, holders of shares of New Loral common stock, and if and when authorized and issued, shares of the Class B
27
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 29
Site: BOWNE OF NEW YORK
[A/E]
CRC: 15261
EDGAR 2
Phone: (212)924-5500
BNY
029.00.00.00
*Y31806/029/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
3/3
Table of Contents
non-voting common stock, are entitled to share equally, share for share in dividends when and as declared by the
board of directors out of funds legally available for such dividends. If and when issued, pursuant to the terms of the
Loral Series-1 Preferred Stock, shares of the Series A-2 and Series B-2 preferred stock will have the right to
participate in all dividends paid on New Loral common stock on an as converted basis. Subject to the rights, powers
and preferences of the Loral Series-1 Preferred Stock, and, if and when issued pursuant to the terms of the Series B-1
Preferred Stock, the Series B-2 preferred stock, upon a liquidation, dissolution or winding up of New Loral, the
assets of New Loral available to stockholders will be distributed equally per share to the holders of New Loral
common stock, and if and when issued, the Series A-2 preferred stock and Class B non-voting common stock. Except
as otherwise provided in the Restated Certificate of Incorporation or bylaws of New Loral, each holder of New Loral
common stock is entitled to one vote in respect of each share of New Loral common stock held of record on all
matters submitted to a vote of stockholders. The holders of New Loral common stock do not have any cumulative
voting rights. New Loral common stock has no preemptive or conversion rights or other subscription rights. There
are no redemption or sinking fund provisions applicable to New Loral common stock. All outstanding shares of New
Loral common stock are fully paid and non-assessable.
Effective with the emergence from bankruptcy on November 21, 2005 and the consummation of the Plan of
Reorganization, Old Loral common stock was cancelled and New Loral issued 20 million shares of common stock to
its distribution agent. To date, approximately 19.9 million shares have been distributed to Old Loral creditors. New
Loral common stock began trading on a when-issued basis on July 27, 2005 on the Over-the-Counter (“OTC”)
Bulletin Board Service under the ticker symbol “LRALV.” Upon the initial distribution to creditors made on
December 8, 2005, the stock began trading on the NASDAQ National Market under the ticker symbol “LORL.” The
table below sets forth the high and low sales prices of New Loral common stock as reported on the OTC
Bulletin Board Service and NASDAQ National Market from July 27, 2005 through December 31, 2006.
Year ended December 31, 2006
Quarter ended December 31, 2006
Quarter ended September 30, 2006
Quarter ended June 30, 2006
Quarter ended March 31, 2006
Year ended December 31, 2005
October 1, 2005 through December 31, 2005
July 27, 2005 through September 30, 2005
28
High Low
$ 41.13 $ 26.05
29.40 24.50
29.39 26.37
28.75 24.44
$ 29.40 $ 21.75
$ 28.70 $ 26.50
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 30
Site: BOWNE OF NEW YORK
[A/E]
CRC: 5681
EDGAR 2
Phone: (212)924-5500
BNY
030.00.00.00
*Y31806/030/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
7/3
Table of Contents
Comparison of Cumulative Total Returns
The following Performance Graph and related information shall not be deemed “soliciting material” or to be
“filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into
any future filing und the Securities Act of 1933 or Securities Act of 1934, each as amended, except to the extent that
the Company specifically incorporates it by reference into such filings.
Set forth below is a graph comparing the cumulative performance of our common stock with the NASDAQ
Composite Index, and the NASDAQ Telecommunications Index from November 21, 2005, the issue date of our
common stock, to December 31, 2006. The graph assumes that $100 was invested on November 21, 2005 in each of
our common stock, the NASDAQ Composite Index and the NASDAQ Telecommunications Index and that all
dividends were reinvested. The NASDAQ Telecommunications Index is a capitalization weighted index designed to
measure the performance of all NASDAQ-traded stocks in the telecommunications sector, including satellite
technology companies.
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Old Loral Common Stock
As a result of the commencement of our Chapter 11 Cases, on July 15, 2003, the NYSE suspended trading of
Old Loral’s common stock and removed the securities from listing and registration on September 2, 2003. On
July 16, 2003, Old Loral’s common stock began to be quoted under the ticker symbol LRLSQ on the OTC
Bulletin Board Service and the Pink Sheets Service (“Pink Sheets”). The following table presents the reported high
and low closing prices of Old Loral’s common stock as reported on the OTC Bulletin Board Service for 2005:
Year ended December 31, 2005
October 1, 2005 through November 21, 2005
Quarter ended September 30, 2005
Quarter ended June 30, 2005
Quarter ended March 31, 2005
(b) Approximate Number of Holders of Common Stock
At March 1, 2007, there were 188 holders of record of the New Loral common stock.
29
High Low
$ 0.43 $ 0.04
0.30 0.04
0.53 0.16
0.23 0.11
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Phone: (212)924-5500
BNY
031.00.00.00
*Y31806/031/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
3/3
BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 31
Site: BOWNE OF NEW YORK
[A/E]
CRC: 60894
EDGAR 2
Table of Contents
(c) Dividends
Old Loral never paid dividends on its common stock. In August 2002, Old Loral’s Board of Directors approved
a plan to suspend indefinitely the payment of dividends on Old Loral’s Series C and Series D preferred stock. Old
Loral did not pay any dividends or make any distributions during the pendency of the Chapter 11 Cases and effective
with the emergence from bankruptcy on November 21, 2005 and the consummation of the Plan of Reorganization, all
of Old Loral’s preferred stock was cancelled.
New Loral’s ability to pay dividends or distributions on its common stock will depend upon its earnings,
financial condition and capital needs and other factors deemed pertinent by the Board of Directors. The terms of the
Loral Series-1 Preferred Stock restrict the Company’s ability to pay dividends on its common stock. To date, New
Loral has not paid any dividends on its common stock. On February 27, 2007, New Loral issued 136,526 and
858,486 shares, respectively, of its Series A-1 and Series B-1 Preferred Stock. The Series A-1 and Series B-1
Preferred Stock have an aggregate liquidation preference equal to the greater of (i) $300,000,098 plus accrued and
unpaid dividends plus during the first sixty-six months following the issuance date, a make-whole amount and (ii) the
amount that would be payable to the holders of such preferred stock if such holders had converted all outstanding
shares of such preferred stock into common stock immediately prior to the company’s liquidation, dissolution or
winding up. The Series A-1 and Series B-1 Preferred Stock pay dividends at the rate of 7.5% per annum, payable
quarterly in additional shares of Series A-1 and Series B-1 Preferred Stock through April 2011. Thereafter, dividends
may be paid in cash at New Loral’s option if it is then able to satisfy certain financial requirements.
On the Effective Date, Loral Skynet issued one million shares of Series A 12% Non-Convertible Preferred
Stock, $0.01 par value per share (the “Loral Skynet Preferred Stock”), of which 993,986 shares have been distributed
to the creditors to date. The Loral Skynet Preferred Stock had an aggregate initial liquidation preference of
$200 million and dividends (if not paid or accrued as permitted under certain circumstances) will be payable in kind
(in additional shares of Loral Skynet Preferred Stock) if the amount of any dividend payment would exceed certain
thresholds. On July 14, 2006, Loral Skynet paid a dividend on its Loral Skynet Preferred Stock of $15.53 million,
which covered the period from November 21, 2005 through July 13, 2006. The dividend consisted of $1.27 million in
cash and $14.26 million in Loral Skynet Preferred Stock. After payment of the dividend, $214.26 million of Loral
Skynet Preferred Stock was issued and outstanding. It is expected that the Loral Skynet Preferred Stock will be
redeemed as part of the Skynet Transaction.
(d) Sales of Unregistered Securities by Registrant
Pursuant to the Plan of Reorganization, New Loral issued 20 million shares of common stock, par value $.01 per
share, on the Effective Date to satisfy claims of certain creditors. As provided by Section 1145 of the Bankruptcy
Code, the issuance of such securities were exempt from registration under the Securities Act of 1933, as amended.
(e) Securities Authorized for Issuance under Equity Compensation Plans
See Note 15 to the consolidated financial statements for information regarding the Company’s stock options.
Compensation information required by Item 10 will be presented in the Company’s 2006 definitive proxy statement
which is incorporated herein by reference.
Item 6. Selected Financial Data
The following table sets forth our selected historical financial and operating data for the year ended
December 31, 2006, the period October 2, 2005 to December 31, 2005, the period January 1, 2005 to October 1,
2005 and each of the three years in the period ended December 31, 2004.
For all periods presented in the statement of operations, income from continuing operations excludes the results
of the North American satellites and related assets sold on March 17, 2004 to Intelsat, which have been accounted for
as a discontinued operation and accordingly are presented separately in the consolidated selected financial data (see
Note 5 to the consolidated financial statements).
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:
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 32
Site: BOWNE OF NEW YORK
[A/E]
CRC: 4857
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
032.00.00.00
*Y31806/032/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
5/3
On August 1, 2005, the Bankruptcy Court entered its Confirmation Order confirming the Plan of
Reorganization. On September 30, 2005, the FCC approved the transfer of FCC licenses from Old Loral to New
Loral, which represented the satisfaction of the last material condition precedent to emergence from bankruptcy. We
emerged from bankruptcy on November 21, 2005 and pursuant to SOP 90-7 we adopted fresh-start accounting as of
October 1, 2005. We engaged an independent appraisal firm to assist in determining the fair values of our assets and
liabilities. Upon emergence, our reorganization enterprise value as determined by the Bankruptcy Court was
approximately $970 million, which after reduction for the fair value of Loral Skynet’s 14% Senior Notes and the
Loral Skynet Preferred Stock (See Notes 3 and 15 to the consolidated financial statements), resulted in a
reorganization equity value of approximately $642 million. This reorganization equity value was allocated to our
assets and liabilities. Our assets and liabilities were stated at fair value in accordance with Statement of Financial
Accounting Standards (“SFAS”) No. 141, Business Combinations (“SFAS 141”). In addition, our accumulated
deficit was eliminated, and our new debt and equity were recorded in accordance with distributions pursuant to the
Plan of Reorganization (see Note 4 to the consolidated financial statements). Our consolidated financial statements as
of October 1, 2005 and for dates subsequent will not be comparable in certain material respects to the historical
consolidated financial statements for prior periods included elsewhere in this Annual Report on Form 10-K.
References to the Predecessor Registrant refer to the period prior to October 2, 2005. References to the
Successor Registrant refer to the period on and after October 2, 2005, after giving effect to the adoption of fresh-start
accounting.
The information set forth in the following table should be read in conjunction with “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related
notes thereto included elsewhere in this Annual Report on Form 10-K.
LORAL SPACE & COMMUNICATIONS INC.
(In thousands, except per share data)
Successor Registrant
Predecessor Registrant
For the Period For the Period
October 2,
January 1,
Year Ended
December 31, December 31,
2005 to
2005 to
October 1,
2006
2005
2005
Year Ended December 31,
2002
2003
2004
Statement of operations data:
Revenues
Operating income (loss) from continuing operations
Gain on discharge of pre-petition obligations and fresh-
$
start adjustments
Income (loss) from continuing operations before
income taxes, equity (losses) income in affiliates and
minority interest
Income tax (provision) benefit
Income (loss) from continuing operations before equity
(losses) income in affiliates and minority interest
Equity (losses) income in affiliates(3)
Minority interest
(Loss) income from continuing operations
(Loss) income from discontinued operations, net of
taxes
Gain on sale of discontinued operations, net of taxes
(Loss) income before cumulative effect of change in
accounting principle and extraordinary gain on
acquisition of minority interest
797,333 $
29,818
197,165 $
(4,945 )
429,183 $ 522,127
(67,095 ) (214,345 )
$ 392,043 $ 900,527
(388,873 ) (208,368 )
—
—
1,101,453(1)
—
—
—
30,117
(20,880 )
9,237
(7,163)
(24,794 )
(22,720 )
—
—
(5,395 )
(1,752 )
1,022,651 (207,852 )
(368,355 ) (237,540 )
10,901 (13,284 )(2)
6,330 (322,422 )(2)
(7,147 )
(5,447 )
(2,667 )
(15,261 )
1,033,552 (221,136 )
(2,796 ) 46,654
135
1,030,882 (174,347 )
126
(362,025 ) (559,962 )
(51,153 ) (76,280 )
(226 )
20
(413,158 ) (636,468 )
—
—
—
13,967
(2,348 )
—
18,803 57,566
—
—
(22,720 )
(15,261 )
1,044,849 (176,695 )
(394,355 ) (578,902 )
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 33
Site: BOWNE OF NEW YORK
[A/E]
CRC: 34315
EDGAR 2
Phone: (212)924-5500
BNY
033.00.00.00
*Y31806/033/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
5/3
Table of Contents
Successor Registrant
Predecessor Registrant
For the Period For the Period
October 2,
January 1,
Year Ended
December 31, December 31,
2005 to
2005 to
October 1,
2006
2005
2005
Year Ended December 31,
2002
2003
2004
Cumulative effect of change in accounting principle,
net of taxes
Extraordinary gain on acquisition of minority interest
Net (loss) income
Preferred dividends
Net (loss) income applicable to common stockholders
Basic and diluted (loss) earnings per share:
Continuing operations
Discontinued operations
Before cumulative effect of change in accounting
$
principle and extraordinary gain on acquisition of
minority interest
Cumulative effect of change in accounting principle
Extraordinary gain on acquisition of minority interest
$
(Loss) earnings per share
—
—
(22,720)
—
(22,720)
—
—
(15,261 )
—
(15,261 )
—
—
—
(1,970 )
— 13,615
—
1,044,849 (176,695 ) (382,710 ) (1,469,211 )
(89,186 )
1,044,849 (176,695 ) (389,429 ) (1,558,397 )
(6,719 )
—
—
(890,309 )(4)
(1.14 ) $
—
(0.76 ) $
—
23.37 $
0.32
(3.96 ) $
(0.05 )
(9.58 ) $
0.43
(19.47 )
1.55
(1.14 )
—
—
(1.14 ) $
(0.76 )
—
—
(0.76 ) $
23.69
—
—
23.69 $
(4.01 )
—
—
(4.01 ) $
(9.15 )
(0.05 )
0.31
(8.89 ) $
(17.92 )
(23.89 )
—
(41.81 )
Deficiency of earnings to cover fixed charges
Cash flow data:
Provided by (used in) operating activities(5)
(Used in) provided by investing activities(6)
Provided by (used in) equity transactions
(Used in) provided by financing transactions
$
13,377 $
8,062 $
65,570 $ 208,809 $ 389,218 $ 337,019
88,002
(175,978)
—
(1,278)
(38,531 )
(5,089 )
—
120,763
(143,827 ) 66,129 232,653
194,707 906,887 (157,484 )
3,852
(3,313 )
—
—
— (966,887 )
192,670
(138,824 )
(32,737 )
(115,122 )
Successor Registrant
December 31,
2006
2005
2004(7)
Predecessor Registrant
December 31,
2003(7)
Balance sheet data:
Cash and cash equivalents
Short-term investments
Total assets
Debt, including current portion
Non-current liabilities and minority interest
Convertible redeemable preferred stock
Liabilities subject to compromise (see Notes 5 and
11 to the consolidated financial statements)
Shareholders’ equity (deficit)
$ 186,542
106,588
1,729,911
128,084
535,271
—
—
$ 275,796 $ 147,773
—
1,678,977 1,218,733
128,191
—
84,677
603,374
—
—
—
647,002
— 1,916,000
627,164 (1,044,101 )
$ 141,644
—
2,463,813
—
72,932
—
2,921,680
(855,670 )
2002(2)(4)
$
65,936
—
2,692,802
2,236,497
354,475
125,081
—
(354,227 )
(1) In connection with our emergence from Chapter 11 and our adoption of fresh-start accounting on October 1, 2005, we recognized a gain on
discharge of pre-petition obligations and fresh-start adjustments of $1.101 billion, related interest expense of $13.2 million related to the
holders of claims to be paid in cash and a tax benefit of $15.4 million, each of which is reflected separately in our statement of operations
(see Note 4 to the consolidated financial statements).
(2) 2004 includes an $11 million increase to the deferred tax valuation allowance relating to the reversal of deferred tax liabilities arising from
the write-off of our investment in Globalstar, L.P.’s $500 million credit facility, upon Globalstar, L.P.’s dissolution in June 2004. 2002
includes an increase in the deferred tax valuation allowance of $390 million, based upon management’s assessment that insufficient
positive evidence existed substantiating recoverability of our loss carryforwards and other deferred tax assets (see Note 14 to the
consolidated financial statements).
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 34
Site: BOWNE OF NEW YORK
[A/E]
CRC: 42399
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
034.00.00.00
*Y31806/034/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
3/3
(3) Our principal affiliate is XTAR. Loral also has investments in joint ventures providing Globalstar service, which are accounted for under
the equity method. During 2004, we recorded $47 million of equity income on the reversal of vendor financing liabilities that were non-
recourse to SS/L in the event of non-payment by Globalstar, L.P. During 2003, we wrote off our remaining investment of $29 million in
Satmex. See Note 9 to the consolidated financial statements.
(4) On January 1, 2002, in compliance with the adoption of SFAS 142, we recorded a charge of $890 million to write off all of our goodwill as
the cumulative effect of change in accounting principle.
(5) Cash flow provided by (used in) operating activities includes cash flow from operating activities provided by discontinued operations.
(6) Cash flow (used in) provided by investing activities includes cash flow provided by (used in) investing activities of discontinued
operations.
(7) As a result of our Chapter 11 filing, Old Loral’s debt obligations, preferred stock obligations and certain other liabilities existing at July 15,
2003, were classified as liabilities subject to compromise on our balance sheets at December 31, 2004 and 2003. These obligations have
been extinguished as of the Effective Date.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with our consolidated financial statements
(the “financial statements”) included in Item 15 of this Annual Report on Form 10-K.
Loral Space & Communications Inc. (“New Loral”) was formed to succeed to the business conducted by its
predecessor registrant, Loral Space & Communications Ltd. (“Old Loral”), which emerged from reorganization
proceedings under chapter 11 (“Chapter 11”) of title 11 the United States Code on November 21, 2005 (the
“Effective Date”) pursuant to the terms of the fourth amended joint plan of reorganization of Old Loral and its debtor
subsidiaries, as modified (the “Plan of Reorganization”).
We adopted fresh start accounting as of October 1, 2005, in accordance with Statement of Position No. 90-7,
Financial Reporting of Entities in Reorganization Under the Bankruptcy Code (“SOP 90-7”). Accordingly, our
financial information disclosed under the heading “Successor Registrant” for the periods ended and as of
December 31, 2006 and 2005, respectively, is presented on a basis different from, and is therefore not comparable to,
our financial information disclosed under the heading “Predecessor Registrant” for the period ended and as of
October 1, 2005 (the date we adopted fresh-start accounting) or for prior periods.
The terms, “Loral,” the “Company,” “we,” “our” and “us,” when used in this report with respect to the period
prior to our emergence from Chapter 11, are references to Old Loral, and when used with respect to the period
commencing after our emergence, are references to New Loral. These references include the subsidiaries of Old
Loral or New Loral, as the case may be, unless otherwise indicated or the context otherwise requires.
References to full-year 2005 financial information throughout this discussion combine the periods of January 1,
2005 to October 1, 2005 with October 2, 2005 to December 31, 2005. Management believes that providing this
financial information is the most relevant and useful method for making comparisons.
Disclosure Regarding Forward-Looking Statements
Except for the historical information contained in the following discussion and analysis, the matters discussed
below are not historical facts, but are “forward-looking statements” as that term is defined in the Private Securities
Litigation Reform Act of 1995. In addition, we or our representatives have made and may continue to make forward-
looking statements, orally or in writing, in other contexts. These forward-looking statements can be identified by the
use of words such as “believes,” “expects,” “plans,” “may,” “will,” “would,” “could,” “should,” “anticipates,”
“estimates,” “project,” “intend,” or “outlook” or other variations of these words. These statements, including
without limitation, those relating New Telesat, are not guarantees of future performance and involve risks and
uncertainties that are difficult to predict or quantify. Actual events or results may differ materially as a result of a
wide variety of factors and conditions, many of which are beyond our control. For a detailed discussion of these and
other factors and conditions, please refer to the Commitments and Contingencies section below and to our other
periodic reports filed with the Securities and Exchange Commission (“SEC”). We operate in an industry sector in
which the value of securities may be volatile and may be influenced by economic and other factors beyond our
control. We undertake no obligation to update any forward-looking statements.
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Phone: (212)924-5500
BNY
035.00.00.00
*Y31806/035/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
1/3
BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 35
Site: BOWNE OF NEW YORK
[A/E]
CRC: 47125
EDGAR 2
Table of Contents
Overview
Businesses
Loral is a leading satellite communications company organized into two operating segments: Satellite
Manufacturing and Satellite Services.
Satellite Manufacturing
Our subsidiary, Space Systems/Loral, Inc. (“SS/L”), designs and manufactures satellites, space systems and
space system components for commercial and government customers whose applications include fixed satellite
services (“FSS”), direct-to-home (“DTH”) broadcasting, mobile satellite services (“MSS”), broadband data
distribution, wireless telephony, digital radio, digital mobile broadcasting, military communications, weather
monitoring and air traffic management.
Satellite manufacturers have high fixed costs relating primarily to labor and overhead. Based on its current cost
structure, we estimate that SS/L covers its fixed costs, including depreciation and amortization, with an average of
five to six satellite awards a year depending on the size, power, pricing and complexity of the satellite. Cash flow in
the satellite manufacturing business tends to be uneven. It takes two to three years to complete a satellite project and
numerous assumptions are built into the estimated costs. SS/L’s cash receipts are tied to the achievement of contract
milestones that depend in part on the ability of its subcontractors to deliver on time. In addition, the timing of satellite
awards is difficult to predict, contributing to the unevenness of revenue and making it more challenging to align the
workforce to the workflow.
While its requirement for ongoing capital investment to maintain its current capacity is relatively low, SS/L
estimates that facilities expansion to enable the booking of, on average, seven to nine satellite awards per year will
require incremental capital expenditures of up to $150 million over the next three years and has initiated planning
efforts to accomplish this. The satellite manufacturing industry is a knowledge-intensive business, the success of
which relies heavily on its technological heritage and the skills of its workforce. The breadth and depth of talent and
experience resident in SS/L’s workforce of approximately 2,000 personnel, is one of our key competitive resources.
Satellites are extraordinarily complex devices designed to operate in the very hostile environment of space. This
complexity may lead to unanticipated costs during the design, manufacture and testing of a satellite. SS/L establishes
provisions for costs based on historical experience and program complexity to cover anticipated costs. As most of
SS/L’s contracts are fixed price, cost increases in excess of the provisions reduce profitability and may result in
losses to SS/L, which may be material. The highly competitive satellite manufacturing industry has recently
recovered from a several year period in the early part of this decade when order levels reached an unprecedented low
level. Buyers, as a result, have had the advantage over suppliers in negotiating prices, terms and conditions resulting
in reduced margins and increased assumptions of risk by SS/L. SS/L was further handicapped while it was in
Chapter 11, because of buyers’ reluctance to purchase satellites from a company in bankruptcy.
Satellite Services
Our subsidiary, Loral Skynet Corporation (“Loral Skynet”), operates a global fixed satellite services business.
Loral Skynet leases transponder capacity to commercial and governmental customers for video distribution and
broadcasting, high-speed data distribution, Internet access and communications, as well as provides managed
network services to customers using a hybrid satellite and ground-based system. Loral Skynet has four in-orbit
satellites and has one satellite under construction at SS/L. It also provides professional services to other satellite
operators such as fleet operating services. While we compete with fiber optic cable and other terrestrial delivery
systems, primarily for point-to-point applications, Loral Skynet has been able to combine the inherent advantages of
each technology to provide its customers with complete end-to-end services. Since FSS satellites remain in a fixed
point above the earth’s equator and can provide service to wide geographic regions, they provide inherent advantages
over terrestrial systems for certain applications, such as broadcast or point-to-multipoint transmission of video and
broadband data. A satellite offers instant infrastructure. It can cover large geographic areas, sometimes entire
hemispheres, and can not only provide services to populated areas, but also can better serve areas with inadequate
terrestrial infrastructures, low-density populations or difficult geographic terrain.
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 36
Site: BOWNE OF NEW YORK
[A/E]
CRC: 17888
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
036.00.00.00
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Y31806
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Date: 15-MAR-2007 18:01:35.60
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The satellite services business is capital intensive and the build-out of a satellite fleet requires substantial time
and investment. Once these investments are made, however, the costs to maintain and operate the fleet are relatively
low. The upfront investments are earned back through the leasing of transponders to customers over the life of the
satellite. Given the harsh and unpredictable environment in which the satellites operate, another major cost factor is
in-orbit insurance. Annual receipts from this business are fairly predictable because they are derived from an
established base of long-term customer contracts and high contract renewal rates.
Competition in the satellite services market has historically been intense in recent years due to a number of
factors, including transponder over-capacity in certain geographic regions and increased competition from fiber. This
competition puts pressure on prices, depending on market conditions in various geographic regions and frequency
bands. A stronger economy and an increase in capital available for expanded consumer and enterprise-level services
have more recently led to an improvement in demand in certain markets. Much of Loral Skynet’s currently unleased
capacity, however, is over geographic regions where the market is characterized by excess capacity, coupled with
weak demand, or where regulatory obstacles are such that we find ourselves at a competitive disadvantage as
compared to local operators.
During 2006, Loral Skynet initiated steps to restructure its network services global operations, which is a
component of the Satellite Services segment. The plan called for termination of certain operating leases and
involuntary termination of certain employees and was completed in 2006. As of December 31, 2006, we incurred
$1.3 million of costs associated with this plan, of which $0.9 million was for employee termination costs and the
remainder related to the write off of inventory and fixed assets. We do not expect to incur any additional costs
associated with this plan.
On December 16, 2006, a joint venture formed by Loral and its Canadian partner, the Public Sector Pension
Investment Board (“PSP”) entered into a definitive agreement with BCE Inc. to acquire 100 percent of the stock of
Telesat Canada and certain other assets from BCE Inc. for CAD 3.25 billion (approximately $2.79 billion based on
exchange rate of $1.00/CAD 1.1652). In connection with the Telesat transaction, Loral will be responsible for
funding certain cash requirements as well as, contributing substantially all of Loral Skynet’s assets to Telesat
Canada’s business in return for a 64% economic interest in the ultimate parent company of New Telesat, which will
hold both Telesat Canada and the Loral Skynet assets. See “Item 1. Business — Recent Developments” and the
“Telesat Canada Transaction” below.
On March 17, 2004, we consummated the sale of our North American satellites and related assets to certain
affiliates of Intelsat, Ltd. and Intelsat (Bermuda), Ltd. (collectively, “Intelsat”). This transaction precluded Loral
Skynet from providing lease capacity into North America for two years.
Bankruptcy Reorganization
During the years 2001-2003, the sustained and unprecedented decline in demand for our satellites and the
transponder over-capacity in our satellite services business exacerbated Old Loral’s already strained financial
condition brought on primarily by the investments we had previously made in Globalstar, L.P. (“Globalstar”) that we
subsequently wrote-off . Globalstar filed voluntary bankruptcy petitions under Chapter 11 in February 2002. On
July 15, 2003, Old Loral and certain of its subsidiaries (the “Debtor Subsidiaries” and collectively with Old Loral,
the “Debtors”) filed voluntary petitions for reorganization under Chapter 11. During the ensuing two-and-a-half year
period we further increased our emphasis on cash conservation by reducing operating expenses and closely
monitoring capital expenditures.
On August 1, 2005, the Bankruptcy Court entered its confirmation order confirming the Plan of Reorganization.
On September 30, 2005, the Federal Communications Commission (the “FCC”) approved the transfer of FCC
licenses from Old Loral to New Loral, which represented satisfaction of the last material condition precedent to
emergence. The Debtors emerged from their reorganization proceeding under Chapter 11 on November 21, 2005
pursuant to the Plan of Reorganization. Pursuant to SOP 90-7 we adopted fresh-start accounting as of October 1,
2005 (see Notes 2 and 3 to the financial statements).
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Phone: (212)924-5500
BNY
037.00.00.00
*Y31806/037/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
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Site: BOWNE OF NEW YORK
[A/E]
CRC: 33918
EDGAR 2
Table of Contents
Future Outlook
We have reorganized around SS/L’s satellite manufacturing operations and Loral Skynet’s fleet of satellites.
Following our emergence from Chapter 11, we have focused primarily on taking advantage of the years of
experience and superior expertise of our professional senior management team to capture opportunities in our
markets and maintain an efficient stream-lined operation.
Construction of Telstar 11N, a powerful new multi-region Ku-band communications satellite for Loral Skynet,
has begun at SS/L and upon completion will be launched into the 37.55º W.L. orbital location. Scheduled to enter
service in late 2008, Telstar 11N will provide commercial and governmental customers with broadband connectivity
within and among the American, European and African regions. Our customers will also use Telstar 11N for video
distribution and high-speed data and voice services. This satellite will be transferred to New Telesat as part of the
Skynet Transaction (as defined below).
Upon closing of the Telesat acquisition and the Skynet Transaction, Loral will hold a 64% economic interest in
the world’s fourth largest satellite operator with more than $5 billion of backlog. The integration of Loral Skynet’s
and Telesat Canada’s operations and the combined satellite fleet of this new Telesat Canada and Loral Skynet
company, comprised of 11 in-orbit and four satellites under construction, will offer customers expanded satellite and
terrestrial coverage and continue to offer superior customer service. We believe that this transaction will allow New
Telesat to compete more effectively in the FSS industry. (See Satellite Services Operations in Part 1, Item 1 for more
information.)
Critical success factors for both of our segments include maintaining our reputation for reliability, quality and
superior customer service. These factors are vital to securing new customers and retaining current ones. At the same
time, we must continue to contain costs and maximize efficiencies. Loral Skynet is focused on planning the
integration of Loral Skynet’s and Telesat Canada’s operations and identifying opportunities for cost reductions while
managing Loral Skynet’s on-going operations. SS/L is focused on increasing bookings and backlog, while
maintaining the cost efficiencies and process improvements realized over the past several years. In addition, SS/L
must continue to align its direct workforce with the level of awards. In order to complete construction of all the
satellites in backlog and to accommodate long-term growth, SS/L will need, and is in the process of hiring additional
staff. Long-term growth at SS/L will also require expanded facilities, and working capital requirements, primarily for
the orbital component of the satellite contract which is payable to SS/L over the life of the satellite.
We regularly explore and evaluate possible strategic transactions and alliances. We also periodically engage in
discussions with satellite service providers, satellite manufacturers and others regarding such matters, which may
include joint ventures and strategic relationships as well as business combinations or the acquisition or disposition of
assets. In order to pursue certain of these opportunities, we would require additional funds. There can be no
assurance that we will enter into any strategic transactions or alliances and, if so, on what terms or that we will be
able to obtain such financing or favorable terms, if at all.
On February 27, 2007, Loral completed a $300 million preferred stock financing pursuant to the Securities
Purchase Agreement entered into with MHR Fund Management LLC (“MHR”) on October 17, 2006. Loral plans to
use the proceeds from this financing, together with its existing resources, to pursue both internal and external growth
opportunities in the satellite communications industry and strategic transactions or alliances, including completion of
the Telesat acquisition (see Notes 19 and 23 to the consolidated financial statements).
See Part 1, Item 1 of this Annual Report on Form 10-K, for a complete description of Loral’s businesses.
Consolidated Operating Results
Please refer to Critical Accounting Matters set forth below in this section.
The following discussion of revenues and Adjusted EBITDA reflects the results of our operating business
segments for 2006, 2005 and 2004. The balance of the discussion relates to our consolidated results, unless otherwise
noted. As previously discussed, we emerged from Chapter 11 on November 21, 2005 and adopted fresh-start
accounting as of October 1, 2005. As a result of the adoption of fresh-start accounting, the Successor Registrant’s
financial statements are not comparable with the Predecessor Registrant’s financial statements.
36
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 38
Site: BOWNE OF NEW YORK
[A/E]
CRC: 39087
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
038.00.00.00
*Y31806/038/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
1/3
References to full-year 2005 financial information throughout this discussion combine the periods of January 1, 2005
to October 1, 2005 with October 2, 2005 to December 31, 2005. Management believes that presenting the financial
information in this way is the most relevant and useful method for making comparisons.
The common definition of EBITDA is “Earnings Before Interest, Taxes, Depreciation and Amortization.” In
evaluating financial performance, we use revenues and operating income (loss) before depreciation and amortization
(including amortization of stock based compensation) and reorganization expenses due to bankruptcy (“Adjusted
EBITDA”) as the measure of a segment’s profit or loss. Adjusted EBITDA is equivalent to the common definition of
EBITDA before: reorganization expenses due to bankruptcy; gain on discharge of pre-petition obligations and fresh-
start adjustments; gain (loss) on investments; other income (expense); equity in net income (losses) of affiliates; and
minority interest, net of tax.
Adjusted EBITDA allows us and investors to compare our operating results with that of competitors exclusive of
depreciation and amortization, interest and investment income, interest expense, reorganization expenses due to
bankruptcy, other income (expense), net losses of affiliates and minority interest. Financial results of competitors in
our industry have significant variations that can result from timing of capital expenditures, the amount of intangible
assets recorded, the differences in assets’ lives, the timing and amount of investments, the effects of other income
(expense), which are typically for non-recurring transactions not related to the on-going business, and effects of
investments not directly managed. The use of Adjusted EBITDA allows us and investors to compare operating
results exclusive of these items. Competitors in our industry have significantly different capital structures. The use of
Adjusted EBITDA maintains comparability of performance by excluding interest expense. In addition, during
Chapter 11, we recognized interest expense only on the actual interest payments we made. During this period, we did
not make any further interest payments on our debt obligations after March 17, 2004, the date we repaid our secured
bank debt. Reorganization expenses due to bankruptcy were only incurred during the period we were in Chapter 11.
These expenses have been excluded from Adjusted EBITDA to maintain comparability with our results during
periods in which we were not in Chapter 11 and with the results of competitors using similar measures.
We believe the use of Adjusted EBITDA along with U.S. GAAP financial measures enhances the understanding
of our operating results and is useful to us and investors in comparing performance with competitors, estimating
enterprise value and making investment decisions. Adjusted EBITDA as used here may not be comparable to
similarly titled measures reported by competitors. We also use Adjusted EBITDA to evaluate operating performance
of our segments, to allocate resources and capital to such segments, to measure performance for incentive
compensation programs and to evaluate future growth opportunities. Adjusted EBITDA should be used in
conjunction with U.S. GAAP financial measures and is not presented as an alternative to cash flow from operations
as a measure of our liquidity or as an alternative to net income as an indicator of our operating performance.
The sale of our North American satellites and related assets to Intelsat in March 2004 has been accounted for as
a discontinued operation, resulting in our historical statements of operations and statements of cash flows reflecting
such discontinued operations separately from continuing operations (see Note 5 to the financial statements).
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 39
Site: BOWNE OF NEW YORK
[A/E]
CRC: 35491
EDGAR 2
Table of Contents
Revenues:
Year Ended
December 31,
Phone: (212)924-5500
BNY
039.00.00.00
*Y31806/039/5*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
9/5
For the Period For the Period
October 2,
January 1,
2005 to
2005 to
December 31,
October 1,
Year Ended
December 31,
2006
2005 (a)
2005
2005
2004
Satellite Manufacturing
Satellite Services
Revenues from sales-type lease arrangement
Segment revenues
Eliminations(1)
Revenues as reported(2)
$ 696.5 $ 491.3 $
163.8
—
860.3
(63.0 )
$ 797.3 $ 626.4 $
151.5
—
642.8
(16.4 )
(in millions)
161.8 $
37.0
—
198.8
(1.6 )
197.2 $
329.5 $
114.5
—
444.0
(14.8 )
429.2 $
436.6
141.2
87.2
665.0
(142.9 )
522.1
Adjusted EBITDA:
Year Ended
December 31,
For the Period For the Period
October 2,
January 1,
2005 to
2005 to
December 31,
October 1,
Year Ended
December 31,
2006
2005 (a)
2005
2005
2004
Satellite Manufacturing(3)
Satellite Services(4)
Satellite Services sales-type lease arrangement
Corporate expenses(5)
Segment Adjusted EBITDA before eliminations
Eliminations(1)
Adjusted EBITDA
$ 65.9 $ 27.0 $
68.0
—
(26.8 )
107.1
(6.0 )
51.3
—
(28.3 )
50.0
(13.5 )
$ 101.1 $ 36.5 $
(in millions)
11.8 $
11.5
—
(11.0 )
12.3
(1.2 )
11.1 $
15.2 $
39.8
—
(17.3 )
37.7
(12.3 )
25.4 $
(13.5 )
15.6
7.7
(34.9 )
(25.1 )
(24.0 )
(49.1 )
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 40
Site: BOWNE OF NEW YORK
[A/E]
CRC: 8212
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Table of Contents
Reconciliation of Adjusted EBITDA to Net (Loss) Income:
Year Ended
December 31,
Phone: (212)924-5500
BNY
040.00.00.00
*Y31806/040/5*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
10/5
For the Period For the Period
October 2,
January 1,
2005 to
2005 to
December 31,
October 1,
Year Ended
December 31,
Adjusted EBITDA
Depreciation and amortization(6)
Reorganization expenses due to bankruptcy
Operating income (loss) from continuing
2006
2005 (a)
2005
2005
2004
$ 101.1 $
(71.3 )
—
36.5 $
(77.3 )
(31.2 )
(in millions)
11.1 $
(16.0 )
—
25.4 $
(61.3 )
(31.2 )
(49.1 )
(134.8 )
(30.4 )
operations
29.8
(72.0 )
(4.9 )
(67.1 )
(214.3 )
Gain on discharge of pre-petition obligations
and fresh-start adjustments(7)
Interest and investment income
Interest expense
Other expense
Income tax (provision) benefit
Equity (losses) income in affiliates
Minority interest
(Loss) income from continuing operations
Income (loss) from discontinued operations, net
—
31.5
(23.4 )
(7.8 )
(20.8 )
(7.2 )
(24.8 )
(22.7 )
1,101.5
10.5
(21.6 )
(1.1 )
9.1
(8.2 )
(2.6 )
1,015.6
—
4.1
(4.4 )
(0.2 )
(1.8 )
(5.4 )
(2.7 )
(15.3 )
1,101.5
6.4
(17.2 )
(0.9 )
10.9
(2.8 )
0.1
1,030.9
—
9.9
(2.9 )
(0.5 )
(13.2 )
46.6
0.1
(174.3 )
of taxes
Net (loss) income
—
$ (22.7 ) $ 1,029.6 $
14.0
—
(15.3 ) $
14.0
1,044.9 $
(2.4 )
(176.7 )
(a) The combination of the period January 1, 2005 to October 1, 2005 and the period October 2, 2005 to
December 31, 2005 represents non-GAAP financial information. Management believes that presenting the
financial information in this way is the most relevant and useful method for making comparisons.
Represents the elimination of intercompany sales and intercompany Adjusted EBITDA, primarily for satellites
under construction by SS/L for wholly owned subsidiaries.
Includes revenues from affiliates of $11.3 million, $4.1 million, $10.0 million, and $7.8 million for the year
ended December 31, 2006, for the period October 2, 2005 to December 31, 2005, the period January 1, 2005 to
October 1, 2005 and the year ended December 31, 2004, respectively.
(1)
(2)
(3)
Satellite Manufacturing includes:
Adjusted EBITDA before specific identified charges
Transponder rights provided to SS/L in the Satmex Settlement Agreement
Accrued warranty obligations
Write-off of long-term receivables due to contract modifications
Provisions for inventory obsolescence
Satellite Manufacturing segment Adjusted EBITDA before eliminations
39
Year Ended December 31,
2006 2005 (a) 2004
(in millions)
$ 56.8 $ 47.9 $ 10.8
—
—
19.0
(9.7 )
(17.3 )
(8.2 )
(11.3 )
—
—
(1.7 )
(3.3 )
(3.6 )
$ 65.9 $ 27.0 $ (13.5 )
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 41
Site: BOWNE OF NEW YORK
[A/E]
CRC: 46366
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
041.00.00.00
*Y31806/041/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
6/3
Satellite Manufacturing EBITDA excludes charges of $24 million for 2004, as a result of the settlement of all
orbital receivables on satellites sold to Intelsat. This settlement had the effect of reducing future orbital receipts
by $25 million, including $15 million relating to a satellite under construction in 2004. Consistent with our
internal reporting for satellite manufacturing, this decrease in contract value for the satellite under construction
was not reflected as a decrease in 2004 satellite manufacturing revenues. These charges had no effect on our
consolidated results in 2004.
(4) Satellite Services Revenue and EBITDA include $14.9 million resulting from receipt of a customer termination
payment for the year ended December 31, 2006. For the year ended December 31, 2004, Satellite Services
recognized $7.7 million of EBITDA for a sales-type lease arrangement for satellite capacity and an impairment
charge of $12.0 million relating to our Telstar 14/Estrela do Sul-1 satellite and related assets to reduce the
carrying values to the expected proceeds from insurance.
(5) Represents corporate expenses incurred in support of our operations and for the year ended December 31, 2006
and the period October 2, 2005 to December 31, 2005 includes $1.2 million and $3.9 million, respectively, of
continuing expenses for bankruptcy related matters, which after the adoption of fresh-start accounting are
classified as corporate general and administrative expenses.
(6) Includes additional depreciation expense of $9 million for 2004, due to reducing the estimated life of our
Telstar 11 satellite from March 2005 to June 2004. Also includes amortization of unearned stock compensation
charges.
(7) In connection with our emergence from Chapter 11 and our adoption of fresh-start accounting on October 1,
2005, we recognized a gain on discharge of pre-petition obligations and fresh-start adjustments of
$1.101 billion, related interest expense of $13.2 million and a tax benefit of $15.4 million, each of which is
reflected separately in our statement of operations (see Note 4 to the financial statements).
2006 Compared with 2005 and 2005 Compared with 2004 (a)
(a) The combination of the period January 1, 2005 to October 1, 2005 and the period October 2, 2005 to
December 31, 2005 represents non-GAAP financial information. Management believes that presenting the
financial information in this way is the most relevant and useful method for making comparisons.
Revenues from Satellite Manufacturing
Revenues from Satellite Manufacturing
Eliminations
Revenues from Satellite Manufacturing as reported
% Increase
(Decrease)
Year Ended
December 31,
2006
vs.
2006 2005 (a) 2004 2005
2005
vs.
2004
(in millions)
$ 697 $ 491 $ 437 42 % 13 %
(11 ) (137 ) 412 % 91 %
(60 )
$ 637 $ 480 $ 300 33 % 61 %
Revenues from Satellite Manufacturing before eliminations increased by $206 million in 2006 as compared to
2005. Revenues in 2006 include $280 million of revenues from new satellite awards of $1 billion in 2006 and
$417 million of revenues from awards in backlog at the beginning of the year. Revenues in 2005 include
$165 million of revenues from new satellite awards of $824 million in 2005 and $326 million of revenues from
awards in backlog at the beginning of the year. Eliminations consist primarily of revenues from satellites under
construction by SS/L for Satellite Services. As a result, revenues from Satellite Manufacturing as reported increased
$157 million in 2006 as compared to 2005.
Revenues from Satellite Manufacturing before eliminations increased by $54 million in 2005 as compared to
2004. Revenues in 2005 include $165 million of revenues from new satellite awards of $824 million in 2005 and
$326 million of revenues from existing backlog. at the beginning of the year. Revenues in 2004 include $57 million
of revenues from new satellite awards of $385 million in 2004 and $380 million of revenues from awards in backlog
at the beginning of the year. Eliminations consist primarily of revenues from satellites under construction by SS/L
40
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 42
Site: BOWNE OF NEW YORK
[A/E]
CRC: 4928
EDGAR 2
Phone: (212)924-5500
BNY
042.00.00.00
*Y31806/042/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
6/3
Table of Contents
for Satellite Services, and in 2004 include satellites under construction which have been completed. As a result,
revenues from Satellite Manufacturing as reported increased $180 million in 2005 as compared to 2004.
Revenues from Satellite Services
Revenues from Satellite Services before specific items
Customer termination payment
Cash basis customer payments
Revenues from sales-type lease arrangement
Eliminations
Revenues from Satellite Services as reported
% Increase
(Decrease)
Year Ended
December 31,
2006
vs.
2006 2005 (a) 2004 2005
2005
vs.
2004
(in millions)
$ 149 $ 147 $ 141
15 — —
—
5 —
— — 87
2 %
7 %
(3 )
(5 )
(5 ) (35 )% —
$ 161 $ 147 $ 223 10 % (34 )%
Revenues from Satellite Services before specific items increased $2 million in 2006 as compared to 2005,
primarily from increased volume from fixed satellite services of $6 million and increased network services business
of $5 million, offset by a decrease due to contract terminations in network services and professional services of
$4 million and $4 million, respectively. Revenues also decreased $2 million due to the sale of our business television
service and an international gateway. Revenues from Satellite Services as reported increased as a result of the receipt
of a customer termination payment of $15 million in connection with the termination of services on our Estrela do
Sul satellite (see Note 19 to the financial statements), partially offset by revenue associated with a payment made by
a cash basis customer of $5 million in 2005. Eliminations primarily consist of revenues from leasing transponder
capacity to Satellite Manufacturing. As a result, Revenues from Satellite Services as reported increased $14 million
in 2006 as compared to 2005.
Revenues from Satellite Services before revenues from sales-type lease arrangements and eliminations increased
$11 million in 2005 compared to 2004, driven by a number of factors: $6 million in increased volume from Telstar
18 which was in service for all of 2005 versus only four months of 2004, a $6 million increase in revenues from
higher utilization on the other satellites in our fleet, plus $5 million for revenues associated with a payment made by
a cash basis customer. Offsetting these contributions was a $6 million decrease in revenues from Intelsat in
connection with the discontinued operations of the North American fleet. In 2004, we recognized $87 million of
revenues from a sales-type lease arrangement for satellite capacity (see Note 8 to the financial statements).
Eliminations primarily consist of revenues from leasing transponder capacity to Satellite Manufacturing. As a result,
revenues for Satellite Services as reported decreased $76 million in 2005 as compared to 2004.
41
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Phone: (212)924-5500
BNY
043.00.00.00
*Y31806/043/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
5/3
BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 43
Site: BOWNE OF NEW YORK
[A/E]
CRC: 5467
EDGAR 2
Table of Contents
Cost of Satellite Manufacturing
Cost of Satellite Manufacturing includes:
Cost of Satellite Manufacturing before specific identified charges
Depreciation and amortization
Transponder rights provided to SS/L in the Satmex Settlement
Agreement
Accrued warranty obligations
Write-off of long-term receivables due to contract modifications
Provisions for inventory obsolescence
Cost of Satellite Manufacturing
Cost of Satellite Manufacturing as a % of Satellite Manufacturing
% Increase
(Decrease)
Year Ended
December 31,
2005 (a)
(in millions)
2006
vs.
2004 2005
2005
vs.
2004
2006
$ 537
23
$ 394
15
$ 273 36 % 46 %
23 55 % (34 )%
(19 )
8
—
2
$ 551
—
17
—
4
$ 430
—
8 (53 )% 50 %
11
3 (54 )% 10 %
$ 318 28 % 36 %
revenues as reported
87 %
90 % 106 %
Cost of Satellite Manufacturing was $551 million and $430 million for the years ended December 31, 2006 and
2005, respectively. Cost of Satellite Manufacturing increased $121 million in 2006 as compared to 2005. The Cost of
Satellite Manufacturing before specific identified charges increased $143 million in 2006 as compared to 2005,
primarily due to the increase in sales and the related cost of new satellites under construction. The Cost of Satellite
Manufacturing also increased as a result of higher depreciation and amortization expense of $8 million primarily
resulting from the net effect of the amortization of fair value adjustments in connection with the adoption of fresh-
start accounting on October 1, 2005, offset by $19 million related to transponder rights provided to SS/L in the
Satmex Settlement Agreement (see Note 9 to the financial statements) and a warranty expense accrual of $8 million
recorded in 2006 as compared with $17 million in 2005, based upon an analysis of the status of satellites in-orbit. As
a result of the implementation of fresh start accounting on October 1, 2005, depreciation and amortization expense on
fixed assets increased by approximately $5 million and amortization of intangible assets increased by approximately
$3 million.
Cost of Satellite Manufacturing was $139 million and $291 million for the period October 2, 2005 to
December 31, 2005 and the period January 1, 2005 to October 1, 2005, respectively, totaling $430 million for 2005.
Cost of Satellite Manufacturing increased $112 million in 2005 as compared to 2004. The Cost of Satellite
Manufacturing before specific identified charges increased $121 million in 2005 as compared to 2004, primarily due
to the increase in sales for the period and a warranty expense accrual of $17 million recorded in 2005 as compared
with $8 million in 2004, based upon an analysis of the status of satellites in-orbit, partially offset by the effect of
improved factory performance. The Cost of Satellite Manufacturing increase was also offset by lower depreciation
and amortization expense of $8 million primarily resulting from the effects of reduced capital spending and the
adoption of fresh-start accounting on October 1, 2005. Depreciation and amortization for the Successor Registrant
includes a $5 million credit due to amortization of contract valuation adjustments, partially offset by a $3 million
amortization charge for intangibles established in connection with the adoption of fresh-start accounting.
42
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 44
Site: BOWNE OF NEW YORK
[A/E]
CRC: 20023
EDGAR 2
Phone: (212)924-5500
BNY
044.00.00.00
*Y31806/044/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
5/3
Table of Contents
Cost of Satellite Services
% Increase
(Decrease)
Year Ended
December 31,
2006
vs.
2004 2005
2005
vs.
2004
2006 2005 (a)
(in millions)
Cost of Satellite Services includes:
Cost of Satellite Services before specific identified charges
Depreciation and amortization
Impairment charge for Telstar 14/Estrela do Sul-1 satellite
Cost of sales-type lease arrangement
Cost of Satellite Services
Cost of Satellite Services as a % of Satellite Services revenues as reported
$
59
61
—
—
$ 120
$ 53
46
—
—
$ 99
62 %
$ 65 (10 )% (10 )%
112 (25 )% (44 )%
12
80
$ 269 (18 )% (55 )%
82 % 121 %
Cost of Satellite Services was $99 million and $120 million for the years ended December 31, 2006 and 2005,
respectively. Cost of Satellite Services before specific identified charges decreased $6 million in 2006 as compared
to 2005 primarily due to ground segment support costs declining by $4 million, lower employee related expenses of
$2 million and lower insurance premiums on our satellite fleet and lower third party capacity costs totaling
$2 million. These decreases were partially offset by a charge of $1 million related to the buyout of a customer lease
(see Notes 19 and 20 to the financial statements) and a charge of $1 million related to the restructuring of network
services global operations. Depreciation and amortization expense decreased by $15 million in 2006 as compared to
2005, primarily resulting from the net effect of the fair value adjustments in connection with the adoption of fresh-
start accounting on October 1, 2005. Depreciation and amortization for 2006 includes reduced charges of
depreciation and amortization of $12 million for fixed assets and a $3 million credit for amortization of intangibles
primarily resulting from the adoption of fresh-start accounting.
Cost of Satellite Services was $26 million and $94 million for the periods October 2, 2005 to December 31,
2005 and January 1, 2005 to October 1, 2005, respectively, totaling $120 million for 2005. Cost of Satellite Services
before specific identified charges decreased $6 million in 2005 as compared to 2004, primarily because external
satellite capacity costs declined $7 million and payroll and other costs declined $4 million. These decreases were
partially offset by an increase in satellite insurance expense of $3 million due to higher premiums and higher ground
operations costs of $2 million. Depreciation and amortization expense decreased by $51 million in 2005 as compared
to 2004, primarily resulting from a reduction of $42 million related to our Telstar 11 satellite which was fully
depreciated as of December 31, 2004 and the net effect of the fair value adjustments in connection with the adoption
of fresh-start accounting on October 1, 2005. Depreciation and amortization for 2005 includes reduced charges of
depreciation and amortization of $7 million for fixed assets and a $1 million credit for amortization of intangibles
primarily resulting from the adoption of fresh-start accounting. In 2004, we incurred $80 million of costs for a sales-
type lease arrangement and recognized an impairment charge of $12 million for the Telstar 14/Estrela do Sul-1
satellite and related assets to reduce the carrying values to the expected proceeds from insurance of $250 million (see
Note 8 to the financial statements). As a result, cost of Satellite Services decreased $149 million in 2005 as compared
to 2004.
43
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 45
Site: BOWNE OF NEW YORK
[A/E]
CRC: 52544
EDGAR 2
Table of Contents
Selling, General and Administrative Expenses
Selling, general and administrative expenses
Continuing expenses for bankruptcy related matters
Selling, general and administrative expenses as reported
% of revenues as reported
Phone: (212)924-5500
BNY
045.00.00.00
*Y31806/045/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
5/3
% Increase
(Decrease)
2006
vs.
2004 2005
2005
vs.
2004
2006
Year Ended
December 31,
2005 (a)
(in millions)
$ 112
4
$ 116
$ 126
1
$ 127
16 %
$ 119 12 % (2 )%
— (70 )% —%
$ 119
19 % 23 %
Selling, general and administrative expenses as reported were $127 million and $116 million for the years ended
December 31, 2006 and 2005, respectively. Selling, general and administrative expenses before continuing expenses
for bankruptcy related matters increased by $14 million as compared to 2005, primarily due to: increased SS/L costs
of $8 million for research and development and $2 million for rent as a result of the increased volume, partially offset
by lower bid and proposal costs of $2 million; increased costs at Satellite Services for bad debt expense of
$2 million, primarily because of recoveries of $2 million in 2005 and $2 million of severance costs; and higher
Corporate expenses (before continuing expenses for bankruptcy related matters) of $1 million, primarily related to
higher litigation costs of $2 million. Continuing expenses for bankruptcy related matters decreased $3 million as a
result of a $3 million reimbursement related to the settlement of professional fees previously paid.
Selling, general and administrative expenses were $37 million and $79 million for the periods October 2, 2005
to December 31, 2005 and January 1, 2005 to October 1, 2005 respectively, totaling $116 million for 2005. The
decrease of $3 million in selling, general and administrative expenses in 2005 as compared to 2004, was primarily
due to lower headcount and employee related expenses and other cost reductions at Satellite Services of $7 million
and lower corporate expenses of $2 million, partially offset by higher Satellite Manufacturing bid and proposal costs
of $4 million and the inclusion of $4 million of continuing expenses for bankruptcy related matters in General and
Administrative expenses after the adoption of fresh-start accounting.
Gain on Litigation Settlement
Represents a $9 million recovery of launch vehicle deposits in connection with a claim against a supplier for the
wrongful termination of launch service agreements (see Note 19 to the financial statements).
Reorganization Expenses Due to Bankruptcy
Reorganization Expenses Due to Bankruptcy
% Increase
(Decrease)
Year Ended
December 31,
2006
vs.
2006 2005 (a) 2004 2005
2005
vs.
2004
(in millions)
$ — $
31 $ 30 —%
3 %
Reorganization expenses due to bankruptcy decreased $31 million for the year ended December 31, 2006 as
compared to 2005 as a result of the adoption of fresh-start accounting on October 1, 2005. After the adoption of
fresh-start accounting, continuing expenses related to the remaining bankruptcy matters are recorded in general and
administrative expenses.
Reorganization expenses due to bankruptcy increased $1 million in 2005 as compared to 2004 primarily as a
result of higher professional fees of $11 million which was mostly due to professional fees associated with the Equity
Committee that was appointed by the United States Trustee for the Southern District of New York on March 29,
2005 and extensive legal fees associated with the confirmation hearings and vendor settlement gains of $6 million
recorded in 2004. These increases were partially offset by lower 2005 employee retention costs of $11 million and
lower severance costs of $4 million. After the adoption of fresh-start accounting on October 1,
44
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 46
Site: BOWNE OF NEW YORK
[A/E]
CRC: 42483
EDGAR 2
Phone: (212)924-5500
BNY
046.00.00.00
*Y31806/046/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
6/3
Table of Contents
2005, continuing expenses for bankruptcy related matters are recorded in General and Administrative expenses (see
Note 13 to the financial statements).
Gain on Discharge of Pre-petition Obligations and Fresh-start Adjustments
As a result of our emergence from Chapter 11 and adopting fresh-start accounting, we recognized a gain of
$1.101 billion, excluding interest expense of $13 million and a tax benefit of $15 million, in 2005 (see Note 4 to the
financial statements).
Interest and Investment Income
Interest and investment income
Year Ended
December 31,
2006 2005 (a) 2004
(in millions)
$ 32 $
11 $ 10
The interest income increase of $21 million for the year ended December 31, 2006 as compared to 2005, is
primarily due to higher cash balances and higher short-term interest rates in 2006 over 2005. This includes increases
of $13 million due to higher cash balances and short-term interest rates and an increase of $8 million primarily due to
the partial sale of our holdings in Globalstar. These increases were partially offset by lower SS/L interest income on
vendor financing and orbital incentives of $1 million.
Interest income in 2005 and 2004 was primarily derived from our orbital incentives on satellites in orbit
manufactured by SS/L.
Interest Expense
0
6
.
5
3
:
1
0
:
8
1
Year Ended
December 31,
2006 2005 (a) 2004
(in millions)
$ 26 $
—
13
(3 ) —
$ 23 $
9 $ 4
—
(1 )
22 $ 3
Interest cost before capitalized interest
Interest expense in connection with our Plan of Reorganization
Capitalized interest
Interest expense
Interest cost before capitalized interest increased $17 million for the year ended December 31, 2006 as
compared to 2005, primarily due to $14 million of increased interest expense recognized on the Loral Skynet
14% senior secured notes issued in connection with our Plan of Reorganization and a Satellite Manufacturing interest
accrual of $4 million related to warranty obligations. In 2005, we incurred $13 million of interest expense relating to
payments to pre-petition creditors in connection with our Plan of Reorganization. Capitalized interest increased to
$3 million due to higher construction in process balances.
Interest cost before capitalized interest increased $5 million in 2005 as compared to 2004, primarily due to
$3 million of interest expense recognized on the Loral Skynet 14% senior secured notes issued in connection with
our Plan of Reorganization. In 2005, we incurred $13 million of interest expense relating to payments to pre-petition
creditors in accordance with our Plan of Reorganization.
Other Income (Expense)
Other income (expense) in 2006, primarily represents unrealized losses of $6 million on derivative contracts
entered into in connection with the anticipated acquisition of Telesat Canada (see Note 18 to the financial statements)
and the write-off of an investment of $3 million.
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Phone: (212)924-5500
BNY
047.00.00.00
*Y31806/047/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
7/4
BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 47
Site: BOWNE OF NEW YORK
[A/E]
CRC: 45552
EDGAR 2
Table of Contents
Income Tax (Provision) Benefit
During 2006, 2005 and 2004, we continued to maintain the 100% valuation allowance that had been established
at December 31, 2002 against our net deferred tax assets. However, upon emergence from bankruptcy in 2005, we
reversed our valuation allowance relating to $2.0 million of deferred tax assets for AMT credit carryforwards. As of
December 31, 2006, we had valuation allowances totaling $304.9 million, which included a balance of
$304.5 million relating to Old Loral periods preceding our adoption of fresh-start accounting on October 1, 2005. We
will continue to maintain the valuation allowance until sufficient positive evidence exists to support its reversal. If, in
the future, we were to determine that we will be able to realize all or a portion of the benefit from our deferred tax
assets, any reduction to the valuation allowance existing as of October 1, 2005 will first reduce goodwill, then other
intangible assets with any excess treated as an increase to paid-in-capital. During 2006, we utilized the benefits from
$10.4 million of deferred tax assets from Old Loral to reduce our current cash tax liability. The realization of this
benefit created an excess valuation allowance of $10.4 million that was reversed as a reduction to goodwill.
Also during 2006, we recorded a deferred tax provision of $26.0 million in accumulated other comprehensive
income, which created an excess valuation allowance of $26.0 million that was reversed as a reduction to goodwill.
To the extent this adjustment related to unrealized gains on available-for-sale securities, which for 2006 the amount
was $6.4 million, when such securities are ultimately disposed in a future period, we may be required to increase our
income tax provision in the statement of operations in such future period by a portion of such adjustment.
Our income tax provision and benefit can be summarized as follows: (i) for 2006, we recorded a current tax
provision of $11.7 million and a deferred tax provision of $9.1 million, resulting in a total provision of $20.8 million
on pre-tax income of $30 million; (ii) for 2005, we recorded a current tax provision of $7.0 million and a deferred tax
benefit of $16.1 million, resulting in a net benefit of $9.1 million on pre-tax income of $1.017 billion, which included
a gain on discharge of pre-petition obligations and fresh-start adjustments of $1.101 billion; and (iii) for 2004, we
recorded a current tax provision of $1.1 million and a deferred tax provision of $12.2 million, resulting in a total
provision of $13.3 million on a pre-tax loss of $208 million.
The increase to our current provision for 2006 as compared to 2005 and 2004 was primarily attributable to
additional foreign income taxes, primarily Brazil on our lease income and a customer termination payment received
in 2006 on our Estrela do Sul-1 satellite (see Note 8 to the financial statements), accruals of tax contingency
liabilities for potential audit issues and federal and state AMT liabilities expected to be imposed on our taxable
income for 2006.
The deferred income tax provision for 2006 of $9.1 million related to (i) a provision of $10.4 million on current
year income to the extent the taxes imposed on such income were reduced by deferred tax benefits from Old Loral
and, as discussed above, the utilization of these deferred tax benefits created an excess valuation allowance that was
reversed as a reduction to goodwill, (ii) offset by a benefit of $1.3 million for the increase to our deferred tax asset
for additional federal and state AMT credits.
For 2005, in connection with our emergence from bankruptcy, Old Loral realized cancellation of debt income
(“COD”) on its federal income tax return of approximately $440 million. COD realized while in bankruptcy is
excluded from federal taxable income. We were required to reduce certain of our tax attributes, and to the extent
sufficient attributes were not available on a separate company basis, reduce the tax basis in our assets, by an amount
equal to the COD excluded by Old Loral from its taxable income. This adjustment resulted in a reduction of
approximately $160 million to our deferred tax assets and the related valuation allowance. Also, as part of our fresh-
start accounting and plan of reorganization adjustments, we recognized a net income tax benefit of $15.4 million,
which includes a net deferred tax benefit of $16.5 million. See Notes 4 and 14 to the financial statements.
For 2004, the deferred income tax provision of $12.1 million related to an additional valuation allowance which
was required when we reversed the following deferred tax liabilities from accumulated other comprehensive loss:
(i) with the dissolution of Globalstar on June 29, 2004, we wrote off the remaining book value of our investment in
Globalstar’s $500 million credit facility and reduced to zero the unrealized gains and related deferred tax liabilities
previously reflected in accumulated other comprehensive loss. The reversal of this deferred tax liability resulted in a
net deferred tax asset of $11.4 million against which we recorded a full valuation allowance.
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 48
Site: BOWNE OF NEW YORK
[A/E]
CRC: 39035
EDGAR 2
Phone: (212)924-5500
BNY
048.00.00.00
*Y31806/048/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
5/3
Table of Contents
(ii) we also reduced the balance for certain deferred gains on derivative transactions and the related deferred tax
liability included in accumulated other comprehensive loss. The reversal of this deferred tax liability also resulted in
a net deferred tax asset of $0.7 million against which we recorded a full valuation allowance. See Note 6 to the
financial statements.
Equity Income (Losses) in Affiliates
XTAR
Other
Year Ended
December 31,
2006 2005 (a) 2004
(in millions)
$ (7.4 ) $ (8.1 ) $ 0.1
46.5
$ (7.2 ) $ (8.2 ) $ 46.6
0.2
(0.1 )
The decrease in equity losses in XTAR in 2006 represents our share of XTAR losses incurred in connection with
its full year of operations.
XTAR commenced commercial operations in 2005 with the launch of its satellite in February 2005. The
increase in equity losses in XTAR in 2005 represents our share of higher XTAR losses incurred in connection with
its start-up, as well as the elimination of profit related to the construction of the Spainsat satellite by SS/L for
Hisdesat, which was successfully launched on March 11, 2006.
In connection with Globalstar, L.P.’s dissolution in June 2004, we recorded equity income of $46.5 million
relating to Globalstar, L.P. on the reversal of vendor financing that was non-recourse to SS/L in the event of non-
payment by Globalstar, L.P.
Minority Interest
The Loral Skynet Preferred Stock is reflected as minority interest on our consolidated balance sheet and
dividend expense of $24.8 million and $2.7 million for the year ended December 31, 2006 and for the period October
2 to December 31, 2005, respectively, is reflected as minority interest on our consolidated statement of operations.
Minority interest increased $22 million for the year ended December 31, 2006 as compared to 2005, as a result of a
full year of dividend expense in 2006 as compared to 2005 dividend expense from November 21, 2005 for the Loral
Skynet Series A preferred stock issued in connection with our Plan of Reorganization (see Note 3 to the financial
statements).
Minority interest increased in 2005 as compared with 2004, as a result of the $3 million dividend accrual for the
Loral Skynet Series A preferred stock issued in connection with our Plan of Reorganization (see Note 15 to the
financial statements).
Discontinued Operations
Discontinued operations represents the revenues and expenses of the North American satellites and related assets
sold to Intelsat on March 17, 2004 and includes a portion of interest expense on our secured bank debt through
March 18, 2004 (see Interest Expense above). As a result of the resolution of contingencies, primarily relating to the
completion of the Intelsat Americas 8 (Telstar 8) satellite, we have recognized in our 2005 statement of operations
the previously deferred gain on the sale of $14 million, net of taxes of $2 million.
In 2004, the results of the discontinued operations are for the period from January 1, 2004 to March 17, 2004,
the date of the sale and includes the write-off of approximately $11 million of debt issue costs to interest expense
relating to our secured debt that was repaid and $9 million of income in the fourth quarter of 2004 from the
settlement of an insurance claim for a satellite that was sold. For the purpose of this presentation, in accordance with
Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets (“SFAS 144”), all indirect costs normally associated with these operations are included in continuing
operations. These indirect costs include telemetry, tracking and control, access control, maintenance and engineering,
selling and marketing and general and administrative (see Note 5 to the financial statements).
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 49
Site: BOWNE OF NEW YORK
[A/E]
CRC: 29127
EDGAR 2
Phone: (212)924-5500
BNY
049.00.00.00
*Y31806/049/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
4/3
Table of Contents
Backlog
Backlog as of December 31, 2006 and 2005, was as follows (in millions):
Satellite Manufacturing
Satellite Services
Total backlog before eliminations
Satellite Manufacturing eliminations
Satellite Services eliminations
Total backlog
Critical Accounting Matters
2005
2006
$ 1,118 $ 815
453
355
1,268
1,473
—
(116 )
(20 )
(10 )
$ 1,347 $ 1,248
The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the amounts of revenues and expenses reported for the period. Actual
results could differ from estimates.
Fresh-Start Accounting
In connection with our emergence from Chapter 11, we adopted fresh-start accounting as of October 1, 2005,
which required all of our assets and liabilities to be stated at estimated fair value. We engaged an independent
appraisal firm to assist in determining such fair values (see Note 4 to the financial statements). Significant judgment
was exercised by management in estimating the fair values.
Revenue recognition
Most of our Satellite Manufacturing revenue is associated with long-term fixed-price contracts. Revenue and
profit from satellite sales under these long-term contracts are recognized using the cost-to-cost percentage of
completion method, which requires significant estimates. We use this method because reasonably dependable
estimates can be made based on historical experience and various other assumptions that are believed to be
reasonable under the circumstances. These estimates include forecasts of costs and schedules, estimating contract
revenue related to contract performance (including estimated amounts for penalties, performance incentives and
orbital incentives that will be received as the satellite performs on orbit) and the potential for component
obsolescence in connection with long-term procurements. These estimates are assessed continually during the term of
the contract and revisions are reflected when the conditions become known. Provisions for losses on contracts are
recorded when estimates determine that a loss will be incurred on a contract at completion. Under firm fixed-price
contracts, work performed and products shipped are paid for at a fixed price without adjustment for actual costs
incurred in connection with the contract; accordingly, favorable changes in estimates in a period will result in
additional revenue and profit, and unfavorable changes in estimates will result in a reduction of revenue and profit or
the recording of a loss that will be borne solely by us.
Depreciation
Depreciation is provided for on the straight-line method for satellites over the estimated useful life of the
satellite, which is determined by engineering analyses performed at the satellite’s in-service date and re-evaluated
periodically. A decrease in the useful life of a satellite would result in increased depreciation expense.
Cash and Cash Equivalents and Short-Term Investments
As of December 31, 2006, the Company had $305.2 million of cash, short-term investments and restricted cash,
of which $106.6 million is in the form of short-term investments and $12 million is in the form of restricted cash
($3 million included in other current assets and $9 million included in other assets on our condensed consolidated
balance sheet). Short-term investments consist of investments whose maturity at time of purchase was
48
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 50
Site: BOWNE OF NEW YORK
[A/E]
CRC: 48264
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
050.00.00.00
*Y31806/050/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
2/3
greater than 90 days and less than one year or investments which had been long-term whose final maturity is less
than one year from December 31. Management determines the appropriate classification of its investments at the
time of purchase and at each balance sheet date. Our short-term investments include corporate bonds, Euro dollar
bonds, certificates of deposit, commercial paper, Federal Agency notes and auction rate securities. Auction rate
securities, long-term obligations that are sold and purchased through an auction process for a period of 7, 28, 35 or
49 days, are considered to be short-term investments and are classified as available for sale securities.
Available-for-sale securities are carried at fair value with unrealized gains and losses, if any, reported in accumulated
other comprehensive income.
Billed receivables, vendor financing and long-term receivables
We are required to estimate the collectibility of our billed receivables, vendor financing and long-term
receivables. A considerable amount of judgment is required in assessing the collectibility of these receivables,
including the current creditworthiness of each customer and related aging of the past due balances. Charges for
(recoveries of) bad debts recorded to the income statement on billed receivables for the year ended December 31,
2006, the periods October 2, 2005 to December 31, 2005 and January 1, 2005 to December 31, 2005 and for the year
ended December 31, 2004, were $0.3 million, $1.0 million, $(2.9) million, and $(2.1) million, respectively. At
December 31, 2006 and 2005, billed receivables were net of allowances for doubtful accounts of $1.6 million and
$5.5 million, respectively. We evaluate specific accounts when we become aware of a situation where a customer
may not be able to meet its financial obligations due to a deterioration of its financial condition, credit ratings or
bankruptcy. The reserve requirements are based on the best facts available to us and are re-evaluated periodically.
Inventories
Inventories are reviewed for estimated obsolescence or unusable items and, if appropriate, are written down to
the net realizable value based upon assumptions about future demand and market conditions. If actual future demand
or market conditions are less favorable than those we project, additional inventory write-downs may be required.
These are considered permanent adjustments to the cost basis of the inventory. Charges for inventory obsolescence
recorded to the income statement for the year ended December 31, 2006, the period October 2, 2005 to December 31,
2005, the period January 1, 2005 to October 1, 2005 and for the year ended December 31, 2004 were $1.7 million,
$1.5 million, $2.1 million, and $3.3 million, respectively.
Evaluation of Satellites and Other Long-Lived Assets For Impairment
We periodically evaluate our satellites and other long-lived assets for potential impairment losses, when a
change in circumstances occurs, by assessing whether the carrying amount of these assets can be recovered over their
remaining lives through future undiscounted expected cash flows generated by those assets (excluding financing
costs). If the expected undiscounted future cash flows are less than the carrying value of the long-lived asset, an
impairment charge would be recorded based on such asset’s estimated fair value. Changes in estimates of future cash
flows could result in a write-down of the asset in a future period. Estimated future cash flows could be impacted by,
among other things:
(cid:129) Changes in estimates of the useful life of the satellite
(cid:129) Changes in estimates of our ability to operate the satellite at expected levels
(cid:129) Changes in the manner in which the satellite is to be used
(cid:129) The loss of one or several significant customer contracts on the satellite
If an impairment loss was indicated for a satellite, such amount would be recognized in the period of occurrence,
net of any insurance proceeds to be received so long as such amounts are determinable and receipt is probable. If no
impairment loss was indicated in accordance with SFAS 144, and we received insurance proceeds, the proceeds
would be recognized in our consolidated statement of operations.
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Phone: (212)924-5500
BNY
051.00.00.00
*Y31806/051/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
7/4
BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 51
Site: BOWNE OF NEW YORK
[A/E]
CRC: 34951
EDGAR 2
Table of Contents
Taxation
New Loral, as a Delaware company, is subject to U.S. federal, state and local income taxation on its worldwide
income. Prior to the Effective Date, Old Loral, as a Bermuda company, was subject to U.S. taxation on any income
that was effectively connected with the conduct of a U.S. trade or business as well as a withholding tax on dividends
and interest received from its U.S. subsidiaries. Our U.S. subsidiaries continue to be subject to U.S. taxation on their
worldwide income and foreign taxes on certain income from sources outside the United States. Our foreign
subsidiaries are subject to taxation in local jurisdictions.
We use the liability method in accounting for taxes whereby income taxes are recognized during the year in
which transactions are recorded in the financial statements. Deferred taxes reflect the future tax effect of temporary
differences between the carrying amount of assets and liabilities for financial and income tax reporting and are
measured by applying statutory tax rates in effect for the year during which the differences are expected to reverse.
We assess the recoverability of our deferred tax assets and, based upon this analysis, record a valuation allowance
against the deferred tax assets to the extent recoverability does not satisfy the “more likely than not” recognition
criteria in SFAS 109. Based upon this analysis, we concluded during the fourth quarter of 2002 that, due to
insufficient positive evidence substantiating recoverability, a 100% valuation allowance should be established for our
net deferred tax assets. As of December 31, 2006, we had gross deferred tax assets of approximately $536.9 million,
which when offset by our deferred tax liabilities of $243.6 million and our valuation allowance of $304.9 million,
resulted in a net deferred tax liability of $11.6 million on our consolidated balance sheet.
For 2006, we continued to maintain the 100% valuation allowance against our net deferred tax assets, other than
the $3.3 million asset for our AMT credit carryforwards, decreasing the valuation allowance at December 31, 2005 of
$337.3 million by $32.4 million to a balance of $304.9 million at December 31, 2006, which included $304.5 million
relating to the opening balance at October 1, 2005. We will maintain the valuation allowance until sufficient positive
evidence exists to support its reversal. If, in the future, we were to determine that we will be able to realize all or a
portion of the benefit from our deferred tax assets, any reduction to the valuation allowance as of October 1, 2005
will first reduce goodwill, then other intangible assets with any excess treated as an increase to paid-in-capital.
During 2006, we reversed $36.4 million of excess valuation allowance relating to the balance as of October 1, 2005,
which was recorded as a reduction to goodwill.
Our policy is to establish tax contingency liabilities for potential audit issues. The tax contingency liabilities are
based on our estimate of the probable amount of additional taxes that may be due in the future. Any additional taxes
due would be determined only upon completion of current and future federal, state and international tax audits. At
December 31, 2006, we had $42.6 million of tax contingency liabilities included in long-term liabilities. At
December 31, 2005, we had $41.8 million and $0.4 million of tax contingency liabilities included in long-term
liabilities and income taxes payable, respectively. During 2006, we increased the tax contingency liabilities by
$5.0 million through the current income tax provision, settled $0.4 million with payment and reversed $4.2 million of
the opening balance as of October 1, 2005 to goodwill for issues where the statute of limitations on assessment of tax
had expired during 2006 (see Notes 3 and 14 to the financial statements).
Pension and other employee benefits
We maintain a pension plan and a supplemental retirement plan. These plans are defined benefit pension plans.
In addition to providing pension benefits, we provide certain health care and life insurance benefits for retired
employees and dependents. These pension and other employee benefit costs are developed from actuarial valuations.
Inherent in these valuations are key assumptions, including the discount rate and expected long-term rate of return on
plan assets. Material changes in these pension and other employee postretirement benefit costs may occur in the
future due to changes in these assumptions, as well as our actual experience.
The discount rate is subject to change each year, based on a hypothetical yield curve developed from a portfolio
of high quality, corporate, non-callable bonds with maturities that match our projected benefit payment stream. The
resulting discount rate reflects the matching of the plan liability cash flows to the yield curve. Changes in applicable
high-quality long-term corporate bond indices, such as the Moody’s AA Corporate Bond Index, are also considered.
The discount rate determined on this basis was 6% as of December 31, 2006, an increase of 25 basis points from
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 52
Site: BOWNE OF NEW YORK
[A/E]
CRC: 36032
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
052.00.00.00
*Y31806/052/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
4/3
December 31, 2005. This had the effect of reducing our benefit obligations for pensions by $10.7 million and for
other employee benefits by $2.5 million as of December 31, 2006, as compared with December 31, 2005.
The expected long-term rate of return on pension plan assets is selected by taking into account the expected
duration of the plan’s projected benefit obligation, asset mix and the fact that its assets are actively managed to
mitigate risk. Allowable investment types include equity investments and fixed income investments. Pension plan
assets are managed by Russell Investment Corp. (“Russell”), which allocates the assets into specified Russell-
designed funds as we direct. Each specified Russell fund is then managed by investment managers chosen by
Russell. The targeted long-term allocation of our pension plan assets is 60% in equity investments and 40% in fixed
income investments. Based on this target allocation, the twenty-year historical return of our asset mix has been
10.1%. The expected long-term rate of return on plan assets determined on this basis was 9.0% for 2006, 2005 and
2004. For 2007, we will use an expected long-term rate of return of 8.5%.
Effective July 1, 2006, we amended our pension plan to standardize the future benefits earned at all company
locations. These amendments did not change any benefits earned through June 30, 2006. As a result of the
amendments, all locations now have a career average plan that requires a contribution in order to receive the highest
level of benefits. All current participants now earn future benefits under the same formula and have the same early
retirement provisions. The amendments did not apply to certain employees under a bargaining unit arrangement.
Additionally, employees hired after June 30, 2006, do not participate in the defined benefit pension plan but
participate in our defined contribution savings plan with an enhanced benefit. As a result of these amendments, our
ongoing pension expense has been reduced commencing July 1, 2006, and it is expected that our cash funding
requirement will be less than previously anticipated commencing in 2007.
These pension and other employee postretirement benefit costs are expected to decrease to approximately
$13 million in 2007 from $15 million in 2006, primarily due to the full year effect of the July 1, 2006 pension plan
amendment, partially offset by the reduction to the expected long-term rate of return on plan assets. Lowering the
discount rate and the expected long-term rate of return each by 0.5% would have increased these pension and other
employee postretirement benefits costs by approximately $0.5 million and $1.3 million, respectively, in 2006.
The benefit obligations for pensions and other employee benefits exceeded the fair value of plan assets by
$172 million at December 31, 2006 (the “unfunded benefit obligations”). In connection with our adoption of
Statement of Financial Accounting Standards No. 158, Employers’ Accounting For Defined Benefit Pension and
Other Postretirement Plans, (“SFAS 158”), we are required to recognize the funded status of a benefit plan on our
balance sheet. As a result, we reduced our recorded liability for pensions by $50.5 million, with a corresponding
credit to accumulated other comprehensive income, and increased our recorded liability for other benefits by
$1.0 million, with a corresponding charge to other comprehensive income, to adjust to our actual unfunded benefit
obligations. The unfunded benefit obligations were measured using a discount rate of 6% as of December 31, 2006.
Lowering the discount rate by 0.5% would have increased the unfunded benefit obligations by approximately
$26.6 million. Market conditions and interest rates significantly affect future assets and liabilities of Loral’s pension
and other employee benefits plans
Stock Based Compensation
Effective October 1, 2005, in connection with our adoption of fresh-start accounting, we adopted the fair value
method of accounting for stock based compensation, for all stock options granted by us after October 1, 2005,
pursuant to the prospective method provisions of SFAS No. 123(R), Share-Based Payment (“SFAS 123R”). We use
the Black-Scholes-Merton option-pricing model to measure fair value of these stock option awards. This is the same
method we used in prior years for disclosure purposes. The Black-Scholes-Merton model requires us to make
significant judgments regarding the assumptions used within the model, the most significant of which are the stock
price volatility assumption, the expected life of the option award, the risk-free rate of return and dividends during the
expected term.
We emerged from bankruptcy on November 21, 2005, and as a result, we do not have sufficient stock price
history upon which to base our volatility assumption. In determining the volatility used in our model, we considered
the volatility of the stock prices of selected companies in the satellite industry, the nature of those companies, our
emergence from bankruptcy and other factors in determining our stock price volatility. For 2006, we used a stock
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 53
Site: BOWNE OF NEW YORK
[A/E]
CRC: 16946
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
053.00.00.00
*Y31806/053/2*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
5/2
price volatility assumption of 27%. We based our estimate of the average life of a stock option of 4.75 years using
the midpoint between the vesting and expiration dates as allowed by SEC Staff Accounting Bulletin No. 107, Share-
Based Payment, based upon the vesting period of 4 years and the option term of seven years. Our risk-free rate of
return assumption for options granted in 2006 of 4.4% was based on the quoted yield for five-year U.S. treasury
bonds as of the date of grant (see Note 15 to the financial statements). We assumed no dividends during the expected
term.
Goodwill and Other Intangible Assets
Goodwill represents the amount by which the Company’s reorganization equity value exceeded the fair value of
its tangible assets and identified intangible assets less its liabilities as determined in accordance with the provisions
of SFAS 141, as of October 1, 2005. Pursuant to the provisions of SFAS No. 142, Goodwill and Other Intangible
Assets (“SFAS 142”), goodwill is not amortized and is subject to an annual impairment test which the Company, with
the assistance of an independent appraiser, performs on an annual basis in the fourth quarter of each fiscal year. Our
test of goodwill impairment for 2006 did not result in any goodwill impairment. Goodwill is allocated to our
reporting units (the operating segment). SFAS 142 requires the Company to compare the fair value of the reporting
unit to its carrying amount on an annual basis to determine if there is potential impairment. If the fair value of the
reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the implied fair value of
the goodwill within the reporting unit is less than its carrying value (see Note 4 to the financial statements).
Intangible assets consist primarily of backlog, orbital slots, trade names and customer relationships, all of which
were recorded in connection with the adoption of fresh-start accounting. We used the work of an independent
appraiser to assist us in determining the fair value of our intangible assets. The fair values were calculated using
several approaches that encompassed the use of excess earnings, relief from royalty and the build-up methods. The
excess earnings, relief from royalty and build-up approaches are variations of the income approach. The income
approach, more commonly known as the discounted cash flow approach, estimates fair value based on the cash flows
that an asset can be expected to generate over its useful life. Identifiable intangible assets with finite useful lives are
amortized on a straight-line basis over the estimated useful lives of the assets.
Contingencies
Contingencies by their nature relate to uncertainties that require management to exercise judgment both in
assessing the likelihood that a liability has been incurred as well as in estimating the amount of potential loss, if any.
We accrue for costs relating to litigation, claims and other contingent matters when such liabilities become probable
and reasonably estimable. Such estimates may be based on advice from third parties or on management’s judgment,
as appropriate. Actual amounts paid may differ from amounts estimated, and such differences will be charged to
operations in the period in which the final determination of the liability is made. Management considers the
assessment of loss contingencies as a critical accounting policy because of the significant uncertainty relating to the
outcome of any potential legal actions and other claims and the difficulty of predicting the likelihood and range of
the potential liability involved, coupled with the material impact on our results of operations that could result from
legal actions or other claims and assessments. The most important contingencies affecting our financial statements
are detailed in Note 19 to the financial statements, “Commitments and Contingencies”.
Liquidity and Capital Resources
Cash and Available Credit
As of December 31, 2006, the Company had $305.2 million of cash, short-term investments and restricted cash,
of which $106.6 is in the form of short-term investments and $12 million is in the form of restricted cash ($3 million
included in other current assets and $9 million included in other assets on our condensed consolidated balance sheet).
During the next 12 months, we expect to use a significant portion of our available cash and short-term investments,
as well as proceeds from the preferred stock financing, for the Telesat acquisition, capital expenditures, including the
continued construction of Telstar 11N and facilities expansion for the Satellite Manufacturing segment, and for
working capital requirements. We believe that cash and short-term investments
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 54
Site: BOWNE OF NEW YORK
[A/E]
CRC: 7060
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
054.00.00.00
*Y31806/054/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
10/3
as of December 31, 2006, net cash provided by operating activities and the proceeds from the preferred stock
financing, will be adequate to meet our expected cash requirement for activities in the normal course of business,
planned capital expenditures and the Telesat acquisition, through at least the next 12 months.
On December 16, 2006, a joint venture formed by the Company and its Canadian partner, PSP, entered into a
definitive agreement with BCE Inc. to acquire 100% of the stock of Telesat Canada and certain other assets for CAD
3.25 billion (approximately $2.79 billion based on an exchange rate of $1.00/CAD 1.1652). Our net cash funding
requirement for this transaction will be funded from some or all of the following: cash and short-term investments, a
portion of the proceeds from the preferred stock financing or cash flow from operations. If the Telesat acquisition
and the Skynet Transaction had occurred on December 31, 2006, Loral’s net cash funding requirements would have
amounted to approximately $207 million. See “The Telesat Canada Transaction” below.
While operating during bankruptcy, the Company was restricted in its investment options for surplus cash by the
U.S. Trustee, resulting in our being able to only invest our surplus cash in an approved money market fund. Since
emerging from bankruptcy, the Company has reviewed its investment options and has developed an investment
program that increases return while maintaining a conservative risk profile. The Company adopted an investment
policy statement that establishes conservative policies relating to and governing the investment of its surplus cash.
The investment policy does not permit the Company to engage in speculative or leveraged transactions, nor does it
permit the Company to hold or issue financial instruments for trading purposes. The investment policy was designed
to preserve capital and safeguard principal, to meet all liquidity requirements of the Company and to provide a
competitive rate of return. The investment policy addresses dealer qualifications, lists approved securities, establishes
minimum acceptable credit ratings, sets concentration limits, defines a maturity structure, requires all firms to safe
keep securities on our behalf, requires certain mandatory reporting activity and discusses review of the portfolio. The
Company operates its investment program under the guidelines of its investment policy.
On February 27, 2007, Loral completed a $300 million preferred stock financing pursuant to the Securities
Purchase Agreement entered into with MHR on October 17, 2006. Loral sold 136,526 shares of its 7.5% Series A-1
perpetual preferred stock (the “Series A-1 Preferred Stock”) and 858,486 shares of its 7.5% Series B-1 perpetual
preferred stock (the “Series B-1 Preferred Stock” and together with the Series A-1 Preferred Stock, the “Loral Series-
1 Preferred Stock”) at a purchase price of $301.504 per share to various funds affiliated with MHR. Each share of the
Series A-1 Preferred Stock is convertible, at the option of the holder, into ten shares of Loral common stock at an
initial conversion price of $30.1504 per share. Following shareholder approval of the creation of a new class of
Class B-1 non-voting common stock, each share of the Series B-1 Preferred Stock will be convertible, at the option
of the holder, into ten shares of this Class B-1 non-voting common stock at an initial conversion price of
$30.1504 per share. Under certain circumstances, the Series B-1 Preferred Stock and the Class B-1 non-voting
common stock may also be converted by the holder into Loral common stock, in the case of the Series B-1 Preferred
Stock, at the same conversion price, and in the case of the Class B-1 non-voting common stock, on a share for share
basis. The initial conversion price reflects a premium of 12% to the closing price of Loral’s common stock on the day
before the Securities Purchase Agreement was entered into. Dividends on the Loral Series-1 Preferred Stock will be
paid in kind (i.e., in additional shares of Loral Series-1 Preferred Stock) through April 2011. Thereafter, if Loral
satisfies certain financial requirements, the dividends will be payable in cash or in kind at Loral’s option. Pursuant to
the terms of this financing, MHR has the right to nominate one additional member to the Loral board.
As a result of the difference between the fair market value of the common stock on the date the financing was
completed, as compared to the initial conversion price, the Company will reflect a beneficial conversion feature of
the Loral Series-1 Preferred Stock as a component of its earnings per share calculation for the quarter ended
March 31, 2007 for the Series A-1 Preferred Stock and for the Series B-1 Preferred Stock, in the period in which
shareholder approval of the creation of the new class of Class B-1 non-voting common stock is received. This
beneficial conversion feature, currently estimated to be a maximum of approximately $170 million in the aggregate
(assuming shareholder approval of the Class B-1 non-voting common stock is obtained and before any discount in
value for the Class B-1 non-voting common stock because of its non-voting status), will not be recorded as a charge
to net income, but will serve as a one-time reduction in the calculation of both the basic and diluted earnings per
share results. Accordingly, our basic and diluted earnings per share results will be reduced by approximately $8.60
per share for the beneficial conversion feature for such periods, in the aggregate. In the future, to the extent that
dividends on the Loral Series-1 Preferred Stock are paid in additional shares of Loral Series-1 Preferred Stock, we
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 55
Site: BOWNE OF NEW YORK
[A/E]
CRC: 42982
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
055.00.00.00
*Y31806/055/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
5/3
will incur additional beneficial conversion features that would affect the basic and diluted earnings per share
calculations in a similar manner.
We plan to use the proceeds from this preferred stock financing, together with our existing resources, to meet
some or all of the following needs: (a) funding the long-term growth of our businesses by constructing satellites for
our Satellite Services business and by expanding our Satellite Manufacturing business (including both facilities
expansion and working capital requirements); and (b) equipping us to respond quickly to strategic transactions or
alliances, including the completion of the Telesat acquisition. It is possible, however, that we will further access the
financial markets to meet these objectives or to better position our capital structure.
Approximately $3 million in the aggregate is required to pay the remaining claims from the Plan of
Reorganization and the expenses associated with completing the reorganization activity and will be paid from
existing cash on hand.
Cash requirements at Satellite Manufacturing are driven primarily by working capital requirements to finance
long-term receivables associated with satellite contracts and capital spending required to maintain and expand the
manufacturing facility. We believe that the Satellite Manufacturing cash flow from operations is sufficient to fund
the capital required to maintain the current manufacturing operations and working capital associated with our current
backlog level. Capital requirements to expand the manufacturing facility beyond its current capabilities and offer
customer financing terms beyond standard terms will be funded from some or all of the following: cash and short-
term investments, the proceeds from the preferred stock financing, cash flow from operations, or through additional
financing activity. The incremental cost of such expansions or upgrades could be up to $150 million over the next
three years. Historically, a portion of Satellite Manufacturing revenues are paid to SS/L in the form of “orbitals”,
receivable payments from its customers that are earned over the life of the satellite. These payments are contingent
upon continued satellite performance. As of December 31, 2006, SS/L had orbital receivables of $83 million, which
will be received over 18 years, an increase of $33 million from orbital receivables of $48 million as of December 31,
2005. Continued growth in the Satellite Manufacturing business will result in a corresponding growth in the amount
of such orbital receivables. To fund such growth, SS/L may be required to obtain additional financing.
Annual receipts from the existing Satellite Services business are fairly predictable because they are primarily
derived from an established base of long-term customer contracts and high contract renewal rates. We believe that
the Satellite Services cash flow from operations will be sufficient to provide for its maintenance capital requirements
and to fund any cash portion of its interest and preferred dividend obligations through the closing of the Skynet
Transaction. Cash required for the construction of the Telstar 11N satellite will be funded from some or all of the
following: cash and short-term investments, the proceeds from the preferred stock financing, cash flow from
operations, or through additional financing activity.
On November 21, 2005, SS/L entered into a $20 million amended and restated letter of credit agreement with
JPMorgan Chase Bank extending the maturity date of the facility to December 31, 2006. On October 31, 2006, SS/L
entered into an amendment to this amended and restated letter of credit agreement further extending the maturity of
the facility to December 31, 2007 and reducing the facility availability to $15 million. Letters of credit are available
until the earlier of the stated maturity of the letter of credit, the termination of the facility, or December 31, 2007.
Outstanding letters of credit are fully cash collateralized. As of December 31, 2006, $3.2 million of letters of credit
under this facility were issued and outstanding.
On June 7, 2006, SS/L entered into a Customer Credit Agreement (the “Credit Agreement”) with Sirius Satellite
Radio Inc. (“Sirius”), effective as of May 31, 2006. Under the Credit Agreement, SS/L has agreed, if requested, to
make loans to Sirius in an aggregate principal amount of up to $100 million to finance the purchase of the Sirius FM-
5 Satellite (the “Satellite”), including to reimburse Sirius for certain payments made by it under the satellite purchase
agreement with SS/L dated May 31, 2006 (the “Purchase Agreement”). Any loans made under the Credit Agreement
will be secured by Sirius’ rights under the Purchase Agreement, including its rights to the Satellite. The loans also
will be guaranteed by Satellite CD Radio, a subsidiary of Sirius Inc., and, subject to certain exceptions, will be
guaranteed by any future material subsidiary that may be formed by Sirius thereafter. The maturity date of any loans
will be the earliest to occur of (i) April 6, 2009, (ii) 90 days after the Satellite becomes available for shipment and
(iii) 30 days prior to the scheduled launch of the Satellite. Loans made under the Credit
54
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 56
Site: BOWNE OF NEW YORK
[A/E]
CRC: 21336
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
056.00.00.00
*Y31806/056/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
11/3
Agreement generally bear interest at a variable rate equal to three-month LIBOR plus a margin. The Credit
Agreement permits Sirius to prepay all or a portion of the loans outstanding without penalty. As of December 31,
2006, Sirius had made the required milestone payments to SS/L under the Purchase Agreement and, accordingly, no
loans were outstanding under the Credit Agreement. As of December 31, 2006, Sirius was eligible to borrow
$30 million under the Credit Agreement.
On November 21, 2005, Loral Skynet completed the sale of $126 million of Senior Secured Notes (the “Loral
Skynet Notes”). The Loral Skynet Notes mature on November 15, 2015 and bear interest at 14% payable semi-
annually beginning July 15, 2006. No principal payments prior to the maturity date are required. On July 17, 2006,
Loral Skynet paid accrued interest of $11.5 million in cash. The Loral Skynet Notes are guaranteed by certain of
Loral Skynet’s subsidiaries. The obligations of Loral Skynet and the subsidiary guarantors are secured by a first
priority lien on certain specified assets of Loral Skynet and the guarantors pursuant to the security agreements
entered into on November 21, 2005. The related indenture contains restrictive covenants that limit, subject to certain
exceptions, Loral Skynet’s and its subsidiaries’ ability to take certain actions, including restricted payments, as
defined, incurrence of debt, incurrence of liens, payment of certain dividends or distributions, issuance or sale of
capital stock of subsidiaries, sale of assets, affiliate transactions and sale/leaseback and merger transactions. Our
ability to redeem these notes in the near-term is limited. Prior to November 22, 2009, we may redeem the notes at a
redemption price of 110% plus accrued and unpaid interest, unless we receive an objection notice from holders of
two-thirds of the principal amount of the notes. After this period, the notes are redeemable at our option at a
redemption price of 110%, declining over time to 100% in 2014, plus accrued and unpaid interest. Proceeds from the
sale of the Loral Skynet Notes were used to acquire certain satellite services assets from Old Loral and certain of its
subsidiaries and to fund certain cash claims in accordance with the Plan of Reorganization Redemption of the Loral
Skynet Notes is a condition to the closing of the Skynet Transaction. See “The Telesat Canada Transaction” and
Note 12 to the financial statements.
To the extent the Company is required to obtain financing, there can be no assurance that it will be able to obtain
such financing on favorable terms, if at all.
In connection with the Telesat transaction, Loral Skynet has entered into certain derivative transactions. In the
event that the Telesat acquisition failed to close and we had to unwind these derivative transactions, Loral Skynet
could have liability exposure of up to $117.5 million depending on currency rate fluctuations, as of March 1, 2007
(see Note 18 to the financial statements).
We are required under the terms of our agreement with PSP to have expended at least $130 million towards the
cost of construction, launch and insurance of Telstar 11N by the closing date of the Skynet Transaction or to make a
cash capital contribution to Holdings for the amount of any difference (see “The Telesat Canada Transaction.”).
The Telesat Canada Transaction
On December 16, 2006, a joint venture company (“Acquireco”) formed by Loral and its Canadian partner, the
Public Sector Pension Investment Board (“PSP”) entered into a definitive agreement with BCE Inc. to acquire 100%
of the stock of Telesat Canada and certain other assets from BCE Inc. for CAD 3.25 billion (approximately
$2.79 billion based on an exchange rate of $1.00/CAD 1.1652), which purchase price is not subject to adjustment for
Telesat Canada’s performance during the pre-closing period. Under the terms of this purchase agreement, the
economic value of Telesat Canada’s business is, subject to certain exceptions, being operated for Acquireco’s benefit
beginning from December 16, 2006. Telesat Canada is the leading satellite services provider in Canada and earns its
revenues principally through the provision of broadcast and business network services over seven in-orbit satellites.
This transaction is subject to various closing conditions, including approvals of the relevant Canadian and
U.S. government authorities, and is expected to close in mid-2007. Loral and PSP have agreed to guarantee 64% and
36%, respectively, of Acquireco’s obligations under the Telesat share purchase agreement, up to CAD 200 million.
At the time of, or following the Telesat acquisition, substantially all of Loral Skynet’s assets and related
liabilities will be transferred to a subsidiary of Acquireco at an agreed upon enterprise valuation, subject to
downward adjustment under certain circumstances (the “Skynet Transaction”). This subsidiary will be combined
with Telesat Canada and the resulting new entity (“New Telesat”) will be a Canadian company that will be
headquartered in Ottawa. Following the completion of the Skynet Transaction, New Telesat will be the world’s
55
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a
BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 57
Site: BOWNE OF NEW YORK
[A/E]
CRC: 13112
EDGAR 2
Phone: (212)924-5500
BNY
057.00.00.00
*Y31806/057/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
9/3
Table of Contents
fourth largest operator of telecommunications satellites, with a combined fleet of eleven in-orbit satellites and four
additional satellites to be placed in service over the next four years. New Telesat will feature a management team to
be drawn from both Telesat Canada and Loral Skynet.
This combined Telesat-Loral Skynet company will offer its customers expanded satellite and terrestrial coverage
and continue to offer superior customer service. Loral Skynet’s satellite fleet provides an array of video and data
services primarily outside of North America, and will complement Telesat Canada’s North American fleet, which
hosts video and data distribution services across North America, as well as serving as the platform for Canada’s two
premier direct-to-home video services.
We and PSP have arranged for the parent company of Acquireco (“Holdings”) to obtain $3.1 billion of
committed debt financing from a group of financial institutions, of which up to approximately $2.8 billion is
available to fund the purchase price of the Telesat acquisition. PSP has agreed to contribute approximately CAD
595.8 million in cash to Holdings, of which $150 million (or CAD 174.8 million based on an exchange rate of
$1.00/CAD 1.1652) will be for the purchase of a Holdings fixed rate senior non-convertible mandatorily redeemable
preferred stock. In addition to Loral’s agreement to transfer the Loral Skynet assets to New Telesat, Loral will have
net cash funding requirements in connection with the transaction, which, had the Telesat acquisition and the Skynet
Transaction occurred on December 31, 2006, would have amounted to approximately $207 million. Loral Skynet’s
existing 12% preferred stock and 14% senior notes will be redeemed in connection with the Skynet Transaction. To
the extent necessary, there will be an appropriate cash true-up at closing between us, PSP and New Telesat to reflect
the amount of our relative contributions, after giving effect to among other things, the exchange rate then in effect,
gains and/or losses on hedging transactions, the spending on Telstar 11N, and in the event of a material adverse
change to Loral Skynet’s business during the interim period, the resulting diminution in the agreed upon value of
Loral Skynet.
Upon the closings of the Telesat acquisition and the Skynet Transaction, which closings we currently expect to
occur simultaneously, we would hold equity interests in Holdings, the ultimate parent company of New Telesat,
effectively representing 64% of the economic interests and 331/3% of the voting power of New Telesat. PSP would in
turn acquire the preferred stock described above, and equity interests effectively representing 36% of the economic
interest, and together with two other Canadian investors, 662/3% of the voting power, of New Telesat.
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For further discussions on Telesat Canada and the related transactions, and Loral’s obligations in respect thereof,
including in the case where the Skynet Transaction does not close simultaneously with the Telesat acquisition, see
“Segment Overview — Telesat Canada”, “Risk Factors — Financial and Telesat Transaction Risk Factors” and
“Equity and Funding Requirements (below).”
Summary Financial Information
Summary financial information of Loral Skynet and Telesat Canada, for the year ended and as of December 31,
2006, follows (CAD in millions). Where applicable, all information has been translated from US dollars to Canadian
dollars (“CAD”). Income statement information has been translated using the average exchange rate for 2006 of
$1.00/CAD 1.1344 and balance sheet and backlog information have been translated using the December 31, 2006
exchange rate of $1.00/CAD 1.1652.
56
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a
BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 58
Site: BOWNE OF NEW YORK
[A/E]
CRC: 52914
EDGAR 2
Phone: (212)924-5500
BNY
058.00.00.00
*Y31806/058/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
10/3
Table of Contents
Revenues
Adjusted EBITDA
Operating Income
Net Income (Loss)
Cash and Cash Equivalents
Total Assets
Debt, including current portion
Shareholders’ Equity
Backlog
Synergies
Loral Skynet
Telesat
(CAD in millions)
185.4
77.1
12.8
(46.7 )
18.7
867.8
149.2
510.5
479.0
261.0
140.3
102.5
38.6
1,773.8
203.9
879.6
413.6
5,188.0
The combination of Loral Skynet and Telesat Canada will provide the opportunity for New Telesat to benefit
from synergies in those areas where redundancies exist. These areas include overhead and support functions, space
segment facilities and ground segment facilities. During an implementation period of less than one year, we expect to
incur non-recurring charges of approximately CAD 30 million to CAD 45 million to effect such cost savings. After
this implementation period, it is expected that New Telesat would benefit from approximately CAD 45 million to
CAD 70 million annually from these synergies, some portion of which we expect will be realized commencing
immediately after closing of the transaction.
The summary financial information included herein does not include the benefit from any cost saving synergies
which may be achievable after the close of the transactions. Nor does the summary financial data include non-
recurring charges such as the costs to implement these synergies as discussed above, transaction related payments to
executive management of Telesat Canada upon closing the Telesat acquisition of approximately CAD 32.5 million,
payments under retention plans of approximately CAD 6.6 million and redemption premiums relating to the early
extinguishment of Loral Skynet’s and Telesat Canada’s debt of approximately CAD 21.1 million.
Liquidity
The Telesat purchase price of CAD 3.25 billion as well as acquisition fees and expenses and the repayment of
existing Loral Skynet and Telesat financing will be financed by cash from Loral and PSP, as well as borrowings by
New Telesat. Although a significant portion of the financing commitment is in U.S. dollars, the following
descriptions of such cash requirements and borrowings are stated in Canadian dollars (“CAD”). Where applicable,
Canadian dollars have been translated to U.S. dollars at the December 31, 2006 exchange rate of $1.00/CAD 1.1652.
New Telesat will have capital expenditure requirements of approximately $576 million over the next three years,
as more fully described in Capital Expenditures below. This requirement is expected to be funded by cash flow from
operations as well as the availability of the Term Loan B-2 (see below). New Telesat does not expect to have a
significant cash requirement for taxes in the near future due to deductions for the interest cost to be incurred and
future depreciation and amortization.
Equity and Funding Requirements
At the time of, or following the Telesat acquisition, substantially all of Loral Skynet’s assets and related
liabilities will be transferred to a subsidiary of Acquireco at an agreed upon enterprise valuation, subject to
downward adjustment under certain circumstances. PSP has agreed to contribute approximately CAD 595.8 million
in cash to Holdings, of which $150 million (CAD 174.8 million) will be for the purchase of a Holdings fixed rate
senior non-convertible mandatorily redeemable preferred stock.
At closing of the Telesat acquisition, assuming a simultaneous closing of the Skynet Transaction, we would hold
equity interests in Holdings, the ultimate parent company of New Telesat, effectively representing 64% of the
economic interests and 331/3% of the voting power, of New Telesat. PSP would in turn acquire the preferred stock
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a
BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 59
Site: BOWNE OF NEW YORK
[A/E]
CRC: 30007
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
059.00.00.00
*Y31806/059/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
9/3
described above, and equity interests effectively representing 36% of the economic interest, and together with two
other Canadian investors, 662/3% of the voting power of New Telesat.
If the Telesat acquisition and the Skynet Transaction were to occur at the same time, then on the closing date,
Holdings will redeem the principal amount of Loral Skynet’s outstanding 14% senior notes (approximately
$126 million as of December 31, 2006) and Loral will redeem Loral Skynet’s outstanding 12% preferred stock and
accrued dividends thereon (approximately $226 million as of December 31, 2006), as well as pay all interest and
redemption premium (approximately $21 million as of December 31, 2006) and any other amounts that may be due
in respect of Loral Skynet’s senior notes. See “Risk Factors — Financial and Telesat Transaction Risk Factors.”
If the Skynet Transaction does not close simultaneously with the Telesat acquisition, Loral would in place of
funding the redemption of Loral Skynet’s preferred stock and accrued dividends and interest and redemption
premium on Loral Skynet’s senior notes (approximately $247 million as of December 31, 2006), make a cash equity
contribution to Holdings of CAD 270.9 million (approximately $233 million) to acquire redeemable shares of
Holdings. Upon the later closing of the Skynet Transaction, Holdings will draw upon its credit facilities to redeem
the principal amount of Loral Skynet’s senior notes and the redeemable shares issued to Loral. Loral will use the
proceeds from Holdings to redeem Loral Skynet’s preferred stock and pay the interest, premium and any other
amounts due under the Loral Skynet notes. Loral’s economic interest in Holdings would be proportionately reduced
from 64% to approximately 38%, assuming an exchange rate of $1.00/CAD 1.1652, to reflect the fact that it has not
contributed the Skynet assets into New Telesat, but would be reinstated to 64% upon the closing of the Skynet
Transaction.
We would have a year from the closing of the Telesat acquisition to complete the Skynet Transaction. If we are
unable to close the Skynet Transaction during that period, we would then be required, under the terms of our
agreement with PSP, to contribute our rights to the Telstar 11N satellite as well as $175 million in cash (the
“Alternative Contribution”) to New Telesat, in order to bring our economic interest in Holdings to 64%. See “Risk
Factors — Financial and Telesat Transaction Risk Factors.”
To the extent necessary, upon closing of the Telesat acquisition, the Skynet Transaction and/or the Alternative
Contribution, as the case may be, there will be an appropriate cash true-up between us, PSP and New Telesat to
reflect the amount of our relative contributions, after giving effect to among other things, the exchange rate then in
effect, gains and/or losses on hedging transactions, the spending on Telstar 11N, in the event of a material adverse
change to Loral Skynet’s business during the interim period, the resulting diminution in the agreed upon value of
Loral Skynet, and in the event the Alternative Contribution is effected in place of the Skynet Transaction, the extent
to which the value of the Alternative Contribution is greater or less than the agreed upon value of the Skynet
Transaction.
Debt
In connection with the acquisition we have received a commitment from a syndicate of banks to provide New
Telesat with, in each case as described below, senior secured credit facilities (the “Credit Facility”) and a senior
bridge facility (the “Bridge Facility”) (together the “Facilities”). As is customary with such Facilities, the lead
arrangers of such Facilities have reserved the right at any time, after consulting with us, to change the pricing,
structure or other terms of the Facilities to ensure a successful syndication.
It is the current intent to issue on the acquisition date senior unsecured notes that will make it unnecessary to
draw on the Bridge Facility. If the Bridge Facility is drawn, New Telesat would intend to refinance it promptly
through the issuance of replacement senior unsecured notes. It is expected that the senior unsecured notes would have
standard market terms and conditions for a financing of this type.
Senior Secured Credit Facilities
The Credit Facility will consist of the following tranches that each contain a discussion of its costs, terms and
conditions. The applicable margins of the Facilities will be based upon the achievement of certain credit ratings and
the lenders will have the ability to increase such margins depending on agreed upon conditions up to 1.0% at the
maximum.
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Phone: (212)924-5500
BNY
060.00.00.00
*Y31806/060/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
9/3
BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 60
Site: BOWNE OF NEW YORK
[A/E]
CRC: 21892
EDGAR 2
Table of Contents
Term Loan A
The CAD 500 million loan ($429 million) will have a maturity of five years from issuance. The Term Loan A
will be denominated in CAD and will bear interest at a floating rate of the Bankers Acceptance rate plus an
applicable margin.
Term Loan B
The Term Loan B facility is for a $1.054 billion loan with a maturity of seven years from issuance. In order to
hedge the currency risk for New Telesat both at closing and over the life of the loans, Loral Skynet entered into a
currency basis swap to synthetically convert the US dollar commitment to CAD 1.224 billion. An additional feature
of the basis swap is that the Term Loan B will bear interest at a floating rate of Bankers Acceptance plus an
applicable margin. For more information about the basis swap see Note 18 to the consolidated financial statements.
Term Loan B-1
The Term Loan B-1 facility is a $386 million (CAD 450 million) loan with a maturity of seven years after the
closing date of the Telesat acquisition, which bears interest at LIBOR plus an applicable margin. The Term Loan B-1
includes the option for a 1 year delayed draw period so proceeds can be used to repay Loral Skynet’s existing
financing arrangements if the Skynet Transaction were to occur after the closing of the Telesat acquisition. If the
closing of the Telesat acquisition and the Skynet Transaction were to occur simultaneously, the Term Loan B-1 will
be drawn at the acquisition closing to fund the Telesat acquisition.
Term Loan B-2
The Term Loan B-2 facility is a $150 million (CAD 175 million) delayed draw loan with the same interest rate
and maturity as the Term Loan B-1. The Term Loan B-2 is available to be drawn for 18 months after the closing of
the acquisition to fund satellite capital expenditures. The undrawn amount of the Term Loan B-2 is subject to a
commitment fee.
Revolving Credit
The Credit Facility also includes a CAD denominated revolving credit facility of up to the Canadian dollar
equivalent of $150 million (CAD 175 million) that is expected to be undrawn at the closing of the acquisition. The
Revolving Credit facility matures five years after issuance and is available to be drawn at any time. The drawn loans
will bear interest at LIBOR plus an applicable margin. Undrawn amounts under the facility are subject to a
commitment fee.
Senior Bridge Facility
The Bridge Facility is a committed $910 million (CAD 1,060 million) senior unsecured loan available to the
borrower on the closing date of the acquisition. The Bridge Facility has a maturity of one year and an initial interest
rate per annum equal to the greater of a fixed percentage or three-month LIBOR plus the applicable margin,
excluding any additional payment required to compensate lenders for Canadian withholding tax. The applicable
margin increases over time up to a cap. Lenders under the Bridge Facility have also committed to provide rollover
loans at the maturity of the Bridge Facility for an additional seven years.
The current intent is not to borrow the Bridge Facility but instead to issue senior unsecured notes to finance the
Telesat acquisition. However, if for any reason the senior notes are not issued at closing, the Bridge Facility is
available to fund the acquisition.
Interest Expense
An estimate of the interest expense on the Facilities after they are drawn down is based upon assumptions of
LIBOR and Bankers Acceptance rates and the applicable margin for the Facilities. Based upon market conditions at
December 31, 2006 and assuming the Bridge Facility is not drawn upon, it is estimated that New Telesat’s interest
expense in the first full year of operations would be approximately CAD 268 million. If the Bridge Facility were to
59
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 61
Site: BOWNE OF NEW YORK
[A/E]
CRC: 9452
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
061.00.00.00
*Y31806/061/5*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
8/5
be drawn upon, it is estimated this interest expense could increase by approximately CAD 17 million, assuming
CAD 11 million to compensate lenders for Canadian withholding tax.
The historical results of Loral Skynet and Telesat Canada for 2006, include interest expense of approximately
CAD 20 million and CAD 17 million, respectively, for debt that will be refinanced in connection with the Telesat
acquisition and the Skynet Transaction, a portion of which was capitalized in connection with satellites under
construction.
Capital Expenditures
Telesat Canada has entered into satellite construction contracts for the Anik F3, Nimiq 4 and Nimiq 5 satellites
and Loral Skynet has entered into a satellite construction contract for Telstar 11N. Capital expenditure requirements
for these contracts total approximately $252 million in 2007, $224 million in 2008 and $100 million in 2009. These
expenditures will be funded by New Telesat’s cash flow from operations as well as the delayed draw Term Loan B-2.
Incremental cash operating costs for new satellites entering the fleet is typically approximately CAD 6 million
annually, primarily for insurance.
Backlog
As of December 31, 2006, the backlog of Loral Skynet and Telesat Canada was CAD 414 million and CAD
5.188 billion, respectively and there were approximately 116 36 MHz equivalent transponders that were not utilized
and available for lease on the Loral Skynet and Telesat Canada in-orbit satellites.
Included in the backlog of Telesat Canada as of December 31, 2006, is CAD 3.207 billion for 66.6 36 MHz
equivalent transponders on satellites under construction as detailed in Capital Expenditures above. These
transponders have been leased under contracts expected to generate aggregate revenue of approximately
CAD 210 million annually for the life of the satellites. In addition, these contracts contain provisions such that the
customers, assuming the respective satellites are successfully launched and are operating nominally, may only
terminate their contracts by paying Telesat Canada the present value of the entire contracted amounts that would
have been due for the remaining life of the satellite. As of December 31, 2006, there are approximately 85 36 MHz
equivalent transponders that are available for lease on the Loral Skynet and Telesat Canada satellites under
construction.
Loral Skynet and Telesat Canada have received approximately CAD 319 million of customer prepayments,
including in the case of Telesat Canada, approximately CAD 85 million relating to satellites under construction. If
the launch of such satellite(s) under construction were to fail, Telesat Canada would be obligated to return the
customer prepayments applicable to such satellite. Such repayment obligations would be funded by insurance
proceeds, cash on hand and/or availability under the revolving credit facility. Telesat Canada anticipates that in the
event of a satellite launch failure the customer would contract with them for replacement capacity.
Revenue to be realized from backlog as of December 31, 2006, the amount of non-cash revenue that represents
amortization of existing customer prepayments and the number of 36 MHz equivalent transponders expected to be
available for lease at the beginning of each year are as follows:
Annual
Revenue
From
Backlog(1)
(CAD in millions)
Loral Skynet
Non-cash
Revenue
Related to
Customer
Prepayments
(CAD in millions)
Transponders
Available
(36 MHz
equivalents)(2)
Annual
Revenue
From
Backlog(1)
(CAD in millions)
Telesat Canada
Non-cash
Revenue
Related to
Customer
Prepayments
(CAD in millions)
Transponders
Available
(36 MHz
equivalents)(2)
2007
2008
2009
2010
2011
Thereafter
Total
117.3
78.8
60.0
42.3
34.6
80.6
413.6
6.3
4.1
2.4
1.2
0.3
1.9
16.2
60
50
81
161
175
159
159
386.5
406.6
403.5
449.4
413.4
3,128.6
5,188.0
37.5
28.9
25.6
23.9
23.5
163.6
303.0
66
108
120
123
121
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 62
Site: BOWNE OF NEW YORK
[A/E]
CRC: 52086
EDGAR 2
Phone: (212)924-5500
BNY
062.00.00.00
*Y31806/062/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
7/4
Table of Contents
(1) Annual revenue includes non-cash revenue representing amortization of customer prepayments but does not include any revenues that may
be generated from the leasing of 58.5 36 MHz equivalent Ku-band transponders on Telstar 11N, scheduled to be launched in late 2008.
(2) Transponders available at the beginning of each period assumes that the four satellites under construction are launched and placed into
service on their current schedule but does not assume replacements for satellites currently in-orbit that are nearing their end of life, or
renewal of contracts as they expire.
Contractual Obligations and Other Commercial Commitments
The following tables aggregate our contractual obligations and other commercial commitments as of
December 31, 2006 (in thousands).
Contractual Obligations:
Debt(1)
Interest on debt(1)
Operating leases(2)
Unconditional purchase obligations(3)
Other long-term obligations(4)
Total contractual cash obligations(5)
Other Commercial Commitments:
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Standby letters of credit(6)
Payments Due by Period
Total
Less than
1 Year
1-3 Years 4-5 Years
5 Years
More than
— $
$ 126,000 $
165,326
110,613
677,773
61,550
— $ — $ 126,000
77,126
32,293
65
3,562
$ 1,141,262 $ 528,080 $ 302,044 $ 72,092 $ 239,046
35,280
34,725
199,007
33,032
17,640
19,582
466,814
24,044
35,280
24,013
11,887
912
Total
Amount of Commitment Expiration Per Period
Less than
1 Year
1-3 Years
4-5 Years
More than
5 Years
3,193 $ 3,193 $
— $ — $
—
Amounts
Committed
$
(1) Represents cash obligations for principal payments and interest payments on Loral Skynet 14% senior secured notes (see Note 12 to the
financial statements for further detail on our debt obligations). The Loral Skynet notes will be redeemed in connection with the Skynet
Transaction, following which Loral Skynet will no longer have any further contractual obligation related to this debt.
(2) Represents future minimum payments under operating leases with initial or remaining terms of one year or more, net of sub-lease rentals of
$0.3 million.
(3) SS/L has entered into various purchase commitments with suppliers due to the long lead times required to produce purchased parts.
(4) Primarily represents vendor financing related amounts owed to subcontractors and amounts due to APT, representing Loral’s share of the
project cost of Telstar 18, and commitments under employment agreements.
(5) Other than the interest on Loral Skynet senior notes which is reflected separately in the table, does not include our net cash funding
requirements of approximately $207 million in connection with the Telesat acquisition, assuming a simultaneous close with the Skynet
Transaction. This amount is as of December 31, 2006, and is subject to change depending on the actual closing date of the Telesat
acquisition.
(6) Letters of credit have a maturity of one year and are renewed annually.
Net Cash Provided by (Used in) Continuing Operating Activities
Net cash provided by operating activities for 2006 was $88 million. This was primarily due to the net loss
adjusted for non-cash items of $86 million, an increase in customer advances of $51 million resulting from timing of
satellite program milestone payments and higher accrued expenses and other current liabilities of $18 million in part
due to higher accrued interest. This change was partially offset by an increase in inventory of $32 million, which will
accommodate the increased volume and a reduction of $20 million in pension and other postretirement liabilities
primarily due to contributions made to the pension plan of $27 million (see Note 17 to the financial statements).
61
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 63
Site: BOWNE OF NEW YORK
[A/E]
CRC: 49990
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
063.00.00.00
*Y31806/063/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
6/3
Net cash used in operating activities for the period October 2, 2005 to December 31, 2005, for the period
January 1, 2005 to October 1, 2005 was $38 million and $144 million, respectively, totaling $182 million for 2005.
This was primarily due to $80 million of payments to creditors in connection with our Plan of Reorganization, the
reduction in customer advances of $56 million because of continued progress on the related programs and the
deferral of billings of $46 million in connection with certain SS/L contracts (see Note 7 to the financial statements).
Net cash provided by continuing operating activities for 2004 was $40 million. This was primarily due to an
increase in customer advances of $35 million from new satellite programs receipts and a decrease of
contracts-in-process of $29 million primarily resulting from net collections on customer contracts, which was offset
by the net loss adjusted for non-cash items of $59 million.
Net Cash Provided by Operating Activities of Discontinued Operations
For 2004, represents the net cash provided from the operations of the North American satellites and related
equipment sold.
Net Cash (Used in) Provided By Investing Activities
Net cash used in investing activities for 2006 was $176 million, resulting from capital expenditures of
$82 million and the Company’s purchase of short-term investments of $107 million, partially offset by proceeds from
the sale of available-for-sale securities of $7 million and proceeds received from the disposition of an orbital slot of
$6 million.
Net cash (used in) provided by investing activities for the period October 2, 2005 to December 31, 2005, and the
period January 1, 2005 to October 1, 2005 was $(5) million and $195 million, respectively, totaling $190 million for
2005, primarily resulting from the insurance proceeds received for our Telstar 14 Satellite.
Net cash provided by investing activities was $907 million for 2004, primarily resulting from the $954 million
of proceeds from the sale of our North American satellites and related assets, net of expenses, offset by capital
expenditures for continuing operations of $25 million and capital expenditures for discontinued operations of
$11 million, mainly for the construction of satellites, and investments in and advances to affiliates of $6 million,
primarily for XTAR.
Net Cash (Used in) Provided by Financing Activities
Net cash used in financing activities for 2006 was $1 million, resulting from the cash dividend payment on the
Loral Skynet preferred stock made in the third quarter.
Net cash provided by financing activities for the period October 2, 2005 to December 31, 2005 and the period
January 1, 2005 to October 1, 2005 was $121 million and zero, respectively, totaling $121 million for 2005,
representing the proceeds from the issuance of Loral Skynet Notes (see Note 12 to the financial statements).
Net cash used in financing activities was $967 million in 2004, resulting from our repayment of our secured
bank debt, primarily with the proceeds from the sale of the North America satellites and related assets.
Other
In September 2006, Loral made the minimum required contribution of $2.3 million to the pension plan and made
an additional voluntary contribution to the pension plan of $25.2 million. The additional voluntary contribution was
made to improve the funded status of the pension plan and to reduce future expected contributions. During 2007,
based on current estimates, we expect to make no contributions to the qualified pension plan and expect to fund
approximately $5 million for other employee post-retirement benefit plans. During 2005, we contributed $20 million
to the qualified pension plan.
62
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Phone: (212)924-5500
BNY
064.00.00.00
*Y31806/064/5*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
10/5
BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 64
Site: BOWNE OF NEW YORK
[A/E]
CRC: 60461
EDGAR 2
Table of Contents
Affiliate Matters
Loral has made certain investments in joint ventures in the satellite services business that are accounted for
under the equity method of accounting (see Notes 9 and 19 to the financial statements for further information on
affiliate matters).
Our consolidated statements of operations reflect the effects of the following amounts related to transactions
with or investments in affiliates (in millions).
Successor Registrant
Predecessor Registrant
Year Ended
December 31,
2006
For the Period
October 2,
2005 to
For the Period
January 1,
2005 to
December 31,
October 1,
2005
2005
Year Ended
December 31,
2004
Revenues
Elimination of Loral’s proportionate share of
$
11.3 $
4.1 $
10.0 $
(profits) losses relating to affiliate transactions
Profits (losses) relating to affiliate transactions not
eliminated
0.4
(0.3 )
(2.9 )
2.3
0.6
(0.5 )
7.8
2.4
(1.9 )
Commitments and Contingencies
Our business and operations are subject to a number of significant risks, the most significant of which are
summarized in Item 1A — Risk Factors and also in Note 19 to the financial statements, Commitments and
Contingencies.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Foreign Currency
While we were under Chapter 11, SS/L’s hedges with counterparties (primarily yen denominated forward
contracts) were cancelled, leaving SS/L vulnerable to foreign currency fluctuations in the future. The absence of
forward contracts exposes SS/L’s future revenues, costs and cash associated with anticipated yen and EURO
denominated receipts and payments to currency fluctuations. As of December 31, 2006, SS/L had the following
amounts denominated in Japanese Yen and EUROs (which have been translated into U.S. dollars based on the
December 31, 2006 exchange rates) that were unhedged (in millions):
Future revenues — Japanese Yen
Future expenditures — Japanese Yen
Future expenditures — EUROs
Telesat Transaction — Derivatives
Foreign Currency
¥
¥
E
U.S. $
72 $ 0.6
3,011 $ 25.3
5.2 $ 6.9
As described in Note 19 to the consolidated financial statements, on December 16, 2006, a joint venture
company formed by Loral and PSP entered into a Share Purchase Agreement with BCE Inc. and Telesat Canada for
the acquisition of all the shares of Telesat Canada and certain other assets for CAD 3.25 billion. As part of the
transaction, the acquisition company received financing commitments from a syndicate of banks for $2.179 billion of
Senior Secured Credit Facilities and $910 million of a Senior Unsecured Bridge Facility. The purchase price of
Telesat Canada is in Canadian dollars, while most of the debt financing is in U.S. dollars. Accordingly, Loral and
PSP have entered into financial commitments to lock in exchange rates to convert some of the U.S. dollar
denominated debt proceeds to Canadian dollars. As such, Loral entered into several transactions through its Loral
Skynet subsidiary, whereby Loral Skynet guaranteed certain exposures should the Telesat acquisition not close and
the transactions are unwound.
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 65
Site: BOWNE OF NEW YORK
[A/E]
CRC: 42323
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
065.00.00.00
*Y31806/065/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
5/3
In December 2006, Loral Skynet entered into a currency basis swap with a single bank counterparty converting
$1.054 billion of U.S. debt into CAD 1.224 billion of Canadian debt for a seven year period beginning December 17,
2007. This debt amortizes 1% per year with a final maturity of December 17, 2014. No cash payment was made by
Loral to the counterparty for entering into this transaction. This agreement can be closed at any point prior to
December 17, 2007 by simply moving all the terms forward to the closing date of the Telesat acquisition without
affecting terms. This agreement is assignable to the Canadian borrowing company upon closing of the credit
transaction. Loral Skynet’s liability under this agreement shall not exceed $10 million for the early termination of
this agreement resulting from an event of default or termination event. At December 31, 2006, Loral recorded a
$2.4 million charge to other income reflecting a mark-to-market valuation for the swap.
In December 2006, Loral Skynet entered into forward foreign currency contracts with a single bank counterparty
selling $497.4 million for CAD 570.1 million with a settlement date of December 17, 2007. No cash payment was
made by Loral to the counterparty for entering into these transactions. These agreements can be rolled forward to the
closing date of the Telesat acquisition with an adjustment in the exchange rate. These agreements are assignable to
the Canadian borrowing company upon closing of the credit transaction. Loral Skynet’s liability under these
agreements shall not exceed $72.5 million for the early termination of these agreements resulting from an event of
default or termination event. At December 31, Loral recorded a $3.3 million charge to other income reflecting a
mark-to-market valuation for the forward contracts.
Subsequent to December 31, 2006, Loral Skynet entered into forward foreign currency contracts with a single
bank counterparty selling an additional $200 million for CAD 232.8 million with a settlement date of December 17,
2007. The terms of these transactions are similar to the terms of the December transactions. Loral Skynet’s liability
under these agreements shall not exceed $35 million for the early termination of these agreements resulting from an
event of default or termination event.
Interest
The Company issued long-term fixed rate debt at its Loral Skynet Corporation subsidiary upon emergence from
bankruptcy. As these instruments are at a fixed rate, the Company does not have any exposure to changes in interest
rates with respect thereto. The Company does not actively manage its interest rate risk through the use of derivatives
or other financial instruments.
As of December 31, 2006, the Company held $114 million in marketable securities consisting of corporate
bonds, Euro dollar bonds, certificates of deposits, commercial paper, federal agency notes and auction rate securities.
We invest in marketable securities with the intent to hold them to maturity and classify them as such, except for the
auction rate securities which we classify as available for sale. At December 31, 2006, the longest maturity date for
one of our investments was 45 days and the weighted average maturity of our marketable securities was
approximately 15 days. Due to the short-term maturity of our investments and our intent to hold them to maturity, we
believe that our exposure to interest rate risk is not significant. A hypothetical 1% movement in market interest rates
on $114 million for 15 days would equate to a $48 thousand interest adjustment.
As of December 31, 2006, the carrying value of the Company’s long-term debt was $128.1 million with related
debt issuance costs of $5.8 million which is reflected in Other Assets on our Consolidated Balance Sheet. The fair
value of such debt was $143.6 million and is based on a market valuation provided to us by an outside financial
institution for the Loral Skynet Corporation 14% Senior Notes. The Loral Skynet Notes have a scheduled maturity
date in 2015 and have an effective interest rate of 14.6%.
Item 8. Financial Statements and Supplementary Data
See Index to Financial Statements and Financial Statement Schedules on page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
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Phone: (212)924-5500
BNY
066.00.00.00
*Y31806/066/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
5/3
BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 66
Site: BOWNE OF NEW YORK
[A/E]
CRC: 4429
EDGAR 2
Table of Contents
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our chief executive officer and our chief financial officer, after evaluating the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”)) as of December 31, 2006, have concluded that our disclosure controls and
procedures were effective and designed to ensure that information relating to Loral and its consolidated subsidiaries
required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the Securities Exchange Commission rules and forms. The term disclosure
controls and procedures means controls and other procedures of an issuer that are designed to ensure that information
required to be disclosed by the issuer in the reports that it files or submits under the Act is recorded, processed,
summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls
and procedures include, without limitations, controls and procedures designed to ensure that the information required
to be disclosed by an issuer in the reports that files or submits under the Act is accumulated and communicated to the
issuer’s management, including its principal executive and principal financial officers, or persons performing similar
functions, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Under the supervision and with the
participation of our management, including our chief executive officer and our chief financial officer, we conducted
an evaluation of the effectiveness of our internal control over financial reporting based on the framework set forth in
Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on our evaluation under such criteria, our management concluded that our internal control over
financial reporting was effective as of December 31, 2006. Our management’s assessment of the effectiveness of our
internal control over financial reporting as of December 31, 2006 has been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in its attestation report which is included below.
Changes in Internal Controls Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended December 31,
2006 that have materially affected or are reasonably likely to materially affect our internal control over financial
reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our chief executive officer and our chief financial officer, does not expect that our
disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A
control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that
the control system’s objectives will be met. The design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the
inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that
misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the
company have been detected. These inherent limitations include the realities that judgments in decision-making can
be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by
the individual acts of some persons, by collusion of two or more people or by management override of the controls.
The design of any system of controls is based in part on certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its stated goals under all potential future
conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time,
controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with
policies or procedures.
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 67
Site: BOWNE OF NEW YORK
[A/E]
CRC: 60017
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
067.00.00.00
*Y31806/067/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
3/3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Loral Space & Communications Inc.
We have audited management’s assessment, included in the accompanying Management’s Report on Internal
Control Over Financial Reporting, that Loral Space & Communications Inc. and its subsidiaries (collectively, the
“Company”) maintained effective internal control over financial reporting as of December 31, 2006, based on criteria
established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission. The Company’s management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the
Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing
and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the
company’s principal executive and principal financial officers, or persons performing similar functions, and effected
by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could
have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of
collusion or improper management override of controls, material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control
over financial reporting to future periods are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that the Company maintained effective internal control over financial
reporting as of December 31, 2006, is fairly stated, in all material respects, based on the criteria established in
Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2006, based on the criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 68
Site: BOWNE OF NEW YORK
[A/E]
CRC: 2680
EDGAR 2
Phone: (212)924-5500
BNY
068.00.00.00
*Y31806/068/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
7/3
Table of Contents
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated financial statements and financial statement schedules as of December 31, 2006 and
the related consolidated statements of operations, stockholders’ equity, and cash flows for the year ended
December 31, 2006, of the Company and our report dated March 15, 2007 expressed an unqualified opinion on those
financial statements and financial statement schedules and included explanatory paragraph which indicates that the
Company changed its method of accounting for pensions and other employee benefits to adopt the provisions of
Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and other
Postretirement Plans.
/s/ DELOITTE & TOUCHE LLP
New York, NY
March 15, 2007
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Phone: (212)924-5500
BNY
069.00.00.00
*Y31806/069/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
8/4
BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 69
Site: BOWNE OF NEW YORK
[A/E]
CRC: 14530
EDGAR 2
Table of Contents
Item 9B. Other Information
None.
Item 10. Directors and Executive Officers of the Registrant
Executive Officers of the Registrant
PART III
The following table sets forth information concerning the executive officers of Loral as of March 1, 2007.
Name
Michael B. Targoff
Age
62
Eric J. Zahler
Richard J. Townsend
C. Patrick DeWitt
Avi Katz
Richard P. Mastoloni
Harvey B. Rein
56
56
60
48
42
53
Position
Chief Executive Officer since March 1, 2006; Vice Chairman of the
Board of Directors since November 2005. Prior to that, founder of
Michael B. Targoff & Co.
President and Chief Operating Officer since November 2005. President
and Chief Operating Officer of Old Loral since February 2000.
Executive Vice President and Chief Financial Officer since November
2005. Executive Vice President and Chief Financial Officer of Old
Loral since March 2003. Prior to that, Senior Vice President and Chief
Financial Officer of Old Loral since October 1998.
Vice President since November 2005. Vice President of Old Loral since
January 2002. Chief Executive Officer of SS/L since June 2006. Prior to
that, President of SS/L since November 2001.
Vice President, General Counsel and Secretary since November 2005.
Vice President, General Counsel and Secretary of Old Loral since
November 1999.
Vice President and Treasurer since November 2005. Vice President and
Treasurer of Old Loral since February 2002. Prior to that, Vice
President since September 2001.
Vice President and Controller since November 2005. Vice President and
Controller of Old Loral since April 1996.
With the exception of Mr. Targoff, the above-named executive officers of Loral were officers and directors of
Old Loral and certain of its subsidiaries which, on July 15, 2003, filed voluntary petitions for reorganization under
Chapter 11 of the Bankruptcy Code.
The remaining information required under Item 10 will be presented in the Company’s 2006 definitive proxy
statement which is incorporated herein by reference.
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions
Information required under Items 11, 12 and 13 will be presented in the Company’s 2006 definitive proxy
statement which is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
Information required under Item 14 will be presented in the Company’s 2006 definitive proxy statement which
is incorporated herein by reference.
68
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 70
Site: BOWNE OF NEW YORK
[A/E]
CRC: 55654
EDGAR 2
Phone: (212)924-5500
BNY
070.00.00.00
*Y31806/070/5*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
11/5
Item 15. Exhibits and Financial Statement Schedules
(a) 1. Financial Statements
PART IV
Index to Financial Statements and Financial Statement Schedule
Loral Space & Communications Inc. and Subsidiaries
F-1
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2006 and 2005
Consolidated Statements of Operations for the year ended December 31, 2006, the period October 2, 2005 to
December 31, 2005 (Successor Registrant), January 1, 2005 to October 1, 2005 and for the year ended
December 31, 2004 (Predecessor Registrant)
F-2
F-4
F-5
Consolidated Statements of Shareholders’ Equity for the year ended December 31, 2006, the period
October 2, 2005 to December 31, 2005 (Successor Registrant), January 1, 2005 to October 1, 2005 and for
the year ended December 31, 2004 (Predecessor Registrant)
F-6
Consolidated Statements of Cash Flows for the year ended December 31, 2006, the period October 2, 2005
to December 31, 2005 (Successor Registrant), January 1, 2005 to October 1, 2005 and for the year ended
December 31, 2004 (Predecessor Registrant)
Notes to Consolidated Financial Statements
(a) 2. Financial Statement Schedules
Schedule I
Schedule II
Separate Financial Statements of Subsidiaries not consolidated Pursuant to Rule 3-09 of Regulation S-X
XTAR LLC:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2006 and 2005 (unaudited)
Consolidated Statements of Operations for the years ended December 31, 2006, 2005 (unaudited) and 2004
(unaudited)
Consolidated Statements of Cash Flows for the year ended December 31, 2006, 2005 (unaudited) and 2004
(unaudited)
Consolidated Statements of Members’ Equity for the year ended December 31, 2006, 2005 (unaudited) and
2004 (unaudited)
Notes to Consolidated Financial Statements
EX-10.19: AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT
EX-12.1: STATEMENT RE: COMPUTATION OF RATIOS
EX-21.1: LIST OF SUBSIDIARIES
EX-23.1: CONSENT OF DELOITTE & TOUCHE LLP
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.1: CERTIFICATION
EX-32.2: CERTIFICATION
69
F-7
F-8
F-70
F-73
F-74
F-75
F-76
F-77
F-78
F-79
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 71
Site: BOWNE OF NEW YORK
[A/E]
CRC: 4049
EDGAR 2
Phone: (212)924-5500
BNY
071.00.00.00
*Y31806/071/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
5/3
Table of Contents
Exhibit
Number
2 .1
2 .2
2 .3
2 .4
2 .5
INDEX TO EXHIBITS
Description
Debtors’ Fourth Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code dated
June 3, 2005(1)
Modification to Debtors’ Fourth Amended Plan of Reorganization Under Chapter 11 of the Bankruptcy
Code dated August 1, 2005(2)
Letter Agreement among Loral Space & Communications Inc., Loral Skynet Corporation, Public Sector
Pension Investment Board, 4363205 Canada Inc. and 4363213 Canada Inc. dated December 14, 2006(3)
Share Purchase Agreement among 4363213 Canada Inc., BCE Inc. and Telesat Canada dated
December 16, 2006(3)
Letter Agreement among Loral Space & Communications Inc., Public Sector Pension Investment Board
and BCE Inc. dated December 16, 2006(3)
3 .1 Restated Certificate of Incorporation of Loral Space & Communications Inc. dated November 21, 2005(4)
3 .2
Certificate of Designation of Series A-1 Cumulative 7.50% Convertible Preferred Stock and Series A-2
Convertible Preferred Stock of Loral Space & Communications Inc.(18)
Certificate of Designation of Series B-1 Cumulative 7.50% Convertible Preferred Stock and Series B-2
Convertible Preferred Stock of Loral Space & Communications Inc.(18)
3 .3
3 .4 Loral Space & Communications Inc. Amended and Restated Bylaws dated February 27, 2007(18)
4 .1
Certificate of Designation of Series A-1 Cumulative 7.50% Convertible Preferred Stock and Series A-2
Convertible Preferred Stock of Loral Space & Communications Inc.(18)
Certificate of Designation of Series B-1 Cumulative 7.50% Convertible Preferred Stock and Series B-2
Convertible Preferred Stock of Loral Space & Communications Inc.(18)
4 .2
10 .1 Restated Certificate of Incorporation of Loral Skynet Corporation dated November 21, 2005(4)
10 .2
Indenture in respect of Loral Skynet Corporation’s 14% Senior Secured Cash/PIK Notes Due 2015 dated
November 21, 2005(4)
Security Agreement in respect of Loral Skynet Corporation’s 14% Senior Secured Cash/PIK Notes due
2015 dated November 21, 2005(4)
Hong Kong Security Agreement in respect of Loral Skynet Corporation’s 14% Senior Secured Cash/PIK
Notes due 2015 dated November 21, 2005(4)
Amended and Restated Registration Rights Agreement dated February 27, 2007 by and among Loral
Space & Communications Inc., Loral Skynet Corporation and the Persons Affiliated with MHR Fund
Management LLC Listed on the Signature Pages Thereof(18)
Lease Agreement by and between Loral Asia Pacific Satellite (HK) Limited and APT Satellite Company
Limited dated as of August 18, 1999(5)
Consent Agreement among the United States Department of State, Loral Space & Communications Ltd.
and Space Systems/ Loral, Inc. dated January 9, 2002(6)
Form of Conformed as Amended Apstar V Satellite Agreement between APT Satellite company Limited
and Loral Orion, Inc. dated as of November 16, 2003(7)
$20,000,000 Amended and Restated Letter of Credit Reimbursement Agreement between Space
Systems/Loral, Inc. and JP Morgan Chase Bank, N.A. dated November 21, 2005(4)
10 .3
10 .4
10 .5
10 .6
10 .7
10 .8
10 .9
10 .10 Amended and Restated Cash Collateral Agreement dated November 21, 2005(4)
10 .11
Customer Credit Agreement between Sirius Satellite Radio Inc. and Space Systems/Loral, Inc. dated
May 31, 2006(11)
Securities Purchase Agreement dated October 17, 2006, as amended and restated on February 27, 2007,
by and between Loral Space & Communications Inc. and MHR Fund Management LLC(18)
Employment Agreement between Loral Space & Communications Inc. and Michael B. Targoff dated
March 28, 2006(9)‡
10 .12
10 .13
70
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 72
Site: BOWNE OF NEW YORK
[A/E]
CRC: 31581
EDGAR 2
Phone: (212)924-5500
BNY
072.00.00.00
*Y31806/072/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
8/3
Table of Contents
Exhibit
Number
10 .14
10 .15
10 .16
10 .17
10 .18
10 .19
10 .20
10 .21
10 .22
10 .23
Description
Employment Agreement between Loral Space & Communications Inc. and Eric J. Zahler dated
November 21, 2005(9)‡
Employment Agreement between Loral Space & Communications Inc. and Richard J. Townsend dated
November 21, 2005(9)‡
Amendment No. 1 to Employment Agreement between Loral Space & Communications Inc. and Richard
J. Townsend dated June 19, 2006(10)‡
Employment Agreement between Loral Space & Communications Inc. and Avi Katz dated November 21,
2005(9)‡
Amendment No. 1 to Employment Agreement between Loral Space & Communications Inc. and Avi Katz
dated June 19, 2006(10)‡
Amendment No. 2 to Employment Agreement between Loral Space & Communications Inc. and Avi Katz
dated January 4, 2007†‡
Employment Agreement between Space Systems/Loral, Inc. and C. Patrick DeWitt dated November 21,
2005(8)‡
Consulting Agreement between Loral Space & Communications Inc. and Dean A. Olmstead dated June 7,
2006(11)‡
Form of Officers’ and Directors’ Indemnification Agreement between Loral Space & Communications
Inc. and Loral Executives(4)‡
Officers’ and Directors’ Indemnification Agreement between Space Systems/Loral, Inc. and C. Patrick
DeWitt dated November 21, 2005(8)‡
10 .24 Loral Space & Communications Inc. 2005 Stock Incentive Plan(4)‡
10 .25
10 .26
10 .27
10 .28
Form of Non-Qualified Stock Option Agreement under Loral Space & Communications Inc. 2005 Stock
Incentive Plan for Senior Management(4)‡
Non-Qualified Stock Option Agreement under Loral Space & Communications Inc. 2005 Stock Incentive
Plan between Loral Space & Communications Inc. and Michael B. Targoff dated March 28, 2006(9)‡
Non Qualified Stock Option Agreement under Loral Space & Communications Inc. 2005 Stock Incentive
Plan between Loral Space & Communications Inc. and Richard J. Townsend dated June 19, 2006(12)‡
Non Qualified Stock Option Agreement under Loral Space & Communications Inc. 2005 Stock Incentive
Plan between Loral Space & Communications Inc. and Dean A. Olmstead dated June 19, 2006(12)‡
10 .29 Space Systems/Loral, Inc. Supplemental Executive Retirement Plan dated January 7, 2003(9)‡
10 .30
Amendment to the Space Systems/Loral, Inc. Supplemental Executive Retirement Plan dated
November 21, 2005(4)‡
10 .31 Loral Space & Communications Inc. Severance Policy for Corporate Officers(11)‡
12 .1 Statement Re: Computation of Ratios†
14 .1 Code of Conduct, Revised as of August 1, 2006(14)
21 .1 List of Subsidiaries of the Registrant†
23 .1 Consent of Deloitte & Touche LLP
31 .1
Certification of Chief Executive Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 302 of the
Sarbanes-Oxley Act of 2002†
Certification of Chief Financial Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 302 of the
Sarbanes-Oxley Act of 2002†
Certification of Chief Executive Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the
Sarbanes-Oxley Act of 2002†
31 .2
32 .1
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 73
Site: BOWNE OF NEW YORK
[A/E]
CRC: 62398
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
073.00.00.00
*Y31806/073/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
6/3
Exhibit
Number
32 .2
99 .1
Description
Certification of Chief Financial Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the
Sarbanes-Oxley Act of 2002†
Fourth Amended and Restated Commitment Letter, dated February 1, 2007 among 4363205 Canada Inc.,
Morgan Stanley Senior Funding, Inc., Morgan Stanley Senior Funding Nova Scotia, Morgan Stanley &
Co., Incorporated, UBS Loan Finance LLC, UBS Securities LLC, JPMorgan Chase Bank, N.A.,
J.P. Morgan Securities Inc., The Bank of Nova Scotia, Citigroup Global Markets Inc., Jefferies &
Company, Inc. and Jefferies Finance LLC(17)
(1) Incorporated by reference from the Company’s Current Report on Form 8-K filed on June 8, 2005.
(2) Incorporated by reference from the Company’s Current Report on Form 8-K filed on August 5, 2005.
(3) Incorporated by reference from the Company’s Current Report on Form 8-K filed on December 21, 2006.
(4) Incorporated by reference from the Company’s Current Report on Form 8-K filed on November 23, 2005.
(5) Incorporated by reference from the Company’s Current Report on Form 8-K filed on August 23, 1999.
(6) Incorporated by reference from the Company’s Current Report on Form 8-K filed on January 9, 2002.
(7) Incorporated by reference from the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2003.
(8) Incorporated by reference from the Company’s Current Report on Form 8-K filed on November 23, 2005.
(9) Incorporated by reference from the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2005.
(10) Incorporated by reference from the Company’s Current Report on Form 8-K filed on June 20, 2006.
(11) Incorporated by reference from the Company’s Current Report on Form 8-K filed on June 8, 2006.
(12) Incorporated by reference from the Company’s Current Report on Form 8-K/A filed by the Company on
June 26, 2006.
(13) Incorporated by reference from the Company’s Current Report on Form 8-K filed on November 13, 2006.
(14) Incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed on August 7, 2006.
(15) Incorporated by reference from the Company’s Current Report on Form 8-K filed on February 2, 2006.
(16) Incorporated by reference from the Company’s Current Report on Form 8-K filed on March 16, 2006.
(17) Incorporated by reference from the Company’s Current Report on Form 8-K filed on February 11, 2007.
(18) Incorporated by reference from the Company’s Current Report on Form 8-K filed on February 28, 2007.
† Filed herewith.
‡ Management compensation plan.
72
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 74
Site: BOWNE OF NEW YORK
[A/E]
CRC: 1251
EDGAR 2
Phone: (212)924-5500
BNY
074.00.00.00
*Y31806/074/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
5/3
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
LORAL SPACE & COMMUNICATIONS INC.
By: /s/ MICHAEL B. TARGOFF
Michael B. Targoff
Chief Executive Officer
Dated: March 15, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signatures
Title
Date
/s/ MICHAEL B. TARGOFF
Michael B. Targoff
Vice Chairman of the Board and Chief
Executive Officer
March 15, 2007
/s/ MARK H. RACHESKY, M.D.
Mark H. Rachesky, M.D.
Director, Non-Executive Chairman of the
Board
March 15, 2007
/s/ SAI S. DEVABHAKTUNI
Director
March 15, 2007
Sai S. Devabhaktuni
/s/ HAL GOLDSTEIN
Director
March 15, 2007
Hal Goldstein
/s/ JOHN D. HARKEY, JR.
Director
March 15, 2007
John D. Harkey, Jr.
/s/ DEAN A. OLMSTEAD
Director
March 15, 2007
Dean A. Olmstead
/s/ ARTHUR L. SIMON
Director
March 15, 2007
Arthur L. Simon
/s/ JOHN P. STENBIT
Director
March 15, 2007
John P. Stenbit
/s/ RICHARD J. TOWNSEND
Richard J. Townsend
Executive Vice President and CFO (Principal
Financial Officer)
March 15, 2007
/s/ HARVEY B. REIN
Harvey B. Rein
Vice President and Controller
(Principal Accounting Officer)
March 15, 2007
73
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 75
Site: BOWNE OF NEW YORK
[A/E]
CRC: 13192
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
075.00.00.00
*Y31806/075/6*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
11/6
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Loral Space & Communications Inc. and Subsidiaries
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2006 and 2005
Consolidated Statements of Operations for the year ended December 31, 2006, for the period October 2,
F-2
F-4
2005 to December 31, 2005 (Successor Registrant), January 1, 2005 to October 1, 2005 and for the year
ended December 31, 2004 (Predecessor Registrant)
F-5
Consolidated Statements of Shareholders’ Equity for the year ended December 31, 2006, for the period
October 2, 2005 to December 31, 2005 (Successor Registrant), January 1, 2005 to October 1, 2005 and for
the year ended December 31, 2004 (Predecessor Registrant)
F-6
Consolidated Statements of Cash Flows for the year ended December 31, 2006, for the period October 2,
2005 to December 31, 2005 (Successor Registrant), January 1, 2005 to October 1, 2005 and for the year
ended December 31, 2004 (Predecessor Registrant)
Notes to Consolidated Financial Statements
Schedule I
Schedule II
Separate Financial Statements of Subsidiaries not consolidated Pursuant to Rule 3-09 of Regulation S-X
XTAR LLC:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2006 and 2005 (unaudited)
Consolidated Statements of Operations for the years ended December 31, 2006, 2005 (unaudited) and 2004
(unaudited)
Consolidated Statements of Cash Flows for the year ended December 31, 2006, 2005 (unaudited) and 2004
(unaudited)
Consolidated Statements of Members’ Equity for the year ended December 31, 2006, 2005 (unaudited) and
2004 (unaudited)
Notes to Consolidated Financial Statements
F-7
F-8
F-70
F-73
F-74
F-75
F-76
F-77
F-78
F-79
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 76
Site: BOWNE OF NEW YORK
[A/E]
CRC: 41711
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
076.00.00.00
*Y31806/076/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
10/4
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Loral Space & Communications Inc.
We have audited the accompanying consolidated balance sheets of Loral Space & Communications Inc. and its
subsidiaries (collectively, the “Company”) as of December 31, 2006 and 2005, and the related consolidated
statements of operations, stockholders’ equity, and cash flows for the year ended December 31, 2006, for the period
from October 2, 2005 to December 31, 2005 (Successor Registrant operations), the period from January 1, 2005 to
October 1, 2005 and for the year ended December 31, 2004 (Predecessor Registrant operations). Our audits also
included the financial statement schedules listed in the Index at Item 15. These financial statements and financial
statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the Successor Registrant consolidated financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of December 31, 2006 and 2005, and the results of its
operations and its cash flows for the period ended December 31, 2006 and for the period October 2, 2005 to
December 31, 2005 in conformity with accounting principles generally accepted in the United States of America.
Further, in our opinion, the Predecessor Registrant consolidated financial statements referred to above present fairly,
in all material respects, the consolidated results of the Company’s operations and its cash flows for the period from
January 1, 2005 to October 1, 2005 and for the year ended December 31, 2004, in conformity with accounting
principles generally accepted in the United States of America. Also, in our opinion, such financial statement
schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the effectiveness of the Company’s internal control over financial reporting as of December 31,
2006, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated March 15, 2007 expressed an
unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over
financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial
reporting.
As discussed in Note 1 to the consolidated financial statements, the Company emerged from bankruptcy on
November 21, 2005. In connection with its emergence, the Company adopted fresh-start reporting pursuant to
American Institute of Certified Public Accountants Statement of Position 90-7, Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code, as of October 1, 2005. As a result, the consolidated financial statements
of the Successor Registrant are presented on a different basis than those of the Predecessor Registrant and, therefore,
are not comparable.
As discussed in Note 17 to the consolidated financial statements, as of December 31, 2006, the Company
changed its method of accounting for pensions and other employee benefits to adopt the provisions of Statement of
Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and other
Postretirement Plans.
As discussed in Note 3 to the consolidated financial statements, the Company changed its method of accounting
for stock-based compensation to adopt the provisions of Statement of Financial Accounting Standards No. 123(R),
Share-Based Payment, effective October 1, 2005.
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 77
Site: BOWNE OF NEW YORK
[A/E]
CRC: 32786
EDGAR 2
Phone: (212)924-5500
BNY
077.00.00.00
*Y31806/077/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
6/4
Table of Contents
As discussed in Note 5 to the consolidated financial statements, in March 2004 the Company completed the sale
of its North American satellites and related assets. The Company has classified the related operations as discontinued
operations in accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets.
/s/ DELOITTE & TOUCHE LLP
New York, NY
March 15, 2007
F-3
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 78
Site: BOWNE OF NEW YORK
[A/E]
CRC: 64615
EDGAR 2
Phone: (212)924-5500
BNY
078.00.00.00
*Y31806/078/5*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
9/5
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Contracts-in-process
Inventories
Other current assets
Total current assets
Property, plant and equipment, net
Long-term receivables
Investments in and advances to affiliates
Deposits
Goodwill
Other assets
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued employment costs
Customer advances and billings in excess of costs and profits
Income taxes payable
Accrued interest and preferred dividends
Other current liabilities
Total current liabilities
Pension and other postretirement liabilities
Long-term debt
Long-term liabilities
Total liabilities
Minority interest
Commitments and contingencies
December 31,
2006
2005
$ 186,542 $ 275,796
106,588
—
59,347
76,420
73,584
40,433
51,871
82,183
31,066
55,534
547,700 491,664
558,879 520,503
81,164
48,155
97,202 104,616
9,840
305,691 340,094
138,520 164,105
$ 1,729,911 $ 1,678,977
755
$
67,604 $
43,797
2,567
20,097
42,828
72,594
35,277
242,661 172,995
2,177
4,881
32,324
419,554 320,248
167,987 237,948
128,084 128,191
153,028 165,426
868,653 851,813
214,256 200,000
Shareholders’ equity:
Common stock, $.01 par value; 40,000,000 shares authorized, 20,000,000 shares issued
and outstanding
Paid-in capital
Accumulated deficit
Accumulated other comprehensive income
Total shareholders’ equity
Total liabilities and shareholders’ equity
See notes to consolidated financial statements
F-4
200
200
644,708 642,210
(15,261 )
15
647,002 627,164
$ 1,729,911 $ 1,678,977
(37,981 )
40,075
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 79
Site: BOWNE OF NEW YORK
[A/E]
CRC: 46544
EDGAR 2
Phone: (212)924-5500
BNY
079.00.00.00
*Y31806/079/6*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
8/6
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Successor Registrant
Predecessor Registrant
Revenues from satellite manufacturing
Revenues from satellite services
Revenues from sales-type lease arrangement —
satellite services
Total revenues
Cost of satellite manufacturing
Cost of satellite services
Cost of sales-type lease arrangement — satellite
services
Selling, general and administrative expenses
Gain on litigation settlement
Income (loss) from continuing operations before
reorganization expenses due to bankruptcy
Reorganization expenses due to bankruptcy
Operating income (loss) from continuing operations
Gain on discharge of pre-petition obligations and
fresh-start adjustments
Interest and investment income
Interest expense (contractual interest was $36,610 for
the period ended October 1, 2005 and $46,451 for
the year ended December 31, 2004, respectively)
Other expense
Income (loss) from continuing operations before
income taxes, equity (losses) income in affiliates
and minority interest
Income tax (provision) benefit
Income (loss) from continuing operations before
equity (losses) income in affiliates and minority
interest
Equity (losses) income in affiliates
Minority interest
(Loss) income from continuing operations
(Loss) income from discontinued operations
Gain on sale of discontinued operations, net of taxes
Net (loss) income
Basic and diluted (loss) earnings per share:
Continuing operations
Discontinued operations
(Loss) earnings per share
Weighted average shares outstanding:
Basic and diluted
For the Period
October 2,
For the Period
January 1,
2005 to
2005 to
December 31,
October 1,
Year Ended
December 31,
2006
$ 636,632 $
160,701
2005
161,069 $
36,096
Year Ended
December 31,
2004
2005
318,587 $ 299,608
135,319
110,596
—
797,333
550,821
98,614
—
197,165
138,882
26,386
—
429,183
291,454
94,169
87,200
522,127
318,295
189,330
—
127,080
(9,000 )
—
36,842
—
—
79,419
—
79,543
118,848
—
29,818
—
29,818
—
31,526
(4,945 )
—
(4,945 )
(35,859 )
(31,236 )
(67,095 )
(183,889 )
(30,456 )
(214,345 )
— 1,101,453
6,438
4,128
—
9,953
(23,449 )
(7,778 )
(4,408 )
(170 )
(17,214 )
(931 )
(2,947 )
(513 )
30,117
(20,880 )
(5,395 ) 1,022,651
10,901
(1,752 )
(207,852 )
(13,284 )
9,237
(7,163 )
(24,794 )
(22,720 )
—
—
(22,720 ) $
(221,136 )
(7,147 ) 1,033,552
46,654
(2,796 )
(5,447 )
135
126
(2,667 )
(174,347 )
(15,261 ) 1,030,882
(2,348 )
—
—
13,967
(15,261 ) $ 1,044,849 $ (176,695 )
—
—
(1.14 ) $
—
(1.14 ) $
(0.76 ) $
—
(0.76 ) $
23.37 $
0.32
23.69 $
(3.96 )
(0.05 )
(4.01 )
20,000
20,000
44,108
44,108
$
$
$
See notes to consolidated financial statements.
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 80
Site: BOWNE OF NEW YORK
[A/E]
CRC: 47770
EDGAR 2
Phone: (212)924-5500
BNY
080.00.00.00
*Y31806/080/5*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
7/5
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)
Common Stock
Paid-In
Shares
Issued Amount Capital
Unearned
Comprehensive Shareholders’
Treasury Compen- Accumulated
Stock sation
Deficit
Income
(Loss)
(Deficit)
Equity
Accumulated
Other
Total
Predecessor Registrant
Balance, January 1, 2004
Amortization of unearned compensation
Cost associated with conversion of preferred
stock to common stock
Net loss
Other comprehensive loss
Comprehensive loss
Balance, December 31, 2004
Amortization of unearned compensation
Net income
Other comprehensive loss
Comprehensive income
Cancellation of Predecessor Registrant
common stock
Issuance of common stock to creditors
Fresh-start adjustment
Balance, October 1, 2005
Successor Registrant
Net loss
Other comprehensive income
Comprehensive loss
Stock option compensation
Balance, December 31, 2005
Net loss
Other comprehensive income
Comprehensive income
Stock option compensation
Balance, December 31, 2006
44,125 $ 4,413 $ 3,392,829 $ (3,360 ) $
(168 ) $ (4,171,536 ) $
(77,848 ) $
(4 )
44,125 4,413 3,392,825 (3,360 )
81
(176,695 )
(87 ) (4,348,231 )
60
1,044,849
(855,670 )
81
(4 )
(11,813 )
(188,508 )
(89,661 ) (1,044,101 )
60
(808 )
1,044,041
(44,125 ) (4,413 )
200
20,000
4,413
642,068
20,000
(3,397,238 ) 3,360
642,068 —
200
27 3,303,382
—
—
90,469
—
20,000
200
642,210 —
—
142
(15,261 )
(15,261 )
(22,720 )
15
15
40,060
20,000 $ 200 $ 644,708 $ — $ — $
(37,981 ) $
40,075 $
2,498
—
642,268
—
642,268
(15,246 )
142
627,164
17,340
2,498
647,002
See notes to consolidated financial statements.
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 81
Site: BOWNE OF NEW YORK
[A/E]
CRC: 11797
EDGAR 2
Phone: (212)924-5500
BNY
081.00.00.00
*Y31806/081/6*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
8/6
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Successor Registrant
Predecessor Registrant
Year Ended
December 31, October 2, 2005 to
December 31, 2005
For the Period
2006
Year Ended
For the Period
January 1, 2005 to December 31,
October 1, 2005
2004
Operating activities:
Net (loss) income
Adjustments to reconcile net (loss) income to cash flows from operating activities:
Non-cash items
Changes in operating assets and liabilities:
Accounts receivable, net
Contracts-in-process
Inventories
Long-term receivables
Deposits
Other current assets and other assets
Accounts payable
Accrued expenses and other current liabilities
Customer advances
Income taxes payable
Pension and other postretirement liabilities
Long-term liabilities
Other
Net cash provided by (used in) operating activities of continuing operations
Net cash provided by operating activities of discontinued operations
Net cash provided by (used in) operating activities
Investing activities:
Capital expenditures for continuing operations
Short-term investments
(Increase) decrease in restricted cash in escrow
Insurance proceeds received
Proceeds received from disposition of orbital slot
Proceeds from sale of equity investment
Proceeds from sale of available for sale securities
Investments in and advances to affiliates
Net cash (used in) provided by investing activities of continuing operations
Proceeds from the sale of assets, net of expenses
Capital expenditures for discontinued operations
Net cash provided by investing activities of discontinued operations
Net cash (used in) provided by investing activities
Financing activities:
Proceeds from Skynet Notes
Repayments of term loans
Repayments of revolving credit facilities
Cash dividends paid on preferred stock of subsidiary
Net cash (used in) provided by financing activities
(Decrease) increase in cash and cash equivalents
Cash and cash equivalents — beginning of period
Cash and cash equivalents — end of period
$
(22,720 ) $
(15,261 ) $
1,044,849 $
(176,695 )
108,584
29,366
(1,051,330 )
127,712
(9,129 )
5,551
(31,990 )
(2,214 )
9,085
(1,121 )
(12,812 )
17,756
50,634
391
(20,453 )
(3,725 )
165
88,002
—
88,002
(82,157 )
(106,588 )
(323 )
—
5,742
250
7,098
—
(175,978 )
—
—
—
(175,978 )
—
—
—
(1,278 )
(1,278 )
(89,254 )
275,796
186,542 $
$
1,855
42,459
(7,899 )
(13,833 )
(35 )
(9,914 )
(13,250 )
(64,039 )
5,739
1,389
3,077
335
1,480
(38,531 )
—
(38,531 )
(4,972 )
—
(54 )
—
—
—
—
(63 )
(5,089 )
—
—
—
(5,089 )
120,763
—
—
—
120,763
77,143
198,653
275,796 $
557
(76,464 )
(10,212 )
(22,361 )
—
11,981
(1,285 )
21,573
(62,212 )
3,079
(3,650 )
1,844
(196 )
(143,827 )
—
(143,827 )
(4,649 )
—
1,566
205,000
—
—
—
(7,354 )
194,563
144
—
144
194,707
—
—
—
—
—
50,880
147,773
198,653 $
10,423
29,082
1,720
2,911
—
7,533
1,755
(948 )
35,249
(2,814 )
10,503
(7,080 )
216
39,567
26,562
66,129
(24,786 )
—
(5,049 )
—
—
—
—
(5,712 )
(35,547 )
953,619
(11,185 )
942,434
906,887
—
(576,500 )
(390,387 )
—
(966,887 )
6,129
141,644
147,773
See notes to consolidated financial statements
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 82
Site: BOWNE OF NEW YORK
[A/E]
CRC: 35703
EDGAR 2
Phone: (212)924-5500
BNY
082.00.00.00
*Y31806/082/5*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
9/5
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Principal Business
Loral Space & Communications Inc. (“New Loral”) together with its subsidiaries is a leading satellite
communications company with substantial activities in satellite manufacturing and satellite-based communications
services. New Loral, a Delaware corporation, was formed on June 24, 2005, to succeed to the business conducted by
its predecessor registrant, Loral Space & Communications Ltd. (“Old Loral”), which emerged from chapter 11 of the
federal bankruptcy laws on November 21, 2005 (the “Effective Date”).
We adopted fresh start accounting as of October 1, 2005, in accordance with Statement of Position No. 90-7,
Financial Reporting of Entities in Reorganization Under the Bankruptcy Code (“SOP 90-7”). Accordingly, our
financial information disclosed under the heading “Successor Registrant” for the periods ended and as of
December 31, 2006 and 2005, respectively, is presented on a basis different from, and is therefore not comparable to,
our financial information disclosed under the heading “Predecessor Registrant” for the period ended and as of
October 1, 2005 (the date we adopted fresh-start accounting) or for prior periods.
The terms, “Loral,” the “Company,” “we,” “our” and “us,” when used in this report with respect to the period
prior to our emergence, are references to Old Loral, and when used with respect to the period commencing after our
emergence, are references to New Loral. These references include the subsidiaries of Old Loral or New Loral, as the
case may be, unless otherwise indicated or the context otherwise requires.
Loral is organized into two operating segments:
Satellite Manufacturing: Our subsidiary, Space Systems/Loral, Inc. (“SS/L”), designs and manufactures
satellites, space systems and space system components for commercial and government customers whose
applications include fixed satellite services (“FSS”), direct-to-home (“DTH”) broadcasting, mobile satellite services
(“MSS”), broadband data distribution, wireless telephony, digital radio, digital mobile broadcasting, military
communications, weather monitoring and air traffic management.
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Satellite Services: Our subsidiary, Loral Skynet Corporation (“Loral Skynet”), operates a global fixed satellite
services business. Loral Skynet leases transponder capacity to commercial and governmental customers for video
distribution and broadcasting, high-speed data distribution, Internet access and communications, as well as provides
managed network services to customers using a hybrid satellite and ground-based system. Loral Skynet has four in-
orbit satellites and has one satellite under construction at SS/L. It also provides professional services to other satellite
operators such as fleet operating services.
2. Bankruptcy Filings and Reorganization
Bankruptcy Filings
On July 15, 2003, Old Loral and certain of its subsidiaries (the “Debtor Subsidiaries” and collectively with Old
Loral, the “Debtors”), including Loral Space & Communications Holdings Corporation (formerly known as Loral
Space & Communications Corporation), Loral SpaceCom Corporation (“Loral SpaceCom”), SS/L and Loral Orion,
Inc. (now known as Loral Skynet Corporation), filed voluntary petitions for reorganization under chapter 11 of
title 11 (“Chapter 11”) of the United States Code (the “Bankruptcy Code”) in the U.S. Bankruptcy Court for the
Southern District of New York (the “Bankruptcy Court”) (Lead Case No. 03-41710 (RDD), Case Nos. 03-41709
(RDD) through 03-41728 (RDD)) (the “Chapter 11 Cases”). Also on July 15, 2003, Old Loral and one of its
Bermuda subsidiaries (the “Bermuda Group”) filed parallel insolvency proceedings in the Supreme Court of
Bermuda (the “Bermuda Court”), and, on that date, the Bermuda Court entered an order appointing certain partners
of KPMG as Joint Provisional Liquidators (“JPLs”) in respect of the Bermuda Group (see Note 3).
As a result of our voluntary petitions for reorganization, all of our prepetition debt obligations were accelerated
(see below). On July 15, 2003, we also suspended interest payments on all of our prepetition unsecured debt
obligations. A creditors’ committee (the “Creditors’ Committee”) was appointed in the Chapter 11 Cases to represent
all unsecured creditors, including all debt holders. On March 29, 2005, the United States Trustee for the
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 83
Site: BOWNE OF NEW YORK
[A/E]
CRC: 32439
EDGAR 2
Phone: (212)924-5500
BNY
083.00.00.00
*Y31806/083/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
7/4
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Southern District of New York appointed an official committee of equity security holders (the “Equity Committee”)
(as amended on April 7, 2005 and April 11, 2005). In accordance with the provisions of the Bankruptcy Code, both
the Creditors’ Committee and the Equity Committee had the right to be heard on all matters that came before the
Bankruptcy Court.
Reorganization
The Debtors emerged from Chapter 11 on November 21, 2005 pursuant to the terms of their fourth amended
joint plan of reorganization, as modified (the “Plan of Reorganization”). The Plan of Reorganization had previously
been confirmed by order (the “Confirmation Order”) of the Bankruptcy Court entered on August 1, 2005.
Pursuant to the Plan of Reorganization:
(cid:129) The business and operations of Old Loral have been transferred to New Loral, and Loral Skynet and SS/L
have emerged intact as separate subsidiaries of reorganized Loral.
(cid:129) Our new common stock has been listed on NASDAQ under the symbol “LORL”.
(cid:129) SS/L has emerged debt-free.
(cid:129) The initial distributions to creditors of Old Loral and its subsidiaries have been completed in accordance with
the Plan of Reorganization as follows:
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(cid:129) All holders of allowed claims against SS/L and Loral SpaceCom have been, or will be, paid in cash in full,
including interest from the petition date to the Effective Date.
(cid:129) 20 million shares of New Loral common stock were issued to our distribution agent on the Effective Date,
19.9 million of which have been distributed to creditors as of December 31, 2006.
(cid:129) $200 million of Loral Skynet preferred stock was issued to our distribution agent on the Effective Date,
$198.8 million of which has been distributed to creditors (See Note 3).
(cid:129) The remaining undistributed shares of New Loral common stock and Loral Skynet preferred stock have
been reserved to cover disputed claims and will be distributed quarterly in accordance with the Plan of
Reorganization upon resolution of those claims.
(cid:129) Pursuant to a rights offering, Loral Skynet issued on the Effective Date, $126 million, principal amount, of
senior secured notes (the “Loral Skynet Notes”, see Note 12) to certain creditors who subscribed for the
notes and to certain creditors who committed to purchase any unsubscribed notes (i.e., “backstopped” the
offering).
(cid:129) Old Loral has commenced liquidation proceedings; the common and preferred stock of Old Loral were
cancelled on the Effective Date, and no distribution was made to the holders of such stock.
Certain Old Loral shareholders acting on behalf of the self-styled Loral Stockholders Protective Committee
(“LSPC”) have filed various appeals seeking, among other things, to revoke the Confirmation Order, to overturn the
Bankruptcy Court’s denial of the LSPC’s motion to compel Old Loral to hold a shareholders’ meeting, to overturn
various rulings of the Bankruptcy Court related to fees and expenses and to rescind the approval of the Federal
Communications Commission (“FCC”) of the transfer of our FCC licenses from Old Loral to New Loral (the
“Appeals”). All of the Appeals, other than an appeal relating to the Confirmation Order and the FCC appeal, both of
which we believe are completely without merit and will not have any effect on the completed reorganization, have
been either dismissed or withdrawn with prejudice (see Note 19).
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 84
Site: BOWNE OF NEW YORK
[A/E]
CRC: 57295
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
084.00.00.00
*Y31806/084/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
5/4
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
3. Basis of Presentation
Loral has a December 31 year end. The consolidated financial statements for the year ended December 31, 2006,
for the periods October 2, 2005 to December 31, 2005 and January 1, 2005 to October 1, 2005, and for the year
ended December 31, 2004, include the results of Loral and its subsidiaries and have been prepared in accordance
with U.S. generally accepted accounting principles (“U.S. GAAP”). All intercompany transactions have been
eliminated. References in these consolidated financial statements to the Predecessor Registrant refer to Loral until
October 1, 2005 and references to the Successor Registrant refer to Loral after October 1, 2005 and after giving
effect to the adoption of fresh-start accounting.
The accompanying consolidated financial statements for the Predecessor Registrant have been prepared in
accordance with SOP 90-7 and on a going concern basis, which contemplates continuing operations, realization of
assets and liquidation of liabilities in the ordinary course of business. In addition, the consolidated statements of
operations of the Predecessor Registrant portray our results of operations during the Chapter 11 proceedings. As a
result, any revenue, expenses, realized gains and losses, and provision for losses resulting directly from the
reorganization and restructuring of the organization are reported separately as reorganization items. We did not
prepare combining financial statements for Old Loral and its Debtor Subsidiaries, since the subsidiaries that did not
file voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code were immaterial to our
consolidated financial statements.
As noted above, we emerged from bankruptcy on November 21, 2005 and pursuant to SOP 90-7, we adopted
fresh-start accounting as of October 1, 2005. We engaged an independent appraisal firm to assist us in determining
the fair value of our assets and liabilities. Upon emergence, our reorganization enterprise value as determined by the
Bankruptcy Court was approximately $970 million, which after reduction for the fair value of the Loral Skynet Notes
and Loral Skynet Series A preferred stock (see Note 15 and Minority Interest below), resulted in a reorganization
equity value of approximately $642 million. This reorganization equity value was allocated to our assets and
liabilities. Our assets and liabilities were stated at fair value in accordance with Statement of Financial Accounting
Standards (“SFAS”) No. 141, Business Combinations (“SFAS 141”). In addition, our accumulated deficit was
eliminated, and our new debt and equity were recorded in accordance with distributions pursuant to the Plan of
Reorganization. (See Note 4).
Investments in XTAR, L.L.C. (“XTAR”), as well as other affiliates, are accounted for using the equity method,
due to our inability to control significant operating decisions. Income and losses of affiliates are recorded based on
our beneficial interest. Intercompany profit arising from transactions with affiliates is eliminated to the extent of our
beneficial interest. Advances to affiliates generally consist of amounts due under extended payment terms. Equity in
losses of affiliates is not recognized after the carrying value of an investment, including advances and loans, has been
reduced to zero, unless guarantees or other obligations exist. We capitalize interest cost on our investments, until
such entities commence commercial operations. Certain of our affiliates are subject to the risks associated with new
businesses (see Note 9).
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the amounts of revenues and expenses reported for the period.
Actual results could differ from estimates.
Most of our satellite manufacturing revenue is associated with long-term contracts which require significant
estimates. These estimates include forecasts of costs and schedules, estimating contract revenue related to contract
performance (including orbital incentives) and the potential for component obsolescence in connection with long-
term procurements. Significant estimates also include the estimated useful lives of our satellites and finite lived
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 85
Site: BOWNE OF NEW YORK
[A/E]
CRC: 43698
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
085.00.00.00
*Y31806/085/5*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
7/5
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
intangible assets, the fair value of indefinite lived intangible assets, the fair value of stock based compensation, the
realization of deferred tax assets, gains or losses on derivative instruments and our pension liabilities.
Cash and Cash Equivalents and Short-term Investments
As of December 31, 2006, the Company had $305.2 million of cash, short-term investments and restricted cash,
of which $106.6 million is in the form of short-term investments and $12 million is in the form of restricted cash
($3 million included in other current assets and $9 million included in other assets on our consolidated balance
sheet). Short-term investments consist of investments whose maturity at time of purchase was greater than 90 days
and less than one year or investments which had been long-term whose final maturity is less than one year from
December 31. Management determines the appropriate classification of its investments at the time of purchase and at
each balance sheet date. Our short-term investments include corporate bonds, Euro dollar bonds, certificates of
deposit, commercial paper, Federal Agency notes and auction rate securities. Auction rate securities, long-term
obligations that are sold and purchased through an auction process for a period of 7, 28, 35 or 49 days, are considered
to be short-term investments and are classified as available for sale securities. Available-for-sale securities are carried
at fair value with unrealized gains and losses, if any, reported in accumulated other comprehensive income.
Concentration of Credit Risk
Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash and
cash equivalents, foreign exchange contracts, contracts-in-process, long-term receivables and advances and loans to
affiliates (see Note 9). Our cash and cash equivalents are maintained with high-credit-quality financial institutions.
Historically, our customers have been primarily large multinational corporations and U.S. and foreign governments
for which the creditworthiness was generally substantial. In recent years, we have added commercial customers
which include companies in emerging markets or the development stage, some of which are highly leveraged or
partially funded. Management believes that its credit evaluation, approval and monitoring processes combined with
contractual billing arrangements provide for effective management of potential credit risks with regard to our current
customer base.
Receivables
As of December 31, 2006 and 2005, billed receivables (including accounts receivable) were reduced by an
allowance for doubtful accounts of $1.6 million and $5.5 million, respectively.
Inventories
Inventories consist principally of parts and subassemblies used in the manufacture of satellites which have not
been specifically identified to contracts-in-process, and are valued at the lower of cost or market. Cost is determined
using the first-in-first-out (FIFO) or average cost method. As of December 31, 2006 and 2005, inventory was reduced
by an allowance for obsolescence of $29.6 million and $33.7 million, respectively.
Property, Plant and Equipment
As of October 1, 2005, we adopted fresh-start accounting and our property, plant and equipment were recorded
at their fair values based upon the appraised values of such assets. We used the work of an independent appraisal
firm to assist us in determining the fair value of our property, plant and equipment. We and the independent appraiser
determined the fair value of our property, plant and equipment using the planned future use of each asset or group of
assets, quoted market prices for assets where a market exists for such assets, the expected future revenue and
profitability of the business unit utilizing such assets and the expected future life of such assets. In our determination
of fair value, we also considered whether an asset would be sold either individually or with other assets and the
proceeds we expected to receive from such a sale. Assumptions relating to the expected future use of
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 86
Site: BOWNE OF NEW YORK
[A/E]
CRC: 12955
EDGAR 2
Phone: (212)924-5500
BNY
086.00.00.00
*Y31806/086/5*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
7/5
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
individual assets could affect the fair value of such assets and the depreciation expense recorded related to such
assets in the future. Depreciation is provided on the straight-line method for satellites and related equipment over the
estimated useful lives of the related assets. Depreciation is provided primarily on an accelerated method and straight
line for other owned assets over the estimated useful life of the related assets. Leasehold improvements are amortized
over the shorter of the lease term or the estimated useful life of the improvements. Below are the estimated useful
lives of our property, plant and equipment as of December 31, 2006:
Land improvements
Buildings
Leasehold improvements
Satellites-in-orbit
Earth stations
Equipment, furniture and fixtures
Years
20
25 to 45
5 to 25
5 to 13
5 to 15
3 to 20
Costs incurred in connection with the construction and successful deployment of Loral Skynet satellites and
related equipment are capitalized. Such costs include direct contract costs, allocated indirect costs, launch costs,
launch and in-orbit test insurance and construction period interest. Capitalized interest related to the construction of
satellites for 2006, 2005 and 2004 was $2.2 million, zero and $0.5 million, respectively. All capitalized satellite costs
are amortized over the estimated useful life of the related satellite. The estimated useful life of the satellites is
determined by engineering analyses performed at the satellite’s in-service date. Satellite lives are reevaluated
periodically based on updated engineering analyses. Losses from unsuccessful launches and in-orbit failures of our
satellites, net of insurance proceeds (so long as such amounts are determinable and receipt is probable), are recorded
in the period a loss occurs (see Valuation of Satellites, Long-Lived Assets and Investments in and Advances to
Affiliates below).
Valuation of Satellites, Long-Lived Assets and Investments in and Advances to Affiliates
The carrying values of our satellites, long-lived assets and investments in and advances to affiliates are reviewed
for impairment in accordance with SFAS 144, Accounting for the Impairment or Disposal of Long-lived Assets and
Accounting Principles Board (“APB”) Opinion No. 18, Equity Method of Accounting for Investments in Common
Stock, respectively. We periodically evaluate potential impairment loss relating to our satellites and other long-lived
assets, when a change in circumstances occurs, by assessing whether the carrying amount of these assets can be
recovered over their remaining lives through future undiscounted expected cash flows generated by those assets
(excluding financing costs). If the expected undiscounted future cash flows were less than the carrying value of the
long-lived asset, an impairment charge would be recorded based on such asset’s estimated fair value. Changes in
estimates of future cash flows could result in an impairment of the asset in a future period. Estimated future cash
flows from our satellites could be impacted by, among other things:
(cid:129) Changes in estimates of the useful life of the satellite
(cid:129) Changes in estimates of our ability to operate the satellite at expected levels
(cid:129) Changes in the manner in which the satellite is to be used
(cid:129) The loss of one or several significant customer contracts on the satellite
If an impairment loss was indicated for a satellite, such amount would be recognized in the period of occurrence,
net of any insurance proceeds to be received so long as such amounts are determinable and receipt is probable. If no
impairment loss was indicated in accordance with SFAS 144, and we received insurance proceeds, the proceeds
would be recognized in our consolidated statement of operations.
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 87
Site: BOWNE OF NEW YORK
[A/E]
CRC: 1214
EDGAR 2
Phone: (212)924-5500
BNY
087.00.00.00
*Y31806/087/5*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
7/5
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Available-for-sale securities
Investments in auction rate securities and publicly traded common stock are classified as available-for-sale, and
are recorded at fair value, with the resulting unrealized gain or loss excluded from net loss and reported as a
component of other comprehensive loss until realized (see Notes 6 and 18). The carrying value of our auction rate
securities at December 31, 2006 approximates their cost. Our Predecessor Registrant’s investment in Globalstar,
L.P.’s $500 million credit facility was accounted for at fair value, with changes in the value (net of tax) recorded as a
component of other comprehensive loss. We recorded unrealized net gains after taxes as a component of other
comprehensive loss of $8 million in 2004 in connection with this activity.
Goodwill and Other Intangible Assets
Goodwill represents the amount by which the Company’s reorganization equity value exceeded the fair value of
its tangible assets and identified intangible assets less its liabilities as determined in accordance with the provisions
of SFAS 141, as of October 1, 2005. Pursuant to the provisions of SFAS No. 142, Goodwill and Other Intangible
Assets (“SFAS 142”), goodwill is not amortized and is subject to an annual impairment test which the Company, with
the assistance of an independent appraiser, performs on an annual basis in the fourth quarter of each fiscal year. Our
test of goodwill impairment for 2006 did not result in any goodwill impairment. Goodwill was allocated to our
reporting units (operating segment or one level below an operating segment). SFAS 142 requires the Company to
compare the fair value of the reporting unit to its carrying amount on an annual basis to determine if there is potential
impairment. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the
extent that the implied fair value of the goodwill within the reporting unit is less than its carrying value (see Note 4).
Intangible assets consist primarily of backlog, internally developed software and technology, orbital slots, trade
names and customer relationships, all of which were recorded in connection with the adoption of fresh-start
accounting. We used the work of an independent appraiser to assist us in determining the fair value of our intangible
assets. The fair values were calculated using several approaches that encompassed the use of excess earnings, relief
from royalty and the build-up methods. The excess earnings, relief from royalty and build-up approaches are
variations of the income approach. The income approach, more commonly known as the discounted cash flow
approach, estimates fair value based on the cash flows that an asset can be expected to generate over its useful life.
Identifiable intangible assets with finite useful lives are amortized on a straight-line basis over the estimated useful
lives of the assets.
Contingencies
Contingencies by their nature relate to uncertainties that require management to exercise judgment both in
assessing the likelihood that a liability has been incurred as well as in estimating the amount of potential loss, if any.
We accrue for costs relating to litigation, claims and other contingent matters when such liabilities become probable
and reasonably estimable. Such estimates may be based on advice from third parties or on management’s judgment,
as appropriate. Actual amounts paid may differ from amounts estimated, and such differences will be charged to
operations in the period in which the final determination of the liability is made.
Revenue Recognition
Revenue from satellite sales under long-term fixed-price contracts is recognized following the provisions of
Statement of Position 81-1, Accounting for Performance of Construction-Type and Certain Production-Type
Contracts, using the cost-to-cost percentage-of-completion method. Revenue includes the basic contract price and
estimated amounts for penalties and incentive payments, including award fees, performance incentives, and estimated
orbital incentives discounted to their present value at launch date. Costs include the development effort required for
the production of high-technology satellites, non-recurring engineering and design efforts in early periods of contract
performance, as well as the cost of qualification testing requirements. Contracts are typically
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 88
Site: BOWNE OF NEW YORK
[A/E]
CRC: 44608
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
088.00.00.00
*Y31806/088/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
4/4
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
subject to termination for convenience or for default. If a contract is terminated for convenience by a customer or due
to a customer’s default, we are generally entitled to our costs incurred plus a reasonable profit.
Revenue under cost-reimbursable type contracts is recognized as costs are incurred; incentive fees are estimated
and recognized over the contract term.
U.S. government contract risks include dependence on future appropriations and administrative allotment of
funds and changes in government policies. Costs incurred under U.S. government contracts are subject to audit.
Management believes the results of such audits will not have a material effect on Loral’s financial position or its
results of operations.
Losses on contracts are recognized when determined. Revisions in profit estimates are reflected in the period in
which the conditions that require the revision become known and are estimable. In accordance with industry practice,
contracts-in-process include unbilled amounts relating to contracts and programs with long production cycles, a
portion of which may not be billable within one year.
We provide satellite capacity and network services under lease agreements that generally provide for the use of
satellite transponders and, in certain cases, earth stations and other terrestrial communications equipment for periods
generally ranging from one year to the end of life of the satellite. Some of these agreements have certain obligations,
including providing spare or substitute capacity, if available, in the event of satellite failure. If no spare or substitute
capacity is available, the agreement may be terminated. Revenue under transponder lease and network services
agreements is recognized as services are performed, provided that a contract exists, the price is fixed or determinable
and collectibility is reasonably assured. Revenues under contracts that include fixed lease payment increases are
recognized on a straight-line basis over the life of the lease.
Lease contracts qualifying for capital lease treatment are accounted for as sales-type leases.
Other terrestrial communications equipment represents network elements (antennas, transmission equipment,
etc.) necessary to enable communication between multiple terrestrial locations through a customer-selected satellite
communications service provider. Revenue from equipment sales is primarily recognized upon acceptance by the
customer, provided that a contract exists, the price is fixed or determinable and collectibility is reasonably assured.
Revenue from equipment sales under long-term fixed price contracts is recognized using the cost-to-cost
percentage-of-completion method. Losses on contracts are recognized when determined and revisions in profit
estimates are reflected in the period in which the conditions that require the revision become known and are
estimable. Revenues under arrangements that include both services and equipment elements are allocated based on
the relative fair values of the elements of the arrangement; otherwise, revenue is recognized as services are provided
over the life of the arrangement.
Research and Development
Independent research and development costs, which are expensed as incurred, were $20 million for 2006,
$7 million and $5 million for the periods January 1, 2005 to October 1, 2005 and from October 2, 2005 to
December 31, 2005, respectively, and $9 million for 2004, and are included in selling, general and administrative
expenses.
Derivative Instruments
We enter into foreign exchange contracts as hedges against exchange rate fluctuations of future accounts
receivable and accounts payable under contracts-in-process which are denominated in foreign currencies. We follow
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”) as amended and
interpreted, which among other things requires that all derivative instruments be recorded on the balance sheet at
their fair value. During December 2006, we entered into certain derivative investments to minimize our exposure to
currency fluctuations associated with our planned acquisition of Telesat Canada (see Notes 18 and 19).
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 89
Site: BOWNE OF NEW YORK
[A/E]
CRC: 46041
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
089.00.00.00
*Y31806/089/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
5/4
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Minority Interest
On November 21, 2005, Loral Skynet issued one million of its two million authorized shares of Series A 12%
non-convertible preferred stock, $0.01 par value per share (the “Loral Skynet Preferred Stock”), which were
distributed in accordance with the Plan of Reorganization.
The Loral Skynet Preferred Stock is reflected as minority interest on our consolidated balance sheet and
dividend expense of $24.8 million and $2.7 million for the year ended December 31, 2006 and the period from
October 2 to December 31, 2005, respectively, is reflected as minority interest on our consolidated statement of
operations. On July 14, 2006 Loral Skynet paid a dividend on its Loral Skynet Preferred Stock of $15.53 million,
which covered the period from November 21, 2005 through July 13, 2006. The dividend consisted of $1.27 million in
cash and $14.26 million through the issuance of 71,281 additional shares of Loral Skynet Preferred Stock. At
December 31, 2006, 1,071,281 shares of Loral Skynet Preferred Stock, with a carrying value of $214.26 million,
were issued and outstanding.
Stock-Based Compensation
Effective October 1, 2005, in connection with our adoption of fresh-start accounting, we adopted the fair value
method of accounting for stock based compensation, for all stock options granted by us after October 1, 2005,
pursuant to the prospective method provisions of SFAS No. 123(R), Share-Based Payment (“SFAS 123R”). We use
the Black-Scholes-Merton option-pricing model to measure fair value of these stock option awards. This is the same
method we used in prior years for disclosure purposes. The Black-Scholes-Merton model requires us to make
significant judgments regarding the assumptions used within the model, the most significant of which are the stock
price volatility assumption, the expected life of the option award, the risk-free rate of return and dividends during the
expected term.
Risk — free interest rate
Expected life (years)
Estimated volatility
Expected dividends
Year Ended
December 31,
2006
For the Period
October 2 to
December 31,
2005
4.3 %
4.75
27.4 %
None
4.4 %
4.75
27.4 %
None
We emerged from bankruptcy on November 21, 2005, and as a result, we do not have sufficient stock price
history upon which to base our volatility assumption. In determining the volatility used in our model, we considered
the volatility of the stock prices of selected companies in the satellite industry, the nature of those companies, our
emergence from bankruptcy and other factors in determining our stock price volatility. We based our estimate of the
average life of a stock option of 4.75 years using the midpoint between the vesting and expiration dates as allowed by
SEC Staff Accounting Bulletin No. 107, Share-Based Payment, based upon the vesting period of four years and the
option term of seven years. Our risk-free rate of return assumption for options was based on the quoted yield for five-
year U.S. treasury bonds as of the date of grant (see Note 15). We assumed no dividends during the expected term.
Prior to October 1, 2005, we followed the disclosure-only provisions of SFAS No. 148, Accounting for Stock-
Based Compensation-Transition and Disclosure (“SFAS 148”), an amendment of SFAS No. 123, Accounting for
Stock-Based Compensation (“SFAS 123”). We accounted for stock-based compensation for employees using the
intrinsic value method (as defined below) as prescribed by Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees (“APB 25”), and related interpretations. Under APB 25, no compensation expense was
recognized for employee share option grants because the exercise price of the options granted equaled the market
price of the underlying shares on the date of grant (the “intrinsic value method”). We used the Black-Scholes-Merton
option pricing model to determine the pro forma effect . If we had used the fair value method under
F-15
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 90
Site: BOWNE OF NEW YORK
[A/E]
CRC: 34166
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
090.00.00.00
*Y31806/090/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
8/4
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
SFAS 123, our pro forma net loss and pro forma loss per share would not have been materially different than
reported on the accompanying consolidated statements of operations for the period January 1, 2005 to October 1,
2005 and the year ended December 31, 2004.
Deferred Compensation
Pursuant to the Plan of Reorganization we entered into deferred compensation arrangements for certain key
employees that generally vest over four years and expire after seven years. The initial deferred compensation awards
were calculated by multiplying $9.44 by the number of shares of common stock underlying the stock options granted
to these key employees (see Note 15). We are accreting the liability through charges to income over the vesting
period. The deferred compensation cost charged against income, net of estimated forfeitures, was $3.2 million for the
year ended December 31, 2006 and $0.2 million for the period October 2, 2005 to December 31, 2005. As of
December 31, 2006, there was $8.6 million of unrecognized deferred compensation that will be charged to income
over the remaining vesting period. The value of the deferred compensation may decline depending on stock price
performance within a defined range, until the occurrence of certain events, including the exercise of the related stock
options and vesting will accelerate if there is a change of control as defined.
Income Taxes
Deferred income taxes reflect the future tax effect of temporary differences between the carrying amount of
assets and liabilities for financial and income tax reporting and are measured by applying statutory tax rates in effect
for the year during which the differences are expected to reverse. Deferred tax assets are reduced by a valuation
allowance to the extent it is more likely than not that the deferred tax assets will not be realized. Any reduction to the
balance of the valuation allowance as of October 1, 2005 will first reduce goodwill, and then other intangible assets
with any excess treated as an increase to paid-in-capital (see Note 14).
In addition, our policy is to establish tax contingency liabilities for potential audit issues. The tax contingency
liabilities are based on our estimate of the probable amount of additional taxes that may be due in the future. Any
additional taxes due would be determined only upon completion of current and future federal, state and international
tax audits. At December 31, 2006, the Company had $42.6 million of tax contingency liabilities included in long-
term liabilities. At December 31, 2005, the Company had $41.8 million and $0.4 million of tax contingency liabilities
included in long-term liabilities and income taxes payable, respectively.
F-16
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 91
Site: BOWNE OF NEW YORK
[A/E]
CRC: 1115
EDGAR 2
Phone: (212)924-5500
BNY
091.00.00.00
*Y31806/091/5*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
14/5
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Additional Cash Flow Information
The following represents non-cash activities and supplemental information to the consolidated statements of
cash flows (in thousands):
Successor Registrant
Predecessor Registrant
Year Ended
December 31,
2006
For the Period
October 2,
For the Period
January 1,
2005 to
2005 to
December 31,
October 1,
2005
2005
Year Ended
December 31,
2004
Non-cash operating items
Gain on discharge of pre-petition obligations and
fresh-start adjustments
$
Gain on sale of discontinued operations, net of tax
(Income) loss from discontinued operations
Equity losses (income) in affiliates
Satmex settlement
Minority interest
Deferred taxes
Depreciation and amortization
Stock option compensation
Impairment of cost basis investment
Write-off of long-term receivables due to contract
modifications
Impairment charge on satellite and related assets
Profit on sales-type lease arrangement
Provisions for inventory obsolescence
Warranty expense accruals
Provisions for (recoveries of) bad debts on billed
receivables
Adjustment to revenue straightlining assessment
Loss on equipment disposals
Net gain on disposition of an orbital slot
Gain on disposition of available for sale securities
Non-cash net interest and (gain) loss on foreign
currency transactions
Net non-cash provided by (used in) operating
— $
—
—
7,163
(18,605 )
24,794
9,105
68,300
2,997
3,000
—
—
—
1,678
12,180
356
—
—
(1,149 )
(7,098 )
5,863
— $ (1,101,453 ) $
—
—
5,447
—
2,667
—
16,024
—
—
(13,967 )
—
2,796
—
(126 )
(16,134 )
61,277
—
—
—
—
2,348
(46,654 )
—
(135 )
12,153
134,796
—
—
—
—
—
1,525
2,704
953
46
—
—
—
—
—
—
2,127
11,850
(2,880 )
1,031
3,456
—
—
11,265
11,989
(7,657 )
3,324
9,692
(2,144 )
1,149
394
—
—
—
693
(2,808 )
activities of continuing operations
$ 108,584 $
29,366 $ (1,051,330 ) $ 127,712
F-17
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 92
Site: BOWNE OF NEW YORK
[A/E]
CRC: 28895
EDGAR 2
Phone: (212)924-5500
BNY
092.00.00.00
*Y31806/092/6*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
9/6
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Successor Registrant
Predecessor Registrant
Year Ended
December 31,
2006
For the Period
October 2,
For the Period
January 1,
2005 to
2005 to
December 31,
October 1,
2005
2005
Year Ended
December 31,
2004
14,260
—
—
—
—
98,736
$
14,260 $
— $
98,736 $
—
—
—
17,921 $
6,365 $
15,548 $
(418 ) $
— $
2,166 $
23,550
4,318
(9,650 ) $
(4,790 ) $
$
$
$
(17,533 ) $
— $
— $
(55 )
2,536 $
(18,745 )
(6,468 )
(1,722 )
1,740
$
$
$
(9,581 ) $
$
$
(740 )
$
(432 )
Non-cash financing activities:
Issuance of Preferred stock by subsidiary as
payment for dividend
Increase in restricted cash related to debt
proceeds
Net non-cash financing activities of continuing
operations
Supplemental information:
Interest paid, net of capitalized interest
Taxes paid, net of refunds
Cash (paid) received for reorganization items:
Professional fees
Employee retention costs
Severance costs
Restructuring costs
Interest income
Vendor settlement
New Accounting Pronouncements
FIN 48
In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48
clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements and
prescribes a recognition threshold and measurement attribute for the financial statement recognition and
measurement of tax positions taken or expected to be taken in a tax return. For benefits to be recognized, a tax
position must be more-likely-than-not to be sustained upon examination by the taxing authorities. The amount
recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon
ultimate settlement. The interpretation also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. FIN 48 will be effective for the Company beginning in the
first quarter of 2007. We are still evaluating the impact of adopting FIN 48.
SFAS 157
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, (“SFAS 157”), to define fair
value, establish a framework for measuring fair value in accordance with U.S. GAAP and expand disclosures about
fair value measurements. SFAS 157 requires quantitative disclosures using a tabular format in all periods (interim
and annual) and qualitative disclosures about the valuation techniques used to measure fair value in all annual
F-18
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 93
Site: BOWNE OF NEW YORK
[A/E]
CRC: 53973
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
093.00.00.00
*Y31806/093/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
7/4
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
periods. We are required to adopt the provisions of this statement as of January 1, 2008. We are currently evaluating
the impact of adopting SFAS 157.
SFAS 158
In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pensions and
Other Postretirement Plans, (“SFAS 158”). SFAS 158 requires an employer to recognize the overfunded or
underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability
in its statement of financial position and to recognize changes in that funded status in the year in which the changes
occur through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit
organization. SFAS 158 also requires an employer to measure the funded status of a plan as of the date of its year-
end statement of financial position, with limited exceptions. We adopted the provisions of this statement as of
December 31, 2006 (See Note 17).
SFAS 159
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities (“SFAS 159”). SFAS 159 expands opportunities to use fair value measurements in financial reporting and
permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS 159 is
effective for us on January 1, 2008, although we can chose to adopt it on January 1, 2007 if we also adopt SFAS 157
at that time. We have not decided if we will early adopt SFAS 159 or if we will choose to measure any eligible
financial assets and liabilities at fair value.
SAB 108
In September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” This bulletin
summarizes the SEC staff’s views regarding the process of quantifying financial statement misstatements.
Implementation of SAB No. 108 did not have any impact on the Company’s financial statements.
4. Fresh-Start Accounting
On August 1, 2005, the Bankruptcy Court entered its Confirmation Order confirming the Company’s Plan of
Reorganization. On September 30, 2005, the FCC approved the transfer of FCC licenses from Old Loral to New
Loral, which represented the satisfaction of the last material condition precedent to the Debtors’ emergence from
bankruptcy. Our emergence from Chapter 11 proceedings on November 21, 2005 resulted in a new reporting entity
and adoption of fresh-start accounting in accordance with SOP 90-7 as of October 1, 2005, as reflected in the
following financial information. Reorganization adjustments have been made in the financial information to reflect
the discharge of certain pre-petition liabilities and the adoption of fresh-start accounting. These adjustments were
based upon the work of Loral and our financial consultants to determine the relative fair values of our assets and
liabilities and were finalized during 2006.
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 94
Site: BOWNE OF NEW YORK
[A/E]
CRC: 57901
EDGAR 2
Phone: (212)924-5500
BNY
094.00.00.00
*Y31806/094/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
7/4
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CONDENSED CONSOLIDATED BALANCE SHEET(a)
Current assets:
Cash and cash equivalents
Accounts receivable, net
Contracts-in-process
Inventories
Other current assets
Total current assets
Property, plant and equipment, net
Long-term receivables
Investments in and advances to affiliates
Deposits
Goodwill
Other assets
Predecessor
October 1,
2005
Plan
Reorganization
Adjustments
Fresh-Start
Valuation
Adjustments(e)
Successor
October 1,
2005
(in millions)
ASSETS
$
198.7 $
14.4
91.4
45.5
41.3
391.3
536.5
67.6
53.7
9.8
—
42.1
$ 1,101.0 $
$
—
—
—
—
97.5 (b)
97.5
(3.5 )(i)
—
—
—
—
2.1 (b)(j)
$
96.1
—
—
(14.3 )
—
3.4
(10.9 )
0.2
(23.8 )
56.3
—
$ 198.7
14.4
77.1
45.5
142.2
477.9
533.2
43.8
110.0
9.8
340.1 (g) 340.1
170.9
126.7
$ 1,685.7
488.6
LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
Accounts payable
Accrued employment costs
Customer advances and billings in excess of costs and
profits
Interest payable
Vendor financing payable
Income taxes payable
Other current liabilities
Total current liabilities
Pension and other postretirement liabilities
Long-term liabilities
Long-term debt
Total liabilities
Liabilities subject to compromise
Minority interest
Shareholders’ equity:
Common stock, par value $.01 and Paid-in capital
Other
Accumulated (deficit) retained earnings
Total shareholders’ (deficit) equity
$
36.1 $
33.9
45.1 (c)(h) $
0.5 (c)
$
1.2
—
82.4
34.4
108.4
—
—
—
25.5
203.9
—
84.5
—
288.4
1,914.0
2.3
24.9 (c)(h)
19.1 (c)(h)
37.1 (c)(h)
0.8 (c)
17.9 (c)(h)
145.4
156.6 (c)
34.6 (c)
103.4 (b)
440.0
(1,914.0 )(c)
200.0 (b)
(3.2 )
—
—
—
(1.7 )
(3.7 )
78.2
40.5
—
115.0
—
(2.3 )
130.1
19.1
37.1
0.8
41.7
345.6
234.8
159.6
103.4
843.4
—
200.0
3,397.2
(93.8 )
(4,407.1 )
(1,103.7 )
$ 1,101.0 $
642.3 (d)
—
727.8 (c)(d)
1,370.1
96.1
$
(3,397.2 )(f) 642.3
—
—
642.3
$ 1,685.7
93.8 (f)
3,679.3 (f)
375.9
488.6
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 95
Site: BOWNE OF NEW YORK
[A/E]
CRC: 31045
EDGAR 2
Phone: (212)924-5500
BNY
095.00.00.00
*Y31806/095/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
5/4
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(a) The Condensed Consolidated Balance Sheet reflects a reorganization enterprise value of $970 million based on the Bankruptcy Court’s
determination (see Note 2), which, after reduction for the fair value of the Loral Skynet Notes and Loral Skynet Preferred Stock (see
Notes 12 and 15), results in a reorganization equity value of approximately $642 million. This results in goodwill equal to the excess of
reorganization equity value over fair value of identifiable net assets.
(b) Reflects $98.7 million of proceeds from the rights offering of Loral Skynet Notes held in escrow as of October 1, 2005, and the related
deferred debt issuance costs of $4.7 million and $200 million of Loral Skynet Preferred Stock pursuant to the Plan of Reorganization (see
Notes 12 and 15).
(c) Reflects the discharge of pre-petition liabilities in accordance with the Plan of Reorganization and the reclassification of the remaining
liabilities subject to compromise to the appropriate liability accounts in accordance with the Plan of Reorganization. Discharge of Loral’s
pre-petition liabilities is summarized as follows (in millions):
To be exchanged for stock
To be cancelled
To be reinstated and/or paid in cash
$ 1,298.0
292.2
323.8
$ 1,914.0
Additionally, in accordance with the Plan of Reorganization, holders of claims to be paid in cash were paid interest at the rate of 6% per
annum for the period from the petition date to the Effective Date of the Plan of Reorganization. This interest of $13.2 million was recorded as
interest expense for the period ended October 1, 2005.
(d) Reflects the issuance of New Loral common stock to pre-petition creditors and the gain on the discharge of liabilities subject to
compromise.
(e) Reflects changes to carrying values of assets and liabilities to reflect estimated fair values.
(f) Reflects the revaluation gain and the elimination of the retained deficit and other equity balances.
(g) Reflects goodwill equal to the excess of reorganization equity value over the estimated fair value of identifiable net assets.
(h) Amounts payable upon emergence are included in current liabilities.
(i) Reflects agreement to return certain fixed assets in settlement of certain pre-petition obligations.
(j) Reflects elimination of deferred charges related to the Old Loral debt and preferred stock, which were discharged in accordance with the
Plan of Reorganization.
As a result of the above we recognized the following (in millions):
Gain on discharge of pre-petition obligations
Gain on fresh-start valuation adjustments
Total gain on discharge of pre-petition obligations and fresh-start adjustments
Add interest expense to holders of claims paid in cash
Less tax benefit on Plan of Reorganization and fresh-start valuation adjustments
Total gain on discharge of pre-petition obligations and fresh-start adjustments excluding interest expense and income tax benefit
$ 727.8
375.9
1,103.7
13.2
(15.4 )
$ 1,101.5
The allocation of the reorganization equity value to individual assets and liabilities was adjusted in 2006 during the
completion of the fair valuation process.
5. Discontinued Operations
On March 17, 2004, we consummated the sale of our North American satellites and related assets to certain
affiliates of Intelsat, Ltd. and Intelsat (Bermuda), Ltd. (collectively, “Intelsat”). At closing, we received
approximately $1.011 billion, consisting of approximately $961 million for the North American satellites and related
assets, after adjustments, and $50 million for an advance on a new satellite to be built for Intelsat by SS/L. We used a
significant portion of the funds received to repay all $967 million of our outstanding secured bank debt. In addition,
after closing, we received approximately $16 million from Intelsat to reimburse us for a deposit made for the launch
of Intelsat Americas 8 (Telstar 8), and we received an additional $4 million in May 2004 as a purchase price
adjustment resulting from resolution of a regulatory issue. The operating revenues and expenses of these assets and
F-21
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 96
Site: BOWNE OF NEW YORK
[A/E]
CRC: 63025
EDGAR 2
Phone: (212)924-5500
BNY
096.00.00.00
*Y31806/096/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
7/4
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
a portion of interest expense on our secured debt through March 18, 2004 have been classified as discontinued
operations under SFAS 144 for all periods presented. As a result of the resolution of the contingencies primarily
relating to the completion of the Intelsat Americas 8 (Telstar 8) satellite, which was successfully launched on
June 23, 2005, we have recognized on our statement of operations the previously deferred gain on the sale of
$11.4 million, net of taxes of $4.3 million, during the quarter ended June 30, 2005. The tax provision on the gain was
reduced by $2.6 million in the quarter ended September 30, 2005, as a result of finalization of our 2004 tax returns,
resulting in a net gain recorded of $14.0 million.
The following table summarizes certain statement of operations data for the discontinued operations. In 2004,
the operating results of the discontinued operations are for the period from January 1, 2004 to March 17, 2004, the
date of the sale. The 2004 results include the write-off of approximately $11 million of debt issuance costs to interest
expense relating to secured bank debt that we repaid in March 2004 and $9 million of operating income due to an
insurance claim received with respect to a satellite that was sold. For the purposes of this presentation, in accordance
with SFAS 144, continuing operations includes all indirect costs normally associated with these operations, including
telemetry, tracking and control, access control, maintenance and engineering, selling and marketing, and general and
administrative.
Revenues of discontinued operations
Operating income
Interest expense on secured bank debt
Income (loss) before income taxes
Gain on sale of discontinued operations, net of tax
Income (loss) from discontinued operations, net of taxes
F-22
Predecessor Registrant
For the Period
January 1,
2005 to
October 1,
2005
Year Ended
December 31,
2004
(in thousands)
— $
— $
—
—
13,967
13,967 $
29,149
22,408
(24,756 )
(2,348 )
—
(2,348 )
$
$
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 97
Site: BOWNE OF NEW YORK
[A/E]
CRC: 59729
EDGAR 2
Phone: (212)924-5500
BNY
097.00.00.00
*Y31806/097/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
6/4
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
6. Accumulated Other Comprehensive Income (Loss)
The components of comprehensive income (loss) are as follows (in thousands):
Consolidated Balance Sheet
Successor
Registrant
Consolidated Statement of Shareholders’ Equity
Predecessor
Registrant
Successor
Registrant
December 31,
Year Ended
December 31, December 31,
2005 to
For the Period
October 2,
For the Period
January 1,
2005 to
October 1,
2005
Year Ended
December 31,
2004
2006
$
287
2005
$ 15 $
2006
2005
272 $
15 $
(222 ) $
140
9,837
9,837
29,951
29,951
(487 )
(1,046 )
(487 )
(1,046 )
(99 )
8,142
(19,049 )
Cumulative translation adjustment
Derivatives classified as cash flow
hedges, net of taxes:
Reclassifications into revenues, cost
of sales and income taxes from
other comprehensive income
Unrealized net gains (losses) on
derivatives
Unrealized gains (losses) on
available-for-sale securities, net of
taxes
Minimum pension liability adjustment
Adjustment to initially apply
SFAS 158, net of tax
Accumulated other comprehensive
income (loss)
$
40,075
$ 15 $
40,060 $
15 $
(808 ) $
(11,813 )
As described in Note 3, with the dissolution of Globalstar, L.P. on June 29, 2004, we wrote-off the remaining
book value of our investment in Globalstar, L.P.’s $500 million credit facility and reduced to zero the unrealized
gains and related deferred tax liabilities previously reflected in accumulated other comprehensive loss. The
unrealized gains reflected above for the year ended December 31, 2004, include the reversal of $11.4 million of
deferred tax liabilities relating to our investment in Globalstar, L.P.’s $500 million credit facility.
7. Contracts-in-Process and Long-Term Receivables
Contracts-in-Process
Contracts-in-Process consists of (in thousands):
U.S. government contracts:
Amounts billed
Unbilled receivables
Commercial contracts:
Amounts billed
Unbilled receivables
F-23
December 31,
2006
2005
983 $
$
1,544
2,527
124
4,287
4,411
38,789
17,306
30,384
20,600
37,906
69,173
$ 40,433 $ 73,584
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a
BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 98
Site: BOWNE OF NEW YORK
[A/E]
CRC: 28815
EDGAR 2
Phone: (212)924-5500
BNY
098.00.00.00
*Y31806/098/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
8/4
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Unbilled amounts include recoverable costs and accrued profit on progress completed, which have not been
billed. Such amounts are billed in accordance with the contract terms, typically upon shipment of the product,
achievement of contractual milestones, or completion of the contract and, at such time, are reclassified to billed
receivables. Fresh-start fair value adjustments relating to contracts-in-process are amortized on a percentage of
completion basis as performance under the related contract is completed.
Long-Term Receivables
Billed receivables relating to long-term contracts are expected to be collected within one year. We classify
deferred billings and the orbital component of unbilled receivables expected to be collected beyond one year as long-
term. Fresh-start fair value adjustments relating to long-term receivables are amortized on the effective interest
method over the life of the related orbital stream.
Receivable balances related to satellite orbital incentive payments and billings deferred as of December 31, 2006
are scheduled to be received as follows (in thousands):
2007
2008
2009
2010
2011
Thereafter
Less, current portion included in contracts-in-process
Long-term receivables
Long-Term
Receivables
2,010
$
492
5,802
9,425
16,326
49,119
83,174
(2,010 )
$ 81,164
Amortization of fresh-start accounting fair value adjustments relating to contracts-in-process, long-term
receivables, customer advances and billings in excess of costs and profits and deferred revenue was $(18.2) million
in 2006 and $(7.9) million during the period October 2, 2005 to December 31, 2005.
F-24
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m
a
BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 99
Site: BOWNE OF NEW YORK
[A/E]
CRC: 30095
EDGAR 2
Phone: (212)924-5500
BNY
099.00.00.00
*Y31806/099/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
5/4
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
8. Property, Plant and Equipment (see Note 3)
Property, Plant & Equipment consists of (in thousands):
Land and land improvements
Buildings
Leasehold improvements
Satellites in-orbit, including satellite transponder rights of $136.7 million and
$116.7 million in 2006 and 2005, respectively
Satellites under construction
Earth stations
Equipment, furniture and fixtures
Other construction in progress
Accumulated depreciation and amortization
December 31,
2006
2005
$ 27,533 $ 27,833
52,873
53,572
6,352
6,434
366,196
386,196
197
59,085
17,710
18,141
61,937
76,787
5,096
18,167
538,194
645,915
(87,036 )
(17,691 )
$ 558,879 $ 520,503
Depreciation and amortization expense for property, plant and equipment was $69.7 million in 2006,
$17.7 million and $58.6 million for the periods October 2, 2005 to December 31, 2005 and January 1, 2005 to
October 1, 2005, respectively, and $131.2 million in 2004. Accumulated depreciation and amortization as of
December 31, 2006 and 2005 includes $16.7 million and $3.3 million, respectively, related to satellite transponders
where Loral has the rights to transponders for the remaining life of the related satellite.
In January 2004, our Telstar 14/Estrela do Sul-1 (“EDS”) satellite’s North solar array only partially deployed
after launch, diminishing the power and life expectancy of the satellite. SS/L had submitted to its insurers a claim for
a total constructive loss of the satellite, seeking recovery for the insured value of $250 million. At the end of March
2004, the satellite began commercial service with substantially reduced available transponder capacity and with an
expected life reduced to 2010. During March 2004, we recorded an impairment charge of $12 million to reduce the
carrying value of the satellite and related assets to the expected proceeds from insurance of $250 million. On May 10,
2005, the Bankruptcy Court approved the terms of a settlement arrangement between SS/L and the insurers pursuant
to which SS/L would be paid 82% of the insured amount and the insurers would waive any rights they may have to
obtain title to EDS as a result of payment on the insurance claim. As of October 1, 2005, SS/L had received
$205 million in insurance proceeds, representing the full settlement amount, from the insurers. We expect that the net
cash flow of EDS over its remaining life will exceed its carrying value.
On September 20, 2002, and as further amended in March 2003, we agreed with APT Satellite Company
Limited (“APT”) to jointly acquire the Apstar V satellite (now known as Telstar 18). Under this agreement, we were
initially to acquire 23% of the satellite in return for paying 25% of the project cost, and were to pay APT over time
an additional 25% of the project cost to acquire an additional 23% interest in the satellite. In August 2003, we
amended our various agreements with APT, converting our arrangement from joint ownership to a lease, but leaving
unchanged the cost allocation between the parties relating to the project cost of the satellite. Under this arrangement,
we retain title to the entire satellite. The number of transponders leased to APT is reduced over time upon repayment
by us of the second 25% of the satellite’s project cost, ultimately to 54% of the satellite’s transponder capacity. As a
result of this conversion from joint ownership to a lease arrangement, in the third quarter of 2003 we (a) reversed the
cumulative sales of $83 million and cost of satellite manufacturing of $73 million and (b) recorded an increase to
self-constructed assets of $73 million and recorded deferred revenue of $80 million from APT. In November 2003,
we agreed with APT to further revise our existing arrangement. Under this revised
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 100
Site: BOWNE OF NEW YORK
[A/E]
CRC: 45587
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
100.00.00.00
*Y31806/100/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
7/4
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
arrangement, we agreed, among other things, to accelerate the termination of APT’s leasehold interest in 4.5
transponders by assuming $20.4 million of project cost which otherwise would have been initially paid by APT,
decreasing APT’s initial leased transponder capacity from 77% to 69% (or 37 transponders). In addition, we agreed
to provide to APT, at no additional cost, certain unused capacity on Telstar 10/Apstar IIR during an interim period
(which has since expired).
During September 2004, our Telstar 18 satellite began commercial service and we recognized $87 million of
sales and $80 million of cost of sales relating to the sales-type lease element of our agreement with APT. In addition,
as of December 31, 2006, we have $7.5 million of deferred revenue relating to the operating lease and service
elements of the agreement (primarily APT’s lease of four transponders for four years and two additional transponders
for five years and our providing APT with telemetry, tracking and control services for the life of the satellite), which
is being recognized on a straight-line basis over the life of the related element being provided.
In September 2006, Loral Skynet terminated APT’s leasehold interests with respect to two transponders on
Telstar 18 by exercising its option to accelerate the lease termination payment that would otherwise have been
payable by Loral Skynet to APT in August 2009. In connection with the early termination, Loral Skynet made a
payment to APT of $9.1 million. As a result, our long-term liabilities as of December 31, 2006 include $21.2 million
for lease termination obligations to APT, reflecting the reduction of the present value of our lease termination
obligation upon our exercise of the acceleration option. Our remaining lease termination obligations to APT consist
of a payment of $18.1 million in 2008 for four transponders and a payment of $9.1 million for two transponders in
2009. We recorded a charge to Satellite Services cost of sales of $1.0 million in connection with this transaction,
which represents the difference between the payment made and the present value of our lease termination obligation
for the two transponders at the date of the transaction.
On August 17, 2006, The Boeing Company (“Boeing”) delivered to Loral Skynet a termination notice pursuant
to which all the transponders leased by it on our Estrela do Sul satellite were to be terminated by December 31, 2006.
On September 29, 2006, an affiliate of Boeing signed an agreement with Loral Skynet to lease transponder capacity
on Estrela do Sul for a period of 20 months beginning January 2007 and ending August 2008, with an option to
renew the contract for two consecutive one year periods. To exercise the termination option, Boeing paid a
termination fee of $14.9 million on September 29, 2006. This termination fee has been recognized as Revenue from
Satellite Services in our consolidated statement of operations. In addition, Boeing prepaid $4.0 million for future
services under the September 2006 agreement, of which $1.9 million is included in deferred revenue in our
consolidated balance sheet as of December 31, 2006.
The transponder capacity on satellites in orbit is either leased by customers or held for lease by us. Future
minimum lease receipts due from customers under long-term operating leases for transponder capacity on our
satellites in orbit and for service agreements as of December 31, 2006 are as follows (in thousands):
2007
2008
2009
2010
2011
Thereafter
$ 98,006
65,944
50,545
35,378
28,818
66,692
$ 345,383
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 101
Site: BOWNE OF NEW YORK
[A/E]
CRC: 25476
EDGAR 2
Phone: (212)924-5500
BNY
101.00.00.00
*Y31806/101/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
7/4
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
9. Investments in and Advances to Affiliates
Investments in and advances to affiliates consist of (in thousands):
XTAR equity investment
Equity (losses) income in affiliates consists of (in thousands):
December 31,
2006
2005
$ 97,202 $ 104,616
XTAR
Globalstar, L.P. and Globalstar service provider
partnerships
Other
Successor Registrant
Predecessor Registrant
Year Ended
December 31,
2006
For the Period
October 2,
For the Period
January 1,
2005 to
2005 to
December 31,
October 1,
2005
2005
Year Ended
December 31,
2004
$
(7,413 ) $
(5,384 ) $
(2,796 ) $
87
250
—
(7,163 ) $
—
(63 )
(5,447 ) $
—
—
(2,796 ) $
46,567
—
46,654
$
The consolidated statements of operations reflect the effects of the following amounts related to transactions
with or investments in affiliates (in thousands):
Successor Registrant
Predecessor Registrant
For the Period
October 2,
For the Period
January 1,
Revenues
Interest expense capitalized on development stage
enterprises
Elimination of Loral’s proportionate share of (profits)
losses relating to affiliate transactions
Profits (losses) relating to affiliate transactions not
eliminated
XTAR
Year Ended
December 31,
2006
11,262 $
$
2005 to
December 31,
2005
2005 to
October 1,
2005
Year Ended
December 31,
2004
4,148 $
10,025 $
7,779
—
—
—
478
412
(2,949 )
593
2,440
(324 )
2,318
(466 )
(1,917 )
We own 56% of XTAR, L.L.C. (“XTAR”), a joint venture between us and Hisdesat Servicios Estrategicos, S.A.
(“Hisdesat”) of Spain. We account for our investment in XTAR under the equity method since we do not control
certain of its significant operating decisions. Our interest in XTAR is currently held by Loral Skynet, however, this
interest will be retained by Loral and not transferred to New Telesat as part of the Skynet Transaction (see Note 19).
XTAR owns and operates an X-band satellite, XTAR-EUR, located at 29º E.L., which entered service in March
2005. The satellite is designed to provide X-band communications services exclusively to United States, Spanish and
allied government users throughout the satellite’s coverage area, including Europe, the Middle East and Asia. The
government of Spain granted XTAR rights to an X-band license, normally reserved for government and military use,
to develop a commercial business model for supplying X-band capacity in support of military, diplomatic and
security communications requirements. XTAR also leases up to eight 72 MHz X-band transponders
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 102
Site: BOWNE OF NEW YORK
[A/E]
CRC: 58777
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
102.00.00.00
*Y31806/102/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
6/4
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
on the Spainsat satellite located at 30º W.L., owned by Hisdesat, which entered commercial service in April 2006.
These transponders, designated as XTAR-LANT, allow XTAR to provide its customers in the U.S. and abroad with
additional X-band services and greater flexibility.
In January 2005, Hisdesat provided XTAR with a convertible loan in the amount of $10.8 million due 2011, for
which Hisdesat received enhanced governance rights in XTAR. If Hisdesat were to convert the loan into XTAR
equity, our equity interest in XTAR would be reduced to 51%.
XTAR and Loral Skynet have entered into agreements whereby Loral Skynet provides to XTAR (i) certain
selling, general and administrative services, (ii) telemetry, tracking and control services for the XTAR satellite,
(iii) transponder engineering and regulatory support services as needed and (iv) satellite construction oversight
services. XTAR is currently not making payments under the agreements and anticipates resuming payments upon the
satisfaction of its Arianespace loan discussed below. We have not recognized any of the benefit of providing these
services to XTAR.
XTAR’s lease obligation to Hisdesat for the XTAR-LANT transponders are $13.2 million in 2007, growing to
$23 million per year in 2008 with increases thereafter to a maximum of $28 million per year through the end of the
useful life of the satellite. Under this lease agreement, Hisdesat may also be entitled under certain circumstances to a
share of the revenues generated on the XTAR-LANT transponders. XTAR is currently not making payments under
its lease agreement with Hisdesat and anticipates making payments upon the satisfaction of the Arianespace loan
discussed below.
In May 2005, XTAR signed a contract with the U.S. Department of State for the lease of transponder capacity
for a period of three years with two one-year options. The State Department is authorized pursuant to its procurement
guidelines to lease up to $137.0 million for a specified capacity under this contract, to the extent that capacity is
available. As of December 31, 2006, the U.S. Department of State has committed to lease three transponders under
this contract, having a total lease value of $21.9 million, and has the right, at its option, to renew the leases for
additional terms, which, if fully exercised, would bring the total value of the leases to $36.6 million. There can be no
assurance as to how much, if any, additional capacity the U.S. Department of State may lease from XTAR under this
contract. XTAR also has contracts to provide services to the U.S. Department of Defense, the Spanish Ministry of
Defense and the Danish armed forces.
XTAR entered into a Launch Services Agreement with Arianespace, S.A. (“Arianespace”) providing for launch
of its satellite on Arianespace’s Ariane 5 ECA launch vehicle. Arianespace provided a one-year, $15.8 million, 10%
interest paid-in-kind (i.e., paid in additional debt) loan for a portion of the launch price, secured by certain of
XTAR’s assets, including the XTAR-EUR satellite, ground equipment and rights to the orbital slot. The remainder of
the launch price consists of a revenue-based fee to be paid over time by XTAR. If XTAR is unable to repay the
Arianespace loan when due, Arianespace may seek to foreclose on the XTAR assets pledged as collateral, which
would adversely affect our investment in XTAR. Through a series of amendments to the loan agreement, XTAR and
Arianespace agreed to extend the maturity date of the loan to September 30, 2007. As part of these amendments,
XTAR agreed to make scheduled and excess cash payments, as well as foregoing the ability to incur secured debt
with the Arianespace collateral. As of December 31, 2006, $5.8 million was outstanding under the Arianespace loan.
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 103
Site: BOWNE OF NEW YORK
[A/E]
CRC: 13315
EDGAR 2
Phone: (212)924-5500
BNY
103.00.00.00
*Y31806/103/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
9/4
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table presents summary financial data for XTAR as of December 31, 2006 and 2005 and for each
of the two years in the period ended December 31, 2006 (in millions):
Statement of Operations Data:
Revenues
Operating loss
Net loss
Balance Sheet Data:
Current assets
Total assets
Current liabilities
Long-term liabilities
Members’ equity
Satmex
Year Ended
December 31,
2006 2005
$ 15.3 $ 9.4
(8.6 ) (5.4 )
(12.6 ) (9.6 )
December 31,
2005
2006
$ 6.4 $ 7.4
132.1 142.8
20.1 21.2
33.1 30.1
78.9 91.5
In 1997, in connection with the privatization of Satelites Mexicanos, S.A. de C.V. (“Satmex”) by the Mexican
Government of its satellite services business, Loral and Principia S.A. de C.V. (“Principia”) formed a joint venture
that acquired 75% of the outstanding capital stock of Satmex. As of December 31, 2005 we had a 49% indirect
economic interest in Satmex and accounted for our interest using the equity method.
On June 29, 2005, Satmex filed a petition for reorganization in Mexico (the “Concurso Mercantil”). In addition
on August 11, 2006, Satmex filed a voluntary petition for reorganization under Chapter 11 in the U.S. Bankruptcy
Court to implement its restructuring plan (the “Satmex Restructuring Plan”).
On November 30, 2006, Satmex emerged from Chapter 11 in the U.S. Bankruptcy Court pursuant to the Satmex
Restructuring Plan.
Under the Satmex Restructuring Plan, the equity of Satmex is held 78% by the holders of Satmex’s fixed rate
notes (representing 43% of the voting rights of the reorganized Satmex), 20% by the Mexican Government and
Servicios (for the benefit of the Mexican Government) (representing 55% of the voting rights), and 2% in the
aggregate by Loral and its partner, Principia. The Satmex Restructuring Plan further provides that all the shares of
Satmex, including the shares to be issued to Loral, are transferred to two Mexican equity trusts for the purpose of
facilitating a potential sale of 100% of the equity of Satmex. Additionally, holders of the fixed rate notes and floating
rate notes received new secured debt securities in the reorganized Satmex. Satmex is accounted for as a cost basis
investment subsequent to November 30, 2006.
In the third quarter of 2003, we wrote off our remaining investment in Satmex of $29 million (as an increase to
the equity loss), due to the financial difficulties that Satmex was having. As a result, and because we had no future
funding requirements relating to this investment, there is no requirement for us to provide for our allocated share of
Satmex’s net losses subsequent to September 30, 2003.
On June 14, 2005, Loral Space & Communications Holdings Corporation (“LSCC”), Loral Skynet, a division of
Loral SpaceCom, Loral Skynet Network Services, Inc. (“LSNS”) and SS/L (collectively the “Loral Entities”) and
Satmex entered into an agreement to be implemented through various amendments and agreements with respect to
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 104
Site: BOWNE OF NEW YORK
[A/E]
CRC: 2634
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
104.00.00.00
*Y31806/104/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
6/4
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
various transactions involving the Loral Entities and Satmex (the “Settlement Agreement”), including but not limited
to the contract for the procurement of Satmex 6 between SS/L and Satmex (the “Satmex 6 SPA”), the management
services agreement among Loral SpaceCom, Principia and Satmex (the “Management Services Agreement”), the
license agreement between Loral SpaceCom and Satmex (the “License Agreement”), and various transponder
agreements between certain of the Loral Entities and Satmex. Pursuant to the terms of the Settlement Agreement,
Satmex and the Loral Entities agreed to offset certain amounts owing between them, and SS/L agreed to give Satmex
an allowed claim of $3.7 million in SS/L’s Chapter 11 Case. In addition, SS/L and Satmex terminated their
respective obligations under the Satmex 6 SPA, and entered into a new contract pursuant to which SS/L agreed to
perform certain additional work, as well as renewed its commitment to provide its continued support for the launch
of Satmex 6 provided that SS/L’s obligation to provide certain services under the new contract was expressly subject
to certain conditions, including Satmex obtaining the approval of the Settlement Agreement and the underlying
transactions with any court(s) and other authorities with jurisdiction over its reorganization proceeding. Also
pursuant to the Settlement Agreement, Loral SpaceCom and Satmex agreed to terminate the Management Services
Agreement and the License Agreement. As part of the consideration for the various benefits conferred by the Loral
Entities to Satmex under the terms of the Settlement Agreement, including without limitation, the elimination of
Satmex’s obligation to make orbital incentive and end of life bonus payments in respect of Satmex 6, Satmex has
agreed to lease to LSCC for the life of the satellite, without any further consideration, two 36 MHz Ku-band
transponders and two 36 MHz C-band transponders on Satmex 6 (the “Satmex 6 Lease”). Upon Loral’s emergence
from bankruptcy, LSCC assigned its rights under this lease agreement to SS/L. The Settlement Agreement was
approved by the Bankruptcy Court in our Chapter 11 Cases on July 26, 2005 and became effective on August 5,
2005. Upon receipt of approval from our Bankruptcy Court of the Settlement Agreement and related agreements,
Loral Skynet recorded income of $4.6 million in the third quarter of 2005 representing the reversal of reserves and
accruals recorded in previous periods. Assumption of the Settlement Agreement and its related agreements have
likewise been approved by the conciliador in Satmex’s Concurso Mercantil, as well as the U.S. Bankruptcy Court in
Satmex’s Chapter 11 case.
On November 30, 2006, the effective date of the Satmex Restructuring Plan, the Satmex 6 Lease, as well as a
lease agreement between Satmex and Loral Skynet for three transponders on Satmex 5, was converted from a lease
arrangement to a usufructo, a property right under Mexican law which grants the holder a right of use to the subject
property. The Satmex 6 satellite was launched in May 2006 and commenced operations in July 2006. SS/L assigned
the rights to the Satmex 6 usufructo to Loral Skynet in consideration of a cash payment equal to the fair value of the
four Satmex 6 transponders. As a result of the finalization of the Satmex Restructuring Plan, in the fourth quarter of
2006, we recorded satellite transponder rights of $20 million representing the fair value of the four Satmex 6
transponders, a $19 million reduction to cost of satellite manufacturing and deferred revenue of $1 million.
Other
On April 14, 2004, Globalstar, L.P. announced the completion of its financial restructuring following the formal
acquisition of its main business operations and assets by Thermo Capital Partners LLC (“Thermo”), effectively
resulting in Globalstar, L.P. exiting from bankruptcy. Thermo invested $43 million in the newly formed Globalstar
company (“Globalstar Inc.”) in exchange for an 81.25% equity interest, with the remaining 18.75% of the equity to
be distributed to the creditors of Globalstar, L.P. Our share of the equity interest was approximately 2.7% of
Globalstar Inc., to which we assigned no value. On November 1, 2006, Globalstar, Inc., completed an initial public
offering, at which time we owned 1,609,896 shares of Globalstar, Inc. We have agreed not to sell 70% of our
Globalstar Inc. holdings for at least 180 days following the completion of its offering. As of December 31, 2006, we
owned 1,168,934 shares of Globalstar, Inc. which are accounted for as available-for-sale securities. Unrealized gains
on these shares were $9.8 million, net of taxes as of December 31, 2006.
The Company holds various indirect ownership interests in three foreign companies that currently serve as
exclusive service providers for Globalstar service in Brazil, Mexico and Russia. The Company accounts for these
ownership interests using the equity method of accounting. Loral had written-off its investments in these companies
F-30
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 105
Site: BOWNE OF NEW YORK
[A/E]
CRC: 20782
EDGAR 2
Phone: (212)924-5500
BNY
105.00.00.00
*Y31806/105/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
10/4
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
and because we have no future funding requirements relating to these investments, there is no requirement for us to
provide for our allocated share of these companies net losses. The Company is considering whether to make an
additional investment of up to $15 million in one of these companies. We also owned an indirect interest in a
U.S. based distributor that has the exclusive right to sell Globalstar services to certain agencies within the
U.S. Government. In connection with the settlement of a litigation matter involving this business, on October 17,
2006, we agreed to transfer this interest to Globalstar for $500,000. We had previously written-off our interest in
such investment.
10. Goodwill and Other Intangible Assets
Goodwill
Goodwill was established in connection with our adoption of fresh-start accounting (see Notes 3 and 4).
The following table summarizes the changes in the carrying amount of goodwill for the period December 31,
2005 to December 31, 2006 (in thousands):
Goodwill — December 31, 2005
Adjustments due to the completion of the fair valuation process:
Deferred revenues — fair value
Fixed assets — fair value
Intangibles — fair value
Contracts-in-process — fair value
0
6
.
5
3
:
1
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:
8
1
Reversal of excess valuation allowance on deferred tax assets
Release of tax contingency liability
Goodwill — December 31, 2006
$ 340,094
6,070
502
(212 )
(171 )
(36,367 )
(4,225 )
$ 305,691
Other Intangible Assets
Other Intangible Assets were established in connection with our adoption of fresh-start accounting (see Notes 3
and 4). Intangible assets are included in Other Assets on our consolidated balance sheet (in millions, except years):
Weighted Average
Remaining
December 31, 2006
December 31, 2005
Amortization Period Gross
(Years)
Internally developed software and technology
Orbital slots
Trade names
Customer relationships
Customer contracts
Other intangibles
Total
Accumulated Gross Accumulated
Amount Amortization Amount Amortization
(2.7 )
(0.8 )
(0.2 )
(0.3 )
(2.1 )
(0.1 )
(6.2 )
(13.5 ) $ 59.8 $
(1.8 ) 15.8
(0.8 ) 13.2
(1.7 ) 20.0
(8.3 ) 32.0
2.7
(0.8 )
(26.9 ) $ 143.5 $
4 $ 59.0 $
10.8
9
13.2
19
20.0
14
33.0
8
3
2.7
$ 138.7 $
The allocation of our reorganization equity value to individual intangible assets was adjusted in 2006, as
additional information became available, during the completion of the fair valuation process.
Total amortization for intangible assets of $21.1 million for 2006 and $6.2 million for the period October 2,
2005 to December 31, 2005 primarily reflects the net amortization of the fair value adjustments recorded in
connection with our adoption of fresh start accounting (see Note 4). Total amortization expense was $2.6 million for
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 106
Site: BOWNE OF NEW YORK
[A/E]
CRC: 31302
EDGAR 2
Phone: (212)924-5500
BNY
106.00.00.00
*Y31806/106/5*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
7/5
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
the period January 1, 2005 to October 1, 2005 and $3.3 million for the year ended December 31, 2004. Annual
amortization expense for intangible assets for the five years ended December 31, 2011 is estimated to be as follows
(in millions):
2007
2008
2009
2010
2011
$ 19.8
19.2
18.2
14.6
7.0
11. Liabilities Subject to Compromise — Predecessor Registrant
Liabilities subject to compromise included debt, accounts payable, accrued expenses and other liabilities that
were discharged as part of our emergence from bankruptcy. Creditors received distributions consisting of cash, debt,
preferred stock and common stock in settlement of their bankruptcy claims. The ratio of cash, debt, preferred stock
and common stock that individual creditors received depended upon the priority of the claim allowed for each
creditor. We recorded a gain on the estimated settlement of these liabilities of $727.8 million (including interest
expense and tax benefit) in the period January 1, 2005 to October 1, 2005 (see Note 4).
12. Debt Obligations
Debt consists of (in thousands):
0
6
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5
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:
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:
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1
Loral Skynet 14.0% senior secured notes due 2015 (principal amount $126 million)
$ 128,084 $ 128,191
December 31,
2006
2005
Successor Registrant
Loral Skynet Notes
On November 21, 2005, pursuant to the Plan of Reorganization, Loral Skynet issued $126 million of 14% Senior
Secured Notes due 2015 (the “Loral Skynet Notes”) which notes are guaranteed on a senior secured basis by our
subsidiary Loral Asia Pacific Satellite (HK) Limited and all of Loral Skynet’s existing domestic, wholly-owned
subsidiaries, and will be guaranteed on the same basis by all future domestic wholly-owned, and subject to obtaining
all required consents, majority-owned, subsidiaries of Loral Skynet (collectively, the “Subsidiary Guarantees”). The
Loral Skynet Notes and the Subsidiary Guarantees are secured by all the assets of the obligors, subject to certain
exclusions. The indenture covering the Loral Skynet Notes (the “Indenture”) permits Loral Skynet to obtain
additional borrowings on both an unsecured and secured basis, in certain cases utilizing the same assets that secure
the Loral Skynet Notes and the Subsidiary Guarantees.
The Loral Skynet Notes have a scheduled maturity date in 2015, subject, in certain instances, to earlier
repayment in whole or in part. Prior to November 22, 2009, we may redeem the notes at a redemption price of 110%
plus accrued and unpaid interest, unless we receive an objection notice from holders of two-thirds of the principal
amount of the notes. After this period, the notes are redeemable at our option at a redemption price of 110%,
declining over time to 100% in 2014, plus accrued and unpaid interest. The Loral Skynet Notes bear interest at a rate
of 14% per annum payable in cash semi-annually, provided that, if the amount of any interest payment would exceed
certain thresholds calculated as specified in the Indenture, or under other circumstances at the determination of the
Board of Directors of Loral Skynet unless two thirds of the holders of principal amount of the Loral Skynet Notes
duly object, interest will be paid in kind by the issuance of additional Loral Skynet Notes. The proceeds from the
Loral Skynet Notes have been used by Loral Skynet to finance, in part, the consummation of the Plan of
Reorganization and the payment of the fees and expenses relating thereto. The Indenture also contains restrictive
F-32
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 107
Site: BOWNE OF NEW YORK
[A/E]
CRC: 44898
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
107.00.00.00
*Y31806/107/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
7/4
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
covenants that limit Loral Skynet’s and its subsidiaries’ ability to take certain actions, including certain restricted
payments, incurrence of debt, incurrence of liens, payment of certain dividends or distributions, issuance or sale of
capital stock of subsidiaries, sale of assets, affiliate transactions and sale/leaseback and merger transactions.
Certain creditors were offered the right to subscribe to purchase their pro rata share of $120 million of the Loral
Skynet Notes, which offering was underwritten by certain other creditors who received a $6 million fee paid in
additional Loral Skynet Notes. As of October 1, 2005, there was $98.7 million (including $0.4 million of earned
interest) deposited in an escrow account by subscribing creditors. The remaining $21.7 million was received upon
issuance of the Loral Skynet Notes. As a result of the interest free period between October 1, 2005 and November 21,
2005, a premium of approximately $2.2 million was imputed. This premium and the total debt issuance costs of
$6.2 million are being amortized to interest expense using the effective interest rate method resulting in an effective
interest rate of $14.6%.
On July 17, 2006, Loral Skynet paid $11.5 million in cash of accrued interest on the 14% Senior Secured Notes.
At December 31, 2006, accrued interest on the 14% senior secured notes was $8.2 million and is included in accrued
interest and preferred dividends on our consolidated balance sheet. Interest expense related to the notes was
$17.8 million and $3.4 million for the year ended December 31, 2006 and the period October 2, 2005 to
December 31, 2005, respectively.
SS/L Letter of Credit Facility
On November 21, 2005, SS/L entered into a $20 million amended and restated letter of credit agreement with
JPMorgan Chase Bank extending the maturity date of the facility to December 31, 2006. On October 31, 2006, SS/L
entered into an amendment to this amended and restated letter of credit agreement further extending the maturity of
the facility to December 31, 2007 and reducing the facility availability to $15 million. Letters of credit are available
until the earlier of the stated maturity of the letter of credit, the termination of the facility or December 31, 2007.
Outstanding letters of credit are fully cash collateralized. As of December 31, 2006, $3.2 million of letters of credit
under this facility were issued and outstanding.
Predecessor Registrant (see Note 11)
As a result of our voluntary petitions for reorganization, all of Old Loral’s prepetition debt obligations were
accelerated. These debt obligations have been discharged pursuant to the Plan of Reorganization (see Note 2).
On March 17, 2004, we repaid all $967 million of our outstanding secured bank debt (see Notes 2 and 5). As of
December 31, 2004, the principal amounts of our prepetition debt obligations were $1.049 billion.
Subsequent to our voluntary petitions for reorganization on July 15, 2003, we only recognized and paid interest
on our bank debt through March 18, 2004 and stopped recognizing and paying interest on all other outstanding debt
obligations. While we were in Chapter 11, we only recognized interest expense to the extent paid. For the period
ended October 1, 2005 and the year ended December 31, 2004, we did not recognize $32.6 million, and
$43.5 million, respectively, of interest expense on our senior notes (excluding our 10% senior notes) and
$46.0 million and $61.3 million, respectively, of a reduction to accrued interest on our 10% senior notes, as a result
of the suspension of interest payments on our debt obligations.
F-33
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 108
Site: BOWNE OF NEW YORK
[A/E]
CRC: 26830
EDGAR 2
Phone: (212)924-5500
BNY
108.00.00.00
*Y31806/108/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
9/4
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
13. Reorganization Expenses Due to Bankruptcy
Reorganization expenses due to bankruptcy for the period ended October 1, 2005 and year ended December 31,
2004 were as follows (in thousands):
Professional fees
Employee retention costs
Severance costs
Facility closing costs
Lease rejection claims (gains)
Vendor settlement losses (gains)
Restructuring costs
Interest income
Total reorganization expenses due to bankruptcy
14. Income Taxes
$
$
For the Period
January 1,
2005 to
October 1,
2005
Year Ended
December 31,
2004
20,898
10,035
4,641
1,963
220
(5,561 )
—
(1,740 )
30,456
32,240 $
(917 )
972
—
(265 )
289
1,503
(2,586 )
31,236 $
The (provision) benefit for income taxes on the income (loss) from continuing operations before income taxes,
equity (losses) income in affiliates and minority interest consists of the following (in thousands):
Current:
U.S. Federal
State and local
Foreign
Total
Deferred:
U.S. Federal
State and local
Foreign
Valuation allowance
Total
Successor Registrant
Predecessor Registrant
Year Ended
December 31,
2006
For the Period
October 2,
For the Period
January 1,
2005 to
2005 to
December 31,
October 1,
2005
2005
Year Ended
December 31,
2004
$
(4,018 ) $
(2,467 )
(5,290 )
(11,775 )
(532 ) $
(429 )
(791 )
(1,752 )
(1,235 ) $
(2,339 )
(1,659 )
(5,233 )
—
(335 )
(796 )
(1,131 )
(7,342 )
(1,763 )
—
—
(9,105 )
325
97
—
(422 )
—
(1,752 ) $
(259,373 )
(45,737 )
—
321,244
16,134
10,901 $
59,635
12,891
(3,650 )
(81,029 )
(12,153 )
(13,284 )
Total income tax (provision) benefit
$
(20,880 ) $
For the year ended December 31, 2006, we continued to maintain the 100% valuation allowance that had been
established at December 31, 2002 against our net deferred tax assets, with the exception of our $3.3 million deferred
tax asset relating to AMT credit carryforwards. Prior to emergence from bankruptcy, Old Loral had received no
cumulative benefit as a result of having being established in Bermuda because of substantial losses incurred by the
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 109
Site: BOWNE OF NEW YORK
[A/E]
CRC: 64013
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
109.00.00.00
*Y31806/109/6*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
8/6
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Bermuda entities. The provision for foreign income taxes related primarily to Brazil taxes imposed on the income
from Estrela do Sul-1.
For 2006, the deferred income tax provision of $9.1 million related to (i) a provision of $10.4 million on current
year income to the extent the taxes imposed on such income were reduced by deferred tax benefits from Old Loral
and the utilization of such deferred tax benefits created an excess valuation allowance that was reversed as a
reduction to goodwill (ii) offset by a benefit of $1.3 for the increase to our deferred tax asset for additional federal
and state AMT credits.
In connection with our emergence from bankruptcy, Old Loral realized cancellation of debt income (“COD”) on
its federal income tax return of approximately $440 million. COD realized while in bankruptcy is excluded from
federal taxable income. We were required to reduce certain of our tax attributes, and to the extent sufficient attributes
were not available on a separate company basis, reduce the tax basis in our assets, by an amount equal to the COD
excluded by Old Loral from its taxable income. For the period ended October 1, 2005, this adjustment resulted in a
reduction of approximately $160 million to our deferred tax assets and the related valuation allowance. Also, as part
of our fresh-start accounting and plan of reorganization adjustments, we recognized a net income tax benefit of
$15.4 million, which includes a net deferred tax benefit of $16.5 million (See Note 4).
For 2004, the deferred income tax provision of $12.1 million related to an additional valuation allowance which
was required when we reversed the following deferred tax liabilities from accumulated other comprehensive loss:
(i) With the dissolution of Globalstar on June 29, 2004, we wrote-off the remaining book value of our investment in
Globalstar’s $500 million credit facility and reduced to zero the unrealized gains and related deferred tax liabilities
previously reflected in accumulated other comprehensive loss. The reversal of this deferred tax liability resulted in a
net deferred tax asset of $11.4 million against which we recorded a full valuation allowance. (ii) We also reduced the
balance for certain deferred gains on derivative transactions and the related deferred tax liability included in
accumulated other comprehensive loss. The reversal of this deferred tax liability also resulted in a net deferred tax
asset of $0.7 million against which we recorded a full valuation allowance (see Note 6).
The (provision) benefit for income taxes presented above excludes the following items: (i) a deferred tax
provision of $6.4 million for 2006 related to the unrealized gain on available-for-sale securities recorded in
accumulated other comprehensive income; (ii) a deferred tax provision of $19.6 million for 2006 related to the initial
adoption of SFAS 158 recorded in accumulated other comprehensive income; (iii) a current benefit of $2.6 million
and a current provision of $4.3 million for the period ended October 1, 2005 and for the year ended December 31,
2004, respectively, related to the previously deferred gain on sale of discontinued operations recorded in
discontinued operations.
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 110
Site: BOWNE OF NEW YORK
[A/E]
CRC: 64398
EDGAR 2
Phone: (212)924-5500
BNY
110.00.00.00
*Y31806/110/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
12/4
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The (provision) benefit for income taxes on the income (loss) from continuing operations before income taxes,
equity (losses) income in affiliates and minority interest differs from the amount computed by applying the statutory
U.S. Federal income tax rate because of the effect of the following items (in thousands):
Successor Registrant
Predecessor Registrant
For the Period
October 2,
For the Period
January 1,
Tax (provision) benefit at U.S. Statutory Rate of 35%
Permanent adjustments which change statutory
amounts:
State and local income taxes, net of federal income
tax
Additional tax imposed on foreign source income
Reorganization expenses due to bankruptcy
Plan of Reorganization and Fresh-Start valuation
adjustments
Nondeductible expenses
Change in valuation allowance
Other, net
Year Ended
December 31,
2006
(10,541 ) $
$
2005 to
December 31,
2005 to
October 1,
2005
1,888 $
2005
(357,928 ) $
Year Ended
December 31,
2004
72,748
(2,749 )
(3,438 )
—
—
(3,073 )
—
(1,079 )
(216 )
(847 )
(94 )
(31,249 )
(6,308 )
(9,944 )
—
(1,410 )
(422 )
(651 )
(1,752 ) $
94,206
(1,122 )
321,244
2,002
10,901 $
8,161
(4,575 )
(7,080 )
—
(1,548 )
(81,029 )
39
(13,284 )
Total income tax (provision) benefit
$
(20,880 ) $
The reorganization of the Company on the Effective Date constituted an ownership change under section 382 of
the Internal Revenue Code. Accordingly, use of our tax attributes, such as net operating losses (“NOLs”) and tax
credits generated prior to the ownership change, are subject to an annual limitation of approximately $32 million,
subject to increase or decrease based on certain factors. For example, we anticipate a significant increase to our
annual limitation during the five-year period through 2010 for the additional benefit from the recognition of our “net
unrealized built-in-gains,” i.e., the excess of fair market value over tax basis for our assets as of the Effective Date.
At December 31, 2006, we have unused NOL carryforwards of approximately $1.0 billion, which represents
approximately $362.8 million of deferred tax assets, and general business tax credit carryforwards of approximately
$10.1 million, which expire from 2022 through 2024 (before reduction for valuation allowance), as well as AMT
credit carryforwards of approximately $3.3 million that may be carried forward indefinitely.
We assess the recoverability of our NOLs and other deferred tax assets and based upon this analysis, record a
valuation allowance to the extent recoverability does not satisfy the “more likely than not” recognition criteria in
SFAS No. 109. Based upon this analysis, we concluded during the fourth quarter of 2002 that, due to insufficient
positive evidence substantiating recoverability, a 100% valuation allowance should be established for the entire
balance of the net deferred tax assets of the U.S. consolidated tax group.
As of December 31, 2006, we had valuation allowances totaling $304.9 million, which included a balance of
$304.5 million relating to Old Loral periods preceding our adoption of fresh-start accounting on October 1, 2005. We
will continue to maintain the valuation allowance until sufficient positive evidence exists to support full or partial
reversal. If, in the future, we were to determine that we will be able to realize all or a part of the benefit from our
deferred tax assets, a reduction to the balance of this valuation allowance at October 1, 2005 will be accounted for
first as a reduction in goodwill, then intangible assets, and if these accounts are exhausted, further reductions to
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 111
Site: BOWNE OF NEW YORK
[A/E]
CRC: 44219
EDGAR 2
Phone: (212)924-5500
BNY
111.00.00.00
*Y31806/111/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
8/4
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
the valuation allowance will be recorded as an increase to paid-in-capital during the period such determination is
made.
During 2006, our valuation allowance decreased by $32.4 million. The net change consisted primarily of a
decrease of $36.4 million relating to an excess valuation allowance that was reversed as a reduction to goodwill and
an increase of $4.0 million to provide an additional valuation allowance against Old Loral deferred tax assets
recorded to goodwill.
For the period October 2, 2005 to December 31, 2005, our valuation allowance increased by $0.4 million to a
balance of $337.3 million. For the period January 1, 2005 to October 1, 2005, our valuation allowance decreased by
$322.9 million to a balance of $336.9 million, primarily as a result of changes to our deferred tax balances upon
adoption of fresh-start accounting as described above.
During 2004, our valuation allowance decreased by $11.1 million to a balance of $659.8 million. The net change
consisted primarily of a decrease of $87.1 million applied directly against our deferred tax assets for cancellation of
debt income recognized for tax purposes when Globalstar dissolved in June 2004; a decrease of $16.3 million applied
to equity in net income of affiliates; an increase of $7.8 million applied directly to shareholders’ deficit for other
comprehensive loss items; an increase of $1.2 million applied to discontinued operations; an increase of $2.3 million
applied to the deferred gain on sale of assets; and an increase of $81.0 million charged to continuing operations for
2004.
The significant components of the net deferred income tax asset (liability) are (in thousands):
Deferred tax assets:
Postretirement benefits other than pensions
Inventoried costs
Net operating loss and tax credit carryforwards
Compensation and benefits
Deferred research & development costs
Income recognition on long-term contracts
Other, net
Pension costs
Total deferred tax assets before valuation allowance
Less valuation allowance
Net deferred tax asset
Deferred tax liabilities:
Property, plant and equipment
Intangible assets
Investments in and advances to affiliates
Income recognition on long-term contracts
Total deferred tax liability
Net deferred tax liability
December 31,
2006
2005
9,236
20,734
19,787
5,980
$ 33,641 $ 30,912
37,836 36,114
376,202 421,271
7,662
—
—
2,519
33,451 60,374
536,867 558,852
(304,884 ) (337,346 )
$ 231,983 $ 221,506
$ 144,794 $ 148,905
47,869 43,528
50,914 21,807
— 20,145
$ 243,577 $ 234,385
$ (11,594 ) $ (12,879 )
At December 31, 2006 the Company had $17,557,000 of net current deferred tax assets included in other current
assets and $29,151,000 of net non-current deferred tax liabilities included in long-term liabilities. At
F-37
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 112
Site: BOWNE OF NEW YORK
[A/E]
CRC: 55777
EDGAR 2
Phone: (212)924-5500
BNY
112.00.00.00
*Y31806/112/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
6/4
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2005 the Company had $7,889,000 of net current deferred tax assets included in other current assets
and $20,768,000 of net non-current deferred tax liabilities included in long-term liabilities.
15. Shareholders’ Equity and Minority Interest
Successor Registrant
Common Stock
As of November 21, 2005, all of the securities of Old Loral, including, among other securities, the common
stock of Old Loral, were extinguished and deemed cancelled. In accordance with the Plan of Reorganization, New
Loral issued 20 million of its 40 million authorized shares of common stock, par value $0.01 per share (the
“Common Stock”), which shares were distributed in accordance with the Plan of Reorganization. All shares of
Common Stock were issued pursuant to the exemption from the registration requirements of the Securities Act
afforded by Section 1145 of the United States Bankruptcy Code.
In connection with a stipulation entered into with certain directors and officers of Old Loral and a stipulation
entered into with the plaintiffs in a purported class action lawsuit brought by participants in the 401(k) Savings Plan
of Old Loral, certain claims aggregating $77 million may result in the distribution of our common stock in addition to
the 20 million shares being distributed under the Plan of Reorganization (see Note 19).
Loral Skynet Preferred Stock
On November 21, 2005, Loral Skynet Corporation issued 1.0 million of its 2.0 million authorized shares of
series A 12% non-convertible preferred stock, $0.01 par value per share (the “Loral Skynet Preferred Stock”), which
were distributed in accordance with the Plan of Reorganization. The issued shares were distributed to holders of
allowed claims in Orion Class 4, as such term is used in the Plan of Reorganization. Dividends on the Loral Skynet
Preferred Stock (if not paid or accrued as permitted under certain circumstances) will be payable in kind (in
additional shares of Loral Skynet Preferred Stock) if the amount of any dividend payment would exceed certain
thresholds. All of the shares of Loral Skynet Preferred Stock were issued pursuant to the exemption from the
registration requirements of the Securities Act afforded by Section 1145 of the United States Bankruptcy Code.
Loral Skynet may, at its option, redeem any or all issued and outstanding shares of the Loral Skynet Preferred
Stock by paying, in cash, a redemption price for each share of Loral Skynet Preferred Stock equal to the sum of
(i) the liquidation preference and (ii) an amount equal to any unpaid accumulated dividends not reflected in the
liquidation preference.
The Loral Skynet Preferred Stock is reflected as minority interest on our consolidated balance sheet and
dividend expense of $24.8 million and $2.7 million for the year ended December 31, 2006 and the period October 2,
2005 to December 31, 2005, respectively, are reflected as minority interest on our consolidated statement of
operations. At December 31, 2006, 1,071,281 shares of Loral Skynet Preferred Stock were issued and outstanding,
with a liquidation preference of $214.3 million plus accrued but unpaid dividends of $11.9 million.
Preferred Stock Offering
On February 27, 2007, Loral completed the sale to affiliates of MHR Fund Management LLC (“MHR”) of
$300 million of 7.5% convertible perpetual preferred stock pursuant to an Amended and Restated Securities Purchase
Agreement with MHR, which was originally executed on October 17, 2006, and which was amended and restated on
February 27, 2007 (as so amended and restated, the “Securities Purchase Agreement”) (see Note 23).
Stock Plans
On November 21, 2005, the New Loral 2005 stock incentive plan (the “Stock Incentive Plan”) became effective
pursuant to the Plan of Reorganization. The Stock Incentive Plan allows for the grant of several forms of
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 113
Site: BOWNE OF NEW YORK
[A/E]
CRC: 52846
EDGAR 2
Phone: (212)924-5500
BNY
113.00.00.00
*Y31806/113/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
6/4
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
stock-based compensation awards including stock options, stock appreciation rights, restricted stock, restricted stock
units, stock bonuses and other stock-based awards (collectively, the “Awards”). The total number of shares of
Common Stock reserved and available for issuance under the Stock Incentive Plan is 1,390,452 shares. In addition,
shares of Common Stock that are issuable under awards that expire, are forfeited or canceled, or withheld in payment
of the exercise price or taxes relating to an Award, will again be available for Awards under the Stock Incentive Plan.
Options granted in 2006 and 2005 have an exercise price equal to the fair market value of our stock, as defined, vest
over a four year period and have a seven year life. The Awards provide for accelerated vesting if there is a change in
control, as defined in the Stock Incentive Plan.
The fair value of the Awards is estimated on the date of grant using the Black-Scholes-Merton model as
described in Note 3.
A summary of the status of stock options awarded under the Stock Incentive Plan as of December 31, 2006 is
presented below:
Weighted
Weighted Average
Average Remaining
Exercise Contractual
Intrinsic
Value
Aggregate
Shares
Price
Term
(in millions)
—
Outstanding at October 2, 2005
—
Granted (weighted average grant date fair value $6.82 per share) 746,952 $ 28.44
—
Exercised
—
Forfeited
Outstanding at December 31, 2005
746,952 $ 28.44
Granted (weighted average grant date fair value $7.66 per share) 643,500 $ 28.44
Exercised
Forfeited
Outstanding at December 31, 2006
Exercisable at December 31, 2006
(80,000 ) $ 28.44
1,310,452 $ 28.44
353,863 $ 28.44
—
—
7 years
7 years
5.8 years $
5.4 years $
16.1
4.3
Options totaling 1,390,452 shares were issued on December 21, 2005. However, because communications to
certain employees with options totaling 643,500 were made on January 9, 2006, recognition of the grant of these
options had been delayed to such date.
The compensation cost charged against income, net of estimated forfeitures, was $3.0 million in 2006 and
$0.1 million for the period from October 2, 2005 to December 31, 2005. There was no tax benefit recognized in our
statement of operations for this compensation cost. As of December 31, 2006, there was $6.8 million of total
unrecognized compensation cost related to non-vested stock options which is expected to be recognized over the next
three years.
As of December 31, 2006, there were 80,000 shares of common stock available for future grant under the Stock
Incentive Plan. In addition, subject to stockholder approval at an annual or special meeting of our stockholders, we
have adopted amendments to our 2005 Stock Incentive Plan to increase by 1,165,000 the number of shares available
for grant thereunder. These amendments cover the following grants which are all subject to stockholder approval of
the plan amendments; (v) the grant in March 2006 of options to purchase 825,000 shares to our Chief Executive
Officer in connection with his entering into an employment agreement with us (the “CEO March 2006 Option
Grant”), (w) the grant in June 2006 of options to purchase 20,000 shares to our Chief Financial Officer in connection
with his entering into an amendment to his employment agreement (x) the grant in June 2006 of options to purchase
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 114
Site: BOWNE OF NEW YORK
[A/E]
CRC: 26382
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
114.00.00.00
*Y31806/114/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
5/4
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
120,000 shares to a director in connection with his entering into a consulting agreement (y) grants of approximately
175,000 shares of restricted stock to employees of SS/L to be issued upon stockholder approval of the plan
amendments and (z) approximately 25,000 shares available for future grant. Moreover, we intend to further amend
our stock option plan in the future to provide for additional increases in the number of shares available for grant
thereunder, including, among others, an increase to cover an option grant which we have agreed, provided he has
earned his target bonus for 2006 and 2007, to grant to our CEO in 2008 with a Black-Scholes value equal to one-half
of the value of the CEO March 2006 Option Grant, an increase to cover the component of annual fees to our directors
that consists of restricted stock awards (2,000 shares annually for each director and 5,000 shares annually for the
non-executive chairman) and an increase to cover a target annual option grant to our CFO having a Black-Scholes
value equal to his base salary then in effect multiplied by 1.4.
Predecessor Registrant
Common Stock and Old Loral Stock Plans
All shares of Old Loral common stock were cancelled upon our emergence pursuant to the terms of the Plan of
Reorganization. Options to purchase 2,002,870 shares of Old Loral Common Stock, with a weighted average
exercise price of $47.86, were forfeited on November 21, 2005 in accordance with the Plan of Reorganization.
16. Earnings (Loss) Per Share
Basic earnings (loss) per share is computed based upon the weighted average number of shares of common stock
outstanding. For the year ended December 31, 2006, for the periods from October 2, 2005 to December 31, 2005 and
January 1, 2005 to October 1, 2005 and for the year ended December 31, 2004, the effect of approximately
1.3 million, 0.7 million, 2.0 million, and 2.0 million stock options outstanding, which would be calculated using the
treasury stock method, were excluded from the calculation of diluted loss per share, as the effect would have been
antidilutive. See Note 23.
The following table sets forth the computation of basic and diluted loss per share:
Successor Registrant
Predecessor Registrant
December 31,
2006
For the Period
October 2,
For the Period
January 1,
2005 to
2005 to
December 31,
October 1,
2005
2005
(in thousands, except per share data)
December 31,
2004
Numerator for basic and diluted loss per share:
(Loss) income from continuing operations
(Loss) income from discontinued operations
Gain on sale of discontinued operations, net of taxes
Net (loss) income applicable to common
$
(22,720 ) $
—
—
(15,261 ) $ 1,030,882 $ (174,347 )
(2,348 )
—
—
13,967
—
—
stockholders
Denominator:
(22,720 )
(15,261 ) 1,044,849
(176,695 )
Weighted average common shares outstanding
20,000
20,000
44,108
44,108
Basic and diluted (loss) earnings per share:
Continuing operations
Discontinued operations
(Loss) earnings per share
$
$
(1.14 ) $
—
(1.14 ) $
(0.76 ) $
—
(0.76 ) $
23.37 $
0.32
23.69 $
(3.96 )
(0.05 )
(4.01 )
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 115
Site: BOWNE OF NEW YORK
[A/E]
CRC: 20434
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
115.00.00.00
*Y31806/115/5*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
10/5
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
17. Pensions and Other Employee Benefits
Pensions
We maintain a pension plan and a supplemental retirement plan. These plans are defined benefit pension plans
and members in certain locations may contribute to the pension plan in order to receive enhanced benefits. Eligibility
for participation in these plans varies and benefits are based on members’ compensation and/or years of service. Our
funding policy is to fund the pension plan in accordance with the Internal Revenue Code and regulations thereon and
to fund the supplemental retirement plan on a discretionary basis. Plan assets are generally invested in equity
investments and fixed income investments. Pension Plan assets are managed by Russell Investment Corp.
(“Russell”), which allocates the assets into specified Russell-designed funds as we direct.
Effective July 1, 2006, we amended our pension plan to standardize the future benefits earned at all company
locations. These amendments did not change any benefits earned through June 30, 2006. As a result of the
amendments, all locations now have a career average plan that requires a contribution in order to receive the highest
level of benefits. All current participants now earn future benefits under the same formula and have the same early
retirement provisions. The amendments did not apply to certain employees under a bargaining unit arrangement.
Additionally, employees hired after June 30, 2006, do not participate in the defined benefit pension plan, but
participate in our defined contribution savings plan with an enhanced benefit. As a result of these amendments, our
ongoing pension expense has been reduced commencing July 1, 2006, and it is expected that our cash funding
requirement will be less than previously anticipated commencing in 2007.
Other Benefits
In addition to providing pension benefits, we provide certain health care and life insurance benefits for retired
employees and dependents. Participants are eligible for these benefits when they retire from active service and meet
the eligibility requirements for our pension plan. These benefits are funded primarily on a pay-as-you-go basis, with
the retiree generally paying a portion of the cost through contributions, deductibles and coinsurance provisions.
The following tables provide a reconciliation of the changes in the plans’ benefit obligations and fair value of
assets for 2006 and 2005, and a statement of the funded status as of December 31, 2006 and 2005, respectively. We
use a December 31 measurement date for the pension plans and other post retirement benefit plans. The plans’
benefit obligations and recorded liabilities were revalued as of October 1, 2005, in connection with our adoption of
fresh-start accounting.
Reconciliation of benefit obligation
Obligation at beginning of period
Service cost
Interest cost
Participant contributions
Amendments
Actuarial (gain) loss
Benefit payments
Obligation at December 31,
Pension Benefits
December 31
Other Benefits
December 31
2006
(in thousands)
2005
(in thousands)
2006
2005
(in thousands) (in thousands)
$ 406,906 $ 395,098 $
10,926
21,835
1,051
(35,849 )
(12,423 )
(20,563 )
10,683
23,361
933
—
(3,246 )
(19,923 )
$ 371,883 $ 406,906 $
81,176 $
1,482
4,834
1,569
(2,154 )
3,519
(4,774 )
85,652 $
82,029
935
4,564
1,751
—
(2,765 )
(5,338 )
81,176
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 116
Site: BOWNE OF NEW YORK
[A/E]
CRC: 65261
EDGAR 2
Phone: (212)924-5500
BNY
116.00.00.00
*Y31806/116/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
10/4
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Reconciliation of fair value of plan assets
Fair value of plan assets at beginning of period
Actual return on plan assets
Employer contributions
Participant contributions
Benefit payments
Fair value of plan assets at December 31,
Funded status
Unfunded status at end of period
Unrecognized loss (gain)
Net amount recognized
Pension Benefits
December 31
Other Benefits
December 31
2006
2005
2006
2005
(in thousands) (in thousands) (in thousands) (in thousands)
$ 247,728 $ 230,685 $
27,762
27,460
1,051
(19,726 )
15,305
20,022
933
(19,217 )
$ 284,275 $ 247,728 $
1,028 $
38
3,005
1,569
(4,774 )
866 $
1,154
21
3,440
1,751
(5,338 )
1,028
$
(87,608 ) $ (159,178 ) $
—
1,922
$
(87,608 ) $ (157,256 ) $
(84,786 ) $
—
(84,786 ) $
(80,148 )
(544 )
(80,692 )
The benefit obligations for pensions and other employee benefits exceeded the fair value of plan assets by
$172.4 million at December 31, 2006 (the “unfunded benefit obligations”). In connection with our adoption of
Statement of Financial Accounting Standards No. 158, Employers’ Accounting For Defined Benefit Pension and
Other Postretirement Plans, (“SFAS 158”), we are required to recognize the funded status of a benefit plan on our
balance sheet. As a result, we reduced our recorded liability for pensions by $50.5 million, with a corresponding
credit to accumulated other comprehensive income, and increased our recorded liability for other benefits by
$1.0 million, with a corresponding charge to other comprehensive income, to adjust to our actual unfunded benefit
obligations. The unfunded benefit obligations were measured using a discount rate of 6% as of December 31, 2006.
Lowering the discount rate by 0.5% would have increased the unfunded benefit obligations by approximately
$26.6 million. Market conditions and interest rates will significantly affect future assets and liabilities of Loral’s
pension and other employee benefits plans.
The amounts recognized in accumulated other comprehensive income as of December 31, 2006 consist of (in
thousands):
Actuarial gain (loss)
Amendments-prior service credit
Pension Benefits
$
Other Benefits
(2,893 )
1,915
(978 )
16,033 $
34,450
50,483 $
Amounts recognized in the balance sheet consist of (in thousands):
$
Current liabilities
Long-term liabilities
F-42
Pension Benefits
December 31,
Other Benefits
December 31,
2006
2005
2006
2005
$
797 $
— $ 3,610 $ —
80,692
$ 87,608 $ 157,256 $ 84,786 $ 80,692
157,256
81,176
86,811
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 117
Site: BOWNE OF NEW YORK
[A/E]
CRC: 40566
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
117.00.00.00
*Y31806/117/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
9/4
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The incremental effect of applying SFAS 158 on individual line items on the balance sheet as of December 31,
2006 is as follows (in thousands):
Goodwill
Total Assets
Other current liabilities
Total current liabilities
Pension and other postretirement liabilities
Total liabilities
Accumulated other comprehensive income
Total shareholders’ equity
Before Application
of SFAS 158
Adjustments
After Application
of SFAS 158
$
325,245 $ (19,554 ) $
1,749,465
38,421
415,147
221,899
918,158
10,124
(19,554 )
4,407
4,407
(53,912 )
(49,505 )
29,951
617,051 $ 29,951
305,691
1,729,911
42,828
419,554
167,987
868,653
40,075
647,002
The estimated actuarial gain and prior service credit for the pension benefits that will be amortized from
accumulated other comprehensive income as a credit into net periodic cost over the next fiscal year are $0 and
$2.8 million, respectively. The estimated actuarial loss and prior service credit for other benefits that will be
amortized from accumulated other comprehensive income as a credit into net cost over the next fiscal year is
$0.1 million and $0.2 million, respectively.
The accumulated pension benefit obligation was $366.2 million and $367.7 million at December 31, 2006 and
2005, respectively.
In September 2006, Loral made the minimum required contribution of $2.3 million to the pension plan and made
an additional voluntary contribution to the pension plan of $25.2 million. The additional voluntary contribution was
made to improve the funded status of the pension plan and to reduce future expected contributions. During 2007,
based on current estimates, we expect to make no contributions to the qualified pension plan and expect to fund
approximately $5 million for other employee post-retirement benefit plans
The following table provides the components of net periodic cost for the plans for the year ended December 31,
2006, for the periods October 2, 2005 to December 31, 2005 and January 1, 2005 to October 1, 2005 and for the year
ended December 31, 2004 respectively (in thousands):
Successor Registrant
Predecessor Registrant
Successor Registrant
Predecessor Registrant
Pension Benefits
Other Benefits
For the Period For the Period
October 2,
January 1,
For the Period For the Period
October 2,
January 1,
2005 to
December 31, December 31, October 1,
2005
2005 to
2005
2006
December 31, December 31, December 31,
2006
2004
2005
2005 to
2005 to
October 1,
2005
December 31,
2004
$
10,926 $
21,835
2,896 $
5,760
7,787 $
17,601
9,694 $
22,740
1,482 $
4,834
255 $
1,157
680 $
3,407
1,212
5,178
(22,229 )
(5,545 )
(15,343 )
(19,415 )
(52 )
(23 )
(78 )
(74 )
(1,399 )
—
(27 )
(36 )
(239 )
—
(1,443 )
(1,931 )
—
9,133 $
—
3,111 $
4,976
14,994 $
5,294
18,277 $
127
6,152 $
—
1,389 $
1,843
4,409 $
2,911
7,296
F-43
Service cost
Interest cost
Expected return on
plan assets
Amortization of prior
service cost
Amortization of net
loss
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 118
Site: BOWNE OF NEW YORK
[A/E]
CRC: 35215
EDGAR 2
Phone: (212)924-5500
BNY
118.00.00.00
*Y31806/118/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
9/4
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The principal actuarial assumptions were:
Assumptions used to determine net periodic cost:
Discount rate
Expected return on plan assets
Rate of compensation increase
Successor Registrant
Predecessor Registrant
For the Period For the Period
October 2,
January 1,
December 31,
2006
2005 to
2005 to
December 31,
October 1,
2005
2005
December 31,
2004
5.75 %
9.00 %
4.25 %
5.75 %
9.00 %
4.25 %
6.00 %
9.00 %
4.25 %
6.25 %
9.00 %
4.25 %
Assumptions used to determine the benefit obligation:
Successor
Registrant
December 31,
2006
Predecessor
Registrant
For the Period
Successor
Registrant
December 31, October 1,
Ended
2005
2005
Discount rate
Rate of compensation increase
6.00 %
4.25 %
5.75 %
4.25 %
5.75 %
4.25 %
The expected long-term rate of return on pension plan assets is selected by taking into account the expected
duration of the projected benefit obligation for the plans, the asset mix of the plans and the fact that the plan assets
are actively managed to mitigate risk. Allowable investment types include equity investments and fixed income
investments. Pension plan assets are managed by Russell, which allocates the assets into specified Russell designed
funds as per our directed asset allocation. Each specified Russell fund is then managed by investment managers
chosen by Russell. The targeted long-term allocation of our pension plan assets is 60% in equity investments and
40% in fixed income investments. Based on this target allocation, the twenty-year historical return of our investment
managers has been 10.1%. The expected long-term rate of return on plan assets determined on this basis was 9.0%
for the year ended December 31, 2006, the periods October 2, 2005 to December 31, 2005 and January 1, 2005 to
October 1, 2005, and the year ended December 31, 2004. For 2007, we will use an expected long-term rate of return
of 8.5%.
Our pension and other employee benefits plan asset allocations by asset category as of December 31, 2006 and
2005 are as follows:
Equity investments
Fixed income investments
December 31,
2006
55 %
45 %
100 %
2005
56 %
44 %
100 %
Actuarial assumptions to determine the benefit obligation for other benefits as of December 31, 2006, used a
health care cost trend rate of 10.25% decreasing gradually to 4.5% by 2014. Actuarial assumptions to determine the
benefit obligation for other benefits as of December 31, 2005, used a health care cost trend rate of 9.0% decreasing
gradually to 5.0% by 2009. Assumed health care cost trend rates have a significant effect on the amounts reported
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 119
Site: BOWNE OF NEW YORK
[A/E]
CRC: 41142
EDGAR 2
Phone: (212)924-5500
BNY
119.00.00.00
*Y31806/119/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
4/4
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
for the health care plans. A 1% change in assumed health care cost trend rates for 2006 would have the following
effects (in thousands):
Effect on total of service and interest cost components of net periodic postretirement
health care benefit cost
$
Effect on the health care component of the accumulated postretirement benefit obligation $
588 $
7,246 $
(480 )
(6,049 )
The following benefit payments, which reflect future services, as appropriate, are expected to be paid (in
1% Increase 1% Decrease
thousands):
2007
2008
2009
2010
2011
2012 to 2016
Other Benefits
Gross
Medicare
Pension Benefit Subsidy
Benefits
Payments Receipts
311
$ 21,944 $ 4,922 $
349
394
432
470
2,926
22,700
23,239
23,727
24,502
131,161
5,213
5,459
5,752
6,124
33,727
Assets designated to fund the obligations of our supplementary retirement plan are held in a trust. Such assets
amounting to $6.4 million and $6.6 million as of December 31, 2006 and 2005, respectively, are not available for
general corporate use; however, these assets would be available to general creditors in the event of bankruptcy and,
therefore, do not qualify as plan assets. Accordingly, we have classified these assets as other assets in the
accompanying consolidated balance sheets.
Employee Savings Plan
We have an employee savings plan, which provides that we match the contributions of participating employees
up to a designated level. Under this plan, the matching contributions in our common stock or cash were $5.5 million,
$1.0 million, $3.3 million, and $4.7 million for the year ended December 31, 2006, for the periods from October 2,
2005 to December 31, 2005 and January 1, 2005 to October 1, 2005, and the year ended December 31, 2004,
respectively. All matching contributions since July 4, 2003, have been in cash. Employees participating in the
savings plan are able to redirect our matching contributions to any available fund. In addition, employees are able to
direct their individual contributions to any available fund.
18. Financial Instruments and Foreign Currency
Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of financial
instruments for which it is practicable to estimate fair value:
The carrying amount of cash and cash equivalents approximates fair value because of the short maturity of those
instruments. The fair value of short-term investments, investments in available-for-sale securities and supplemental
retirement plan assets is based on market quotations. The fair value of our long-term debt obligations is based on a
market value provided by an outside financial institution.
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 120
Site: BOWNE OF NEW YORK
[A/E]
CRC: 15763
EDGAR 2
Phone: (212)924-5500
BNY
120.00.00.00
*Y31806/120/5*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
7/5
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The estimated fair values of our financial instruments are as follows (in thousands):
December 31,
2006
2005
Cash and cash equivalents
Investments in available-for-sale securities
Supplemental retirement plan assets
Long-term debt
Fair Value
Carrying
Carrying
Amount
Amount Fair Value
$ 186,542 $ 186,542 $ 275,796 $ 275,796
16,260
—
6,637
6,418
153,405
128,084
—
6,637
143,640 128,191
16,260
6,418
The fair value of the investments in available-for-sale securities of Globalstar L.P. includes an unrealized gain of
$16.3 million as of December 31, 2006 (see Note 9).
Foreign Currency
We, in the normal course of business, are subject to the risks associated with fluctuations in foreign currency
exchange rates. Prior to filing Chapter 11, we entered into forward exchange contracts to establish with certainty the
U.S. dollar amount of future anticipated cash receipts and payments and firm commitments for cash payments
denominated in a foreign currency. The primary business objective of this hedging program was to minimize the
gains and losses resulting from exchange rate changes.
When we filed for Chapter 11, SS/L’s hedges with counterparties (primarily yen denominated forward contracts)
were cancelled, leaving SS/L vulnerable to foreign currency fluctuations in the future. As of December 31, 2006,
SS/L had the following amounts denominated in Japanese Yen and EUROs (which have been translated into
U.S. dollars based on the December 31, 2006 exchange rates) that were unhedged (in millions):
Future revenues — Japanese Yen
Future expenditures — Japanese Yen
Future expenditures — EUROs
Derivatives
Foreign Currency
¥
¥
E
U.S. $
72 $ 0.6
3,011 $ 25.3
5.2 $ 6.9
As described in Note 19, on December 16, 2006, a joint venture company formed by Loral and PSP entered into
a Share Purchase Agreement with BCE Inc. and Telesat Canada for the acquisition of all the shares of Telesat
Canada and certain other assets for CAD 3.25 billion. As part of the transaction, the acquisition company received
financing commitments from a syndicate of banks for $2.179 billion of Senior Secured Credit Facilities and
$910 million of a Senior Unsecured Bridge Facility. The purchase price of Telesat Canada is in Canadian Dollars,
while most of the debt financing is in U.S. dollars. Accordingly, Loral and PSP have entered into financial
commitments to lock in exchange rates to convert some of the U.S. dollar denominated debt proceeds to Canadian
dollars. As such, Loral entered into several transactions through its Loral Skynet subsidiary, whereby Loral Skynet
guaranteed certain exposures should the Telesat acquisition not close and the transactions are unwound.
In December 2006, Loral Skynet entered into a currency basis swap with a single bank counterparty converting
$1.054 billion of U.S. debt into CAD 1.224 billion of Canadian debt for a seven year period beginning December 17,
2007. This debt amortizes 1% per year with a final maturity of December 17, 2014. No cash payment was made by
Loral to the counterparty for entering into this transaction. This agreement can be closed at any point prior to
December 17, 2007 by simply moving all the terms forward to the closing date of the Telesat acquisition without
affecting terms. This agreement is assignable to the Canadian borrowing company upon closing of the credit
transaction. Loral Skynet’s liability under this agreement shall not exceed $10 million for the early termination of
F-46
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 121
Site: BOWNE OF NEW YORK
[A/E]
CRC: 50272
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
121.00.00.00
*Y31806/121/5*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
5/5
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
this agreement resulting from an event of default or termination event. At December 31, 2006, Loral recorded a
$2.4 million charge to other income reflecting a mark-to-market valuation for the swap.
In December 2006, Loral Skynet entered into forward foreign currency contracts with a single bank counterparty
selling $497.4 million for CAD 570.1 million with a settlement date of December 17, 2007. No cash payment was
made by Loral to the single bank counterparty for entering into these transactions. These agreements can be rolled
forward to the closing date of the Telesat acquisition with an adjustment in the exchange rate. These agreements are
assignable to the Canadian borrowing company upon closing of the credit transaction. Loral Skynet’s liability under
these agreements shall not exceed $72.5 million for the early termination of these agreements resulting from an event
of default or termination event. At December 31, Loral recorded a $3.3 million charge to other income reflecting a
mark-to-market valuation for the forward contracts.
Subsequent to December 31, 2006, Loral Skynet entered into additional forward foreign currency contracts with
a single bank counterparty selling $200 million for CAD 232.8 million with a settlement date of December 17, 2007.
The terms of these transactions are similar to the terms of the December transactions. Loral Skynet’s liability under
these agreements shall not exceed $35 million for the early termination of these agreements resulting from an event
of default or termination event.
19. Commitments and Contingencies
Financial Matters
We had outstanding letters of credit of approximately $3.2 million as of December 31, 2006.
Due to the long lead times required to produce purchased parts, we have entered into various purchase
commitments with suppliers. These commitments aggregated approximately $677.8 million as of December 31, 2006
and primarily relate to Satellite Manufacturing backlog.
We are obligated to pay $3.4 million over the next two years to the U.S. Department of State pursuant to a
consent agreement entered into by Old Loral and SS/L.
SS/L has deferred revenue and accrued liabilities for performance warranty obligations relating to satellites sold
to customers, which could be affected by future performance of the satellites. These reserves for expected costs for
warranty reimbursement and support are based on historical failure rates. However, in the event of a catastrophic
failure of a satellite, which cannot be predicted, these reserves likely will not be sufficient. SS/L periodically reviews
and adjusts the deferred revenue and accrued liabilities for warranty reserves based on the actual performance of each
satellite and remaining warranty period. A reconciliation of such deferred amounts for
F-47
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 122
Site: BOWNE OF NEW YORK
[A/E]
CRC: 58775
EDGAR 2
Phone: (212)924-5500
BNY
122.00.00.00
*Y31806/122/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
5/4
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
the year ended December 31, 2006, for the periods October 2, 2005 to December 31, 2005 and January 1, 2005 to
October 1, 2005, and for the year ended December 31, 2004, is as follows (in millions):
Balance of deferred amounts at January 1, 2004
Accruals for deferred amounts issued during the period
Accruals relating to pre-existing contracts (including changes in estimates)
Balance of deferred amounts at December 31, 2004
Accruals for deferred amounts issued during the period
Accruals relating to pre-existing contracts (including changes in estimates)
Balance of deferred amounts at October 1, 2005
Accruals for deferred amounts issued during the period
Accruals relating to pre-existing contracts (including changes in estimates)
Balance of deferred amounts at December 31, 2005
Accruals for deferred amounts issued during the period
Accruals relating to pre-existing contracts (including changes in estimates)
Balance of deferred amounts at December 31, 2006
$ 17.5
2.9
6.8
27.2
1.3
10.5
39.0
—
2.7
41.7
4.8
7.4
$ 53.9
Many of SS/L’s satellite contracts permit SS/L’s customers to pay a portion of the purchase price for the satellite
over time subject to the continued performance of the satellite (“orbitals”), and certain of SS/L’s satellite contracts
require SS/L to provide vendor financing to its customers, or a combination of these contractual terms. Some of these
arrangements are provided to customers that are start-up companies or companies in the early stages of building their
businesses. There can be no assurance that these companies or their businesses will be successful and, accordingly,
that these customers will be able to fulfill their payment obligations under their contracts with SS/L. We believe that
these provisions will not have a material adverse effect on our consolidated financial position or our results of
operations, although no assurance can be provided. Moreover, SS/L’s receipt of orbital payments is subject to the
continued performance of its satellites generally over the contractually stipulated life of the satellites. Since these
orbital receivables could be affected by future satellite performance, there can be no assurance that SS/L will be able
to collect all or a portion of these receivables.
On June 7, 2006, SS/L entered into a Customer Credit Agreement (the “Credit Agreement”) with Sirius Satellite
Radio Inc. (“Sirius”), effective as of May 31, 2006. Under the Credit Agreement, SS/L has agreed, if requested, to
make loans to Sirius in an aggregate principal amount of up to $100 million to finance the purchase of the Sirius FM-
5 Satellite (the “Satellite”), including to reimburse Sirius for certain payments made by it under the satellite purchase
agreement with SS/L dated May 31, 2006 (the “Purchase Agreement”). Any loans made under the Credit Agreement
will be secured by Sirius’ rights under the Purchase Agreement, including its rights to the Satellite. The loans also
will be guaranteed by Satellite CD Radio, a subsidiary of Sirius Inc., and, subject to certain exceptions, will be
guaranteed by any future material subsidiary that may be formed by Sirius thereafter. The maturity date of any loans
will be the earliest to occur of (i) April 6, 2009, (ii) 90 days after the Satellite becomes available for shipment and
(iii) 30 days prior to the scheduled launch of the Satellite. Loans made under the Credit Agreement generally bear
interest at a variable rate equal to three-month LIBOR plus a margin. The Credit Agreement permits Sirius to prepay
all or a portion of the loans outstanding without penalty. As of December 31, 2006, Sirius had made the required
milestone payments to SS/L under the Purchase Agreement and, accordingly, no loans were outstanding under the
Credit Agreement. As of December 31, 2006, Sirius was eligible to borrow $30 million under the Credit Agreement.
During 2006, the Company initiated steps to restructure its network services global operations, which is a
component of the Satellite Services segment. The plan called for termination of certain operating leases and
involuntary termination of certain employees and was completed in 2006. As of December 31, 2006, we incurred
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 123
Site: BOWNE OF NEW YORK
[A/E]
CRC: 32920
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
123.00.00.00
*Y31806/123/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
5/4
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
$1.3 million of costs associated with this plan, of which $0.9 million was for employee termination costs and the
remainder related to the write off of inventory and fixed assets. We do not expect to incur additional costs associated
with this plan.
Loral Skynet has in the past entered into prepaid leases, sales contracts and other arrangements relating to
transponders on its satellites. Under the terms of these agreements, as of December 31, 2006, Loral Skynet continues
to provide for a warranty for periods of two to eight years for sales contracts and other arrangements (seven
transponders), and prepaid leases (two transponders). Depending on the contract, Loral Skynet may be required to
replace transponders which do not meet operating specifications. Substantially all customers are entitled to a refund
equal to the reimbursement value if there is no replacement, which is normally covered by insurance. In the case of
the sales contracts, the reimbursement value is based on the original purchase price plus an interest factor from the
time the payment was received to acceptance of the transponder by the customer, reduced on a straight-line basis
over the warranty period. In the case of prepaid leases, the reimbursement value is equal to the unamortized portion
of the lease prepayment made by the customer. For other arrangements, in the event of transponder failure where
replacement capacity is not available on the satellite, one customer is not entitled to reimbursement, and the other
customer’s reimbursement value is based on contractually prescribed amounts that decline over time.
Telesat Transaction
On December 16, 2006, a joint venture company (“Acquireco”) formed by Loral and its Canadian partner, the
Public Sector Pension Investment Board (“PSP”) entered into a definitive agreement with BCE Inc. to acquire 100%
of the stock of Telesat Canada and certain other assets from BCE Inc. for CAD 3.25 billion (approximately
$2.79 billion based on an exchange rate of $1.00/CAD 1.1652), which purchase price is not subject to adjustment for
Telesat Canada’s performance during the pre-closing period. Under the terms of this purchase agreement, the
economic value of Telesat Canada’s business is, subject to certain exceptions, being operated for Acquireco’s benefit
beginning from December 16, 2006. Telesat Canada is the leading satellite services provider in Canada and earns its
revenues principally through the provision of broadcast and business network services over seven in-orbit satellites.
This transaction is subject to various closing conditions, including approvals of the relevant Canadian and
U.S. government authorities, and is expected to close in mid-2007. Loral and PSP have agreed to guarantee 64% and
36%, respectively, of Acquireco’s obligations under the Telesat share purchase agreement, up to CAD 200 million.
At the time of, or following the Telesat acquisition, substantially all of Loral Skynet’s assets and related
liabilities will be transferred to a subsidiary of Acquireco at an agreed upon enterprise valuation, subject to
downward adjustment under certain circumstances (the “Skynet Transaction”). PSP has agreed to contribute
approximately CAD 595.8 million in cash to Holdings, of which $150 million (or CAD 174.8 million based on an
exchange rate of $1.00/CAD 1.1652) will be for the purchase of a fixed rate senior non-convertible mandatorily
redeemable preferred stock.
We and PSP have arranged for the parent company of Acquireco (“Holdings”) to obtain $3.1 billion of
committed debt financing from a group of financial institutions, of which up to approximately $2.8 billion is
available to fund the purchase price of the Telesat acquisition, if the acquisition were to close simultaneously with
the Skynet Transaction, and $2.4 billion in the event the Skynet Transaction is delayed. The remainder of the debt
facilities would be available to fund New Telesat’s post-closing capital expenditures and other requirements,
including in the case of a delayed Skynet Transaction, up to $386 million to fund a redemption of Loral Skynet’s
preferred stock and senior notes upon closing of the Skynet Transaction.
At closing of the Telesat acquisition, assuming a simultaneous closing of the Skynet Transaction, we would hold
equity interests in Holdings, the ultimate parent company of New Telesat, effectively representing 64% of the
economic interests and 331/3% of the voting power, of New Telesat. PSP would in turn acquire the preferred stock
described above, and equity interests effectively representing 36% of the economic interest, and together with two
other Canadian investors, 662/3% of the voting power of New Telesat.
F-49
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 124
Site: BOWNE OF NEW YORK
[A/E]
CRC: 31375
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
124.00.00.00
*Y31806/124/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
10/4
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
If the Telesat acquisition and the Skynet Transaction were to occur at the same time, then on the closing date,
Holdings will redeem the principal amount of Loral Skynet’s outstanding 14% senior notes (approximately
$126 million as of December 31, 2006) and Loral will redeem Loral Skynet’s outstanding 12% preferred stock and
accrued dividends thereon (approximately $226 million as of December 31, 2006), as well as pay all interest and
redemption premium (approximately $21 million as of December 31, 2006) and any other amounts that may be due
in respect of Loral Skynet’s senior notes.
If the Skynet Transaction does not close simultaneously with the Telesat acquisition, Loral would in place of
funding the redemption of Loral Skynet’s preferred stock and accrued dividends and interest and redemption
premium on Loral Skynet’s senior notes (approximately $247 million as of December 31, 2006), make a cash equity
contribution to Holdings of CAD 270.9 million (approximately $233 million based on an exchange rate of
$1.00/CAD 1.1652) to acquire redeemable shares of Holdings. Upon the later closing of the Skynet Transaction,
Holdings will draw upon its credit facilities to redeem the principal amount of Loral Skynet’s senior notes and the
redeemable shares issued to Loral. Loral will use the proceeds from Holdings to redeem Loral Skynet’s preferred
stock and pay the interest, premium and any other amounts due under the Loral Skynet notes. Loral’s economic
interest in Holdings would be proportionately reduced from 64% to approximately 38%, assuming an exchange rate
of $1.00/CAD 1.1652, to reflect the fact that it has not contributed the Skynet assets into New Telesat, but would be
reinstated to 64% upon the closing of the Skynet Transaction.
We would have a year from the closing of the Telesat acquisition to complete the Skynet Transaction. If we are
unable to close the Skynet Transaction during that period, we would then be required, under the terms of our
agreement with PSP, to contribute our rights to the Telstar 11N satellite as well as $175 million in cash (the
“Alternative Contribution”) to New Telesat, in order to bring our economic interest in Holdings to 64%.
To the extent necessary, upon closing of the Telesat acquisition, the Skynet Transaction and/or the Alternative
Contribution, as the case may be, there will be an appropriate cash true-up between us, PSP and New Telesat to
reflect the amount of our relative contributions, after giving effect to among other things, the exchange rate then in
effect, gains and/or losses on hedging transactions, the spending on Telstar 11N, in the event of a material adverse
change to Loral Skynet’s business during the interim period, the resulting diminution in the agreed upon value of
Loral Skynet, and in the event the Alternative Contribution is effected in place of the Skynet Transaction, the extent
to which the value of the Alternative Contribution is greater or less than the agreed upon value of the Skynet
Transaction.
Satellite Matters
Satellites are built with redundant components or additional components to provide excess performance margins
to permit their continued operation in case of component failure, an event that is not uncommon in complex satellites.
Twenty of the satellites built by SS/L and launched since 1997, three of which are owned and operated by our
subsidiaries or affiliates, have experienced losses of power from their solar arrays. There can be no assurance that
one or more of the affected satellites will not experience additional power loss. In the event of additional power loss,
the extent of the performance degradation, if any, will depend on numerous factors, including the amount of the
additional power loss, the level of redundancy built into the affected satellite’s design, when in the life of the affected
satellite the loss occurred, how many transponders are then in service and how they are being used. It is also possible
that one or more transponders on a satellite may need to be removed from service to accommodate the power loss
and to preserve full performance capabilities on the remaining transponders. During the third quarter of 2006, due to
power loss caused by solar array failures, Loral Skynet removed from service through the end of life certain
unutilized transponders on one of its satellites and will remove additional transponders from service on this satellite
in order to maintain sufficient power to operate the remaining transponders for its specified life. As of December 31,
2006, Loral Skynet does not believe the carrying value of this satellite has been impaired. Loral Skynet will,
however, continue to evaluate the impact of the power loss caused by the solar array failures. A complete or partial
loss of a satellite’s capacity could result in a loss of orbital incentive payments to SS/L and, in the
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 125
Site: BOWNE OF NEW YORK
[A/E]
CRC: 9900
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
125.00.00.00
*Y31806/125/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
11/4
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
case of satellites owned by Loral Skynet and its affiliates, a loss of revenues and profits. With respect to satellites
under construction and the construction of new satellites, based on its investigation of the matter, SS/L has identified
and has implemented remediation measures that SS/L believes will prevent newly launched satellites from
experiencing similar anomalies. SS/L does not expect that implementation of these measures will cause any
significant delay in the launch of satellites under construction or the construction of new satellites. Based upon
information currently available, including design redundancies to accommodate small power losses, and that no
pattern has been identified as to the timing or specific location within the solar arrays of the failures, we believe that
this matter will not have a material adverse effect on our consolidated financial position or our results of operations,
although no assurance can be provided.
In November 2004, Intelsat Americas 7 (formerly Telstar 7) experienced an anomaly which caused it to
completely cease operations for several days before it was partially recovered. Four other satellites manufactured by
SS/L for other customers have designs similar to Intelsat Americas 7 and, therefore, could be susceptible to similar
anomalies in the future. A partial or complete loss of these satellites could result in the incurrence of warranty
payments by SS/L.
Certain of our satellites are currently operating using back-up components because of the failure of primary
components. If the back-up components fail and we are unable to restore redundancy, these satellites could lose
capacity or be total losses, which would result in a loss of revenues and profits. For example, in July 2005, in the
course of conducting our normal operations, we determined that the primary command receivers on two of our
satellites had failed. These satellites, which are equipped with redundant command receivers designed to provide full
functional capability through the full design life of the satellite, continue to function normally and service to
customers has not been affected. Moreover, on one of these satellites, SS/L has successfully completed
implementation of a software workaround that fully restores the redundant command receiver functionality. On the
other satellite, SS/L has successfully completed implementation of an interim software workaround that partially
restores the redundant command receiver functionality, and SS/L expects to implement a permanent software
workaround that will fully restore the redundant command receiver functionality, although no assurance can be
provided.
Two satellites owned by us have the same solar array configuration as one other 1300-class satellite
manufactured by SS/L that has experienced an event with a large loss of solar power. SS/L believes that this failure is
an isolated event and does not reflect a systemic problem in either the satellite design or manufacturing process.
Accordingly, we do not believe that this anomaly will affect our two satellites with the same solar array
configuration. The insurance coverage for these satellites, however, provides for coverage of losses due to solar array
failures only in the event of a capacity loss of 75% or more for one satellite and 80% or more for the other satellite.
Loral currently insures the on-orbit performance of the satellites in its Satellite Services segment. Typically such
insurance is for a policy period of one year subject to renewal. It has been difficult, however, to obtain full insurance
coverage for satellites that have, or are part of a product line of satellites that have, experienced problems in the past.
Insurers have required either exclusions of certain components or have placed limitations on coverage in connection
with insurance renewals for such satellites in the future. We cannot assure, upon the expiration of an insurance
policy, that we will be able to renew the policy on terms acceptable to us or that we will not elect to self-insure and
forego commercial insurance for the satellite. The loss of a satellite would have a material adverse effect on our
financial performance and may not be adequately mitigated by insurance. In October 2006, we renewed our on-orbit
performance policy under substantially the same terms as the currently expiring policy.
SSL relies, in part, on patents, trade secrets and know-how to develop and maintain its competitive position.
There can be no assurance that infringement of existing third party patents has not occurred or will not occur. In the
event of infringement, we could be required to pay royalties to obtain a license from the patent holder, refund money
to customers for components that are not useable or redesign our products to avoid infringement, all of which would
increase our costs. We may also be required under the terms of our customer contracts to indemnify our customers
for damages.
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 126
Site: BOWNE OF NEW YORK
[A/E]
CRC: 54161
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
126.00.00.00
*Y31806/126/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
11/4
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In connection with an agreement reached in 1999 and an overall settlement reached in February 2005 with
ChinaSat relating to the delayed delivery of ChinaSat 8, we have provided ChinaSat with usage rights to two
Ku-band transponders on Telstar 10 for the life of such transponders (subject to certain restoration rights) and to one
Ku-band transponder on Telstar 18 for the life of the Telstar 10 satellite plus two years, or the life of such
transponder (subject to certain restoration rights), whichever is shorter.
Regulatory Matters
To prevent frequency interference, the regulatory process requires potentially lengthy and costly negotiations
with third parties who operate or intend to operate satellites at or near the locations of our satellites. For example, as
part of our coordination efforts on Telstar 12, we agreed to provide four 54 MHz transponders on Telstar 12 to
Eutelsat for the life of the satellite and have retained risk of loss with respect to those transponders. In the event of an
unrestored failure, under Loral Skynet’s related warranty obligation, Eutelsat would be entitled to compensation on
contractually prescribed amounts that decline over time. We also granted Eutelsat the right to acquire, at cost, four
transponders on the replacement satellite for Telstar 12. We continue to be in discussions with other operators on
coordination issues. We may be required to make additional financial concessions in the future in connection with
our coordination efforts. The failure to reach an appropriate arrangement with a third party having priority rights at or
near one of our orbital slots may result in substantial restrictions on the use and operation of our satellite at that
location.
SS/L is required to obtain licenses and enter into technical assistance agreements, presently under the
jurisdiction of the State Department, in connection with the export of satellites and related equipment, and with the
disclosure of technical data to foreign persons. Due to the relationship between launch technology and missile
technology, the U.S. government has limited, and is likely in the future to limit, launches from China and other
foreign countries. Delays in obtaining the necessary licenses and technical assistance agreements have in the past
resulted in, and may in the future result in, the delay of SS/L’s performance on its contracts, which could result in the
cancellation of contracts by its customers, the incurrence of penalties or the loss of incentive payments under these
contracts.
Lease Arrangements
We lease certain facilities, equipment and transponder capacity under agreements expiring at various dates.
Certain leases covering facilities contain renewal and/or purchase options which may be exercised by us. Rent
expense, net of sublease income is as follows (in thousands):
Year ended December 31, 2006
October 2, 2005 to December 31, 2005
January 1, 2005 to October 1, 2005
Year ended December 31, 2004
F-52
Sublease
Gross
Income Net Rent
Rent
(20 ) $ 27,297
$ 27,317 $
$ 6,536 $
(38 ) $ 6,498
$ 20,057 $ (261 ) $ 19,796
$ 36,565 $ (328 ) $ 36,237
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 127
Site: BOWNE OF NEW YORK
[A/E]
CRC: 60291
EDGAR 2
Phone: (212)924-5500
BNY
127.00.00.00
*Y31806/127/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
9/4
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Future minimum payments, by year and in the aggregate under operating leases with initial or remaining terms
of one year or more consisted of the following as of December 31, 2006 (in thousands):
2007
2008
2009
2010
2011
Thereafter
Legal Proceedings
$ 19,582
19,443
15,282
13,658
10,355
32,293
$ 110,613
In March 2001, Loral entered into an agreement (the “Rainbow DBS Sale Agreement”) with Rainbow DBS
Holdings, Inc. (“Rainbow Holdings”) pursuant to which Loral agreed to sell to Rainbow Holdings its interest in
Rainbow DBS Company, LLC (formerly R/L DBS Company, LLC, “Rainbow DBS”) for a purchase price of
$33 million plus interest at an annual rate of 8% from April 1, 2001. Loral’s receipt of this purchase price is,
however, contingent on the occurrence of certain events, including without limitation, the sale of substantially all of
the assets of Rainbow DBS. At the time of the Rainbow DBS Sale Agreement, Loral’s investment in Rainbow DBS
had been recorded at zero and Loral did not record a receivable or gain from this sale. During the quarter ended
March 31, 2005, Rainbow DBS entered into an agreement to sell its Rainbow 1 satellite and related assets to
EchoStar Communications Corporation, which sale was consummated in November 2005. Rainbow Holdings,
however, informed Loral that it did not believe that Loral was entitled to receive an immediate payment of the
purchase price under the Rainbow DBS Sale Agreement as a result of the EchoStar sale transaction. Loral disputed
Rainbow Holdings’ interpretation of the agreement and, in September 2005, commenced a lawsuit in the Supreme
Court of the State of New York to enforce its rights thereunder. After a jury trial held in January 2007, the jury
returned a verdict in favor of Loral, and a judgment was entered by the court on March 12, 2007. Rainbow DBS has
filed a motion for judgment as a matter of law or, in the alternative, a new trial, which motion is pending before the
court. A third party has asserted a prepetition claim against the Company in the amount of $3 million with respect to
the purchase price.
On or about November 6, 2006, plaintiff Maxine Babus, derivatively on behalf of Loral Space &
Communications Inc., filed a shareholder derivative complaint in the Supreme Court of the State of New York
against all the members of the Loral board of directors and against Loral as a nominal defendant. The complaint
alleges, among other things, that the directors breached their fiduciary duties, including the fiduciary duty of loyalty,
in connection with the Company’s agreement to sell $300 million in new convertible preferred stock to MHR Fund
Management L.L.C. (“MHR”), the Company’s largest stockholder. The complaint seeks, among other things,
preliminary and permanent injunctive relief, an award of compensatory damages in an amount to be determined and
plaintiff’s costs and disbursements, including attorneys’ and experts’ fees and expenses. Defendants have filed a
motion to dismiss the complaint. In addition, the Company has received a request for indemnification by its directors
for any losses or costs they may incur as a result of the Babus lawsuit.
On or about March 13, 2007, the Company received a demand from Highland Crusader Offshore Partners, L.P.
(“Highland”), the purported owner of approximately 5% of Loral’s outstanding common stock, seeking to inspect
books and records of the Company pursuant to Section 220 of the Delaware General Corporation Law for a number
of stated purposes, including to investigate possible mismanagement, breaches of fiduciary duty, corporate waste and
improper influence and conduct with respect to the $300 million preferred stock financing with MHR, to utilize such
information to evaluate possible litigation, to communicate with other stockholders regarding such litigation and
consideration of changes to the composition of the Company’s board of directors and to value Highland’s shares of
Loral as of the date of the agreement with MHR and as of the date of closing of the preferred stock financing.
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 128
Site: BOWNE OF NEW YORK
[A/E]
CRC: 13441
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
128.00.00.00
*Y31806/128/5*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
11/5
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Indemnification Claims of Directors and Officers of Old Loral
Old Loral was obligated to indemnify its directors and officers for any losses or costs they may incur as a result
of the lawsuits described below in Class Action Securities Litigations, Class Action ERISA Litigation and Globalstar
Related Class Action Securities Litigations. The Plan of Reorganization provides that the direct liability of New
Loral post-emergence in respect of such indemnity obligation is limited to the In re: Loral Space ERISA Litigation
and In re: Loral Space & Communications Ltd. Securities Litigation cases and then only in an aggregate amount of
$2.5 million. In addition, most directors and officers have filed proofs of claim (the “D&O Claims”) in unliquidated
amounts with respect to the prepetition indemnity obligations of the Debtors. The Debtors and these directors and
officers, including Mr. Bernard L. Schwartz, Loral’s Chairman of the Board and Chief Executive Officer until his
retirement effective March 1, 2006, with respect to all claims he may have other than the Globalstar settlement for
which he has a separate indemnity claim of up to $25 million as described below, have agreed that in no event will
their indemnity claims against Old Loral and Loral Orion in the aggregate exceed $25 million and $5 million,
respectively. If any of these claims ultimately becomes an allowed claim under the Plan of Reorganization, the
claimant would be entitled to a distribution under the Plan of Reorganization of New Loral common stock based
upon the amount of the allowed claim. Any such distribution of stock would be in addition to the 20 million shares of
New Loral common stock distributed under the Plan of Reorganization to other creditors. Instead of issuing such
additional shares, New Loral may elect to satisfy any allowed claim in cash in an amount equal to the number of
shares to which plaintiffs would have been entitled multiplied by $27.75 or in a combination of additional shares and
cash. We believe, although no assurance can be given, that New Loral will not incur any substantial losses as a result
of these claims.
Class Action Securities Litigations
In August 2003, plaintiffs Robert Beleson and Harvey Matcovsky filed a purported class action complaint
against Bernard L. Schwartz in the United States District Court for the Southern District of New York. The complaint
seeks, among other things, damages in an unspecified amount and reimbursement of plaintiffs’ reasonable costs and
expenses. The complaint alleges (a) that Mr. Schwartz violated Section 10(b) of the Securities Exchange Act of 1934
(the “Exchange Act”) and Rule 10b-5 promulgated thereunder, by making material misstatements or failing to state
material facts about our financial condition relating to the sale of assets to Intelsat and our Chapter 11 filing and
(b) that Mr. Schwartz is secondarily liable for these alleged misstatements and omissions under Section 20(a) of the
Exchange Act as an alleged “controlling person” of Old Loral. The class of plaintiffs on whose behalf the lawsuit has
been asserted consists of all buyers of Old Loral common stock during the period from June 30, 2003 through
July 15, 2003, excluding the defendant and certain persons related to or affiliated with him. In November 2003, three
other complaints against Mr. Schwartz with substantially similar allegations were consolidated into the Beleson case.
In February 2004, a motion to dismiss the complaint in its entirety was denied by the court. The defendant filed an
answer in March 2004. In January 2006, the case was stayed, and after a status conference in March 2007, the stay
was lifted and discovery is proceeding. Since this case was not brought against Old Loral, but only against one of its
officers, we believe, although no assurance can be given, that, to the extent that any award is ultimately granted to the
plaintiffs in this action, the liability of New Loral, if any, with respect thereto is limited solely to the D&O claims as
described above under “Indemnification Claims.”
In November 2003, plaintiffs Tony Christ, individually and as custodian for Brian and Katelyn Christ, Casey
Crawford, Thomas Orndorff and Marvin Rich, filed a purported class action complaint against Bernard L. Schwartz
and Richard J. Townsend in the United States District Court for the Southern District of New York. The complaint
seeks, among other things, damages in an unspecified amount and reimbursement of plaintiffs’ reasonable costs and
expenses. The complaint alleges (a) that defendants violated Section 10(b) of the Exchange Act and Rule 10b-5
promulgated thereunder, by making material misstatements or failing to state material facts about Old Loral’s
financial condition relating to the restatement in 2003 of the financial statements for the second and third quarters of
2002 to correct accounting for certain general and administrative expenses and the alleged improper accounting for a
satellite transaction with APT Satellite Company Ltd. and (b) that each of the defendants is secondarily liable for
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 129
Site: BOWNE OF NEW YORK
[A/E]
CRC: 12935
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
129.00.00.00
*Y31806/129/5*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
9/5
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
these alleged misstatements and omissions under Section 20(a) of the Exchange Act as an alleged “controlling
person” of Old Loral. The class of plaintiffs on whose behalf the lawsuit has been asserted consists of all buyers of
Old Loral common stock during the period from July 31, 2002 through June 29, 2003, excluding the defendants and
certain persons related to or affiliated with them. In October 2004, a motion to dismiss the complaint in its entirety
was denied by the court. The defendants filed an answer to the complaint in December 2004. In January 2006, the
case was stayed, and after a status conference in March 2007, the stay was lifted and discovery is proceeding. Since
this case was not brought against Old Loral, but only against certain of its officers, we believe, although no assurance
can be given, that to the extent that any award is ultimately granted to the plaintiffs in this action, the liability of New
Loral, if any, with respect thereto is limited solely to the D&O Claims as described above under “Indemnification
Claims.”
Class Action ERISA Litigation
In April 2004, two separate purported class action lawsuits filed in the United States District Court for the
Southern District of New York by former employees of Old Loral and participants in the Old Loral Savings Plan (the
“Savings Plan”) were consolidated into one action titled In re: Loral Space ERISA Litigation. In July 2004, plaintiffs
in the consolidated action filed an amended consolidated complaint against the members of the Loral Space &
Communications Ltd. Savings Plan Administrative Committee and certain existing and former members of the Board
of Directors of SS/L, including Bernard L. Schwartz. The amended complaint seeks, among other things, damages in
the amount of any losses suffered by the Savings Plan to be allocated among the participants’ individual accounts in
proportion to the accounts’ losses, an order compelling defendants to make good to the Savings Plan all losses to the
Savings Plan resulting from defendants’ alleged breaches of their fiduciary duties and reimbursement of costs and
attorneys’ fees. The amended complaint alleges (a) that defendants violated Section 404 of the Employee Retirement
Income Security Act (“ERISA”), by breaching their fiduciary duties to prudently and loyally manage the assets of the
Savings Plan by including Old Loral common stock as an investment alternative and by providing matching
contributions under the Savings Plan in Old Loral stock, (b) that the director defendants violated Section 404 of
ERISA by breaching their fiduciary duties to monitor the committee defendants and to provide them with accurate
information, (c) that defendants violated Sections 404 and 405 of ERISA by failing to provide complete and accurate
information to Savings Plan participants and beneficiaries, and (d) that defendants violated Sections 404 and 405 of
ERISA by breaching their fiduciary duties to avoid conflicts of interest. The class of plaintiffs on whose behalf the
lawsuit has been asserted consists of all participants in or beneficiaries of the Savings Plan at any time between
November 4, 1999 and the present and whose accounts included investments in Old Loral stock. In September 2005,
the plaintiffs agreed in principle to settle this case for $7.5 million payable solely from proceeds of insurance
coverage and without recourse to the individual defendants. The District Court has suspended further proceedings in
this case pending the outcome of the insurance litigation referred to below and final approval of the settlement.
Plaintiffs have also filed a proof of claim against Old Loral with respect to this case and have agreed that in no event
will their claim against Old Loral with respect to this case exceed $22 million. If the settlement of this case does not,
for whatever reason, go forward and plaintiffs’ claim ultimately becomes an allowed claim under the Plan of
Reorganization, plaintiffs would be entitled to a distribution under the Plan of Reorganization of New Loral common
stock based upon the amount of the allowed claim. Any such distribution of stock would be in addition to the
20 million shares of New Loral common stock being distributed under the Plan of Reorganization to other creditors.
Instead of issuing such additional shares, New Loral may elect to satisfy any allowed claim in cash in an amount
equal to the number of shares to which plaintiffs would have been entitled multiplied by $27.75 or in a combination
of additional shares and cash.
In addition, two insurers under Old Loral’s directors and officers liability insurance policies have denied
coverage with respect to the case titled In re: Loral Space ERISA Litigation, each claiming that coverage should be
provided under the other’s policy. In December 2004, one of the defendants in that case filed a lawsuit in the United
States District Court for the Southern District of New York seeking a declaratory judgment as to his right to receive
coverage under the policies. In March 2005, the insurers filed answers to the complaint and one of the insurers filed
F-55
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 130
Site: BOWNE OF NEW YORK
[A/E]
CRC: 58549
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
130.00.00.00
*Y31806/130/5*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
8/5
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
a cross claim against the other insurer which such insurer answered in April 2005. In August and October 2005, each
of the two potentially responsible insurers moved separately for judgment on the pleadings, seeking a court ruling
absolving it of liability to provide coverage of the ERISA action. In March 2006, the court granted the motion of one
of the insurers and denied the motion of the other insurer. Discovery with regard to defenses to coverage asserted by
the potentially responsible insurer has ended, and the defendant insurer has moved for summary judgment, which
motion is fully briefed and pending before the court. We believe, although no assurance can be given, that the
liability of New Loral, if any, with respect to the In re: Loral Space ERISA Litigation case or with respect to the
related insurance coverage litigation is limited solely to claims for indemnification against Old Loral by the
defendants as described above under “Indemnification Claims” and, to the extent that any award is ultimately granted
to the plaintiffs in this action, to distributions under the Plan of Reorganization as described above.
Globalstar Related Class Action Securities Litigations
On September 26, 2001, the nineteen separate purported class action lawsuits filed in the United States District
Court for the Southern District of New York by various holders of securities of Globalstar Telecommunications
Limited (“GTL”) and Globalstar, L.P. (“Globalstar”) against GTL, Old Loral, Bernard L. Schwartz and other
defendants were consolidated into one action titled In re: Globalstar Securities Litigation. In November 2001,
plaintiffs in the consolidated action filed a consolidated amended class action complaint against Globalstar, GTL,
Globalstar Capital Corporation, Old Loral and Bernard L. Schwartz seeking, among other things, damages in an
unspecified amount and reimbursement of plaintiffs’ costs and expenses. The complaints alleged (a) that all
defendants (except Old Loral) violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder,
by making material misstatements or failing to state material facts about Globalstar’s business and prospects, (b) that
defendants Old Loral and Mr. Schwartz are secondarily liable for these alleged misstatements and omissions under
Section 20(a) of the Exchange Act as alleged “controlling persons” of Globalstar, (c) that defendants GTL and
Mr. Schwartz are liable under Section 11 of the Securities Act of 1933 (the “Securities Act”) for untrue statements of
material facts in or omissions of material facts from a registration statement relating to the sale of shares of GTL
common stock in January 2000, (d) that defendant GTL is liable under Section 12(2)(a) of the Securities Act for
untrue statements of material facts in or omissions of material facts from a prospectus and prospectus supplement
relating to the sale of shares of GTL common stock in January 2000, and (e) that defendants Old Loral and
Mr. Schwartz are secondarily liable under Section 15 of the Securities Act for GTL’s primary violations of
Sections 11 and 12(2)(a) of the Securities Act as alleged “controlling persons” of GTL. The class of plaintiffs on
whose behalf the lawsuit has been asserted consists of all buyers of securities of Globalstar, Globalstar Capital and
GTL during the period from December 6, 1999 through October 27, 2000, excluding the defendants and certain
persons related to or affiliated with them. This case was preliminarily settled by Mr. Schwartz in July 2005 for
$20 million with final approval of the settlement in December 2005. In September 2006, two objectors to the
settlement who had filed appeals concerning the attorneys’ fees awarded to the plaintiffs withdrew their appeals with
prejudice. Mr. Schwartz has commenced a lawsuit against Globalstar’s directors and officers liability insurers
seeking to recover the full settlement amount plus legal fees and expenses incurred in enforcing his rights under
Globalstar’s directors and officers liability insurance policy. In January 2007, two of the four insurers settled with
Mr. Schwartz and paid him the remaining limits under their policies and, after a jury trial, the jury returned a verdict
against the other two insurers in favor of Mr. Schwartz awarding him the remaining $9.1 million balance of his
claim. The insurers have moved to set aside, and may also appeal, the verdict. In addition, Mr. Schwartz has filed a
proof of claim against Old Loral asserting a general unsecured prepetition claim for, among other things,
indemnification relating to this case. Mr. Schwartz and Old Loral have agreed that in no event will his claim against
Old Loral with respect to the settlement of this case exceed $25 million. If Mr. Schwartz’s claim ultimately becomes
an allowed claim under the Plan of Reorganization and assuming he is not reimbursed by Globalstar’s insurers,
Mr. Schwartz would be entitled to a distribution under the Plan of Reorganization of New Loral common stock based
upon the amount of the allowed claim. Any such distribution of stock would be in addition to the 20 million shares of
New Loral common stock distributed under the Plan of Reorganization to other creditors. Instead of issuing such
additional shares, New Loral may elect to satisfy any allowed claim in cash in an amount
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 131
Site: BOWNE OF NEW YORK
[A/E]
CRC: 21908
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
131.00.00.00
*Y31806/131/5*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
9/5
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
equal to the number of shares to which plaintiffs would have been entitled multiplied by $27.75 or in a combination
of additional shares and cash. We believe, although no assurance can be given, that New Loral will not incur any
material loss as a result of this settlement.
On March 2, 2002, the seven separate purported class action lawsuits filed in the United States District Court for
the Southern District of New York by various holders of Old Loral common stock against Old Loral, Bernard L.
Schwartz and Richard J. Townsend were consolidated into one action titled In re: Loral Space & Communications
Ltd. Securities Litigation. On May 6, 2002, plaintiffs in the consolidated action filed a consolidated amended class
action complaint seeking, among other things, damages in an unspecified amount and reimbursement of plaintiffs’
costs and expenses. The complaint alleged (a) that all defendants violated Section 10(b) of the Exchange Act and
Rule 10b-5 promulgated thereunder, by making material misstatements or failing to state material facts about Old
Loral’s financial condition and its investment in Globalstar and (b) that Mr. Schwartz is secondarily liable for these
alleged misstatements and omissions under Section 20(a) of the Exchange Act as an alleged “controlling person” of
Old Loral. The class of plaintiffs on whose behalf the lawsuit has been asserted consists of all buyers of Old Loral
common stock during the period from November 4, 1999 through February 1, 2001, excluding the defendants and
certain persons related to or affiliated with them. After oral argument on a motion to dismiss filed by Old Loral and
Messrs. Schwartz and Townsend, in June 2003, the plaintiffs filed an amended complaint alleging essentially the
same claims as in the original amended complaint. In February 2004, a motion to dismiss the amended complaint was
granted by the court insofar as Messrs. Schwartz and Townsend are concerned. Pursuant to the Plan of
Reorganization, plaintiffs received no distribution with respect to their claims in this lawsuit.
In addition, the primary insurer under the directors and officers liability insurance policy of Old Loral has denied
coverage under the policy for the In re: Loral Space & Communications Ltd. Securities Litigation case and, on
March 24, 2003, filed a lawsuit in the Supreme Court of New York County seeking a declaratory judgment
upholding its coverage position. In May 2003, Old Loral and the other defendants served an answer and filed
counterclaims seeking a declaration that the insurer is obligated to provide coverage and damages for breach of
contract and the implied covenant of good faith. In May 2003, Old Loral and the other defendants also filed a third
party complaint against the excess insurers seeking a declaration that they are obligated to provide coverage. In April
2006, the primary insurer suggested that it may wish to reactivate this litigation, in which case, we would object to
any attempt to do so. We believe that the insurers have wrongfully denied coverage and, although no assurance can
be given, that the liability of New Loral, if any, with respect to the In re: Loral Space & Communications Ltd.
Securities Litigation case or with respect to the related insurance coverage litigation is limited solely to claims for
indemnification against Old Loral by the defendants as described above under “Indemnification Claims.”
Reorganization Matters
In connection with our Plan of Reorganization, certain claims have been filed against Old Loral and its Debtor
Subsidiaries, the validity or amount of which we dispute. We are in the process of resolving these disputed claims,
which may involve litigation in the Bankruptcy Court. To the extent any disputed claims become allowed claims, the
claimants would be entitled to distributions under the Plan of Reorganization based upon the amount of the allowed
claim, payable either in cash for claims against SS/L or Loral SpaceCom or in New Loral common stock for all other
claims. We have accrued only the amount we believe is valid for disputed claims payable in cash, although there can
be no assurance that this amount will be sufficient to cover all such claims that ultimately become allowed claims.
The remaining claims from the Plan of Reorganization payable in cash and the expenses associated with completing
the reorganization activity aggregate approximately $3 million at December 31, 2006. As of December 31, 2006 and
March 31, 2007, we reserved approximately 158,000 and 107,000, respectively, of the 20 million shares of New
Loral common stock distributable under the Plan of Reorganization for disputed claims that may ultimately be
payable in common stock. To the extent that disputed claims do not become allowed claims, shares held in reserve on
account of such claims will be distributed pursuant to the Plan of Reorganization pro rata to claimants with allowed
claims.
F-57
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 132
Site: BOWNE OF NEW YORK
[A/E]
CRC: 30781
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
132.00.00.00
*Y31806/132/5*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
10/5
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Confirmation of our Plan of Reorganization was opposed by the Official Committee of Equity Security Holders
(the “Equity Committee”) appointed in the Chapter 11 Cases and by the self-styled Loral Stockholders Protective
Committee (“LSPC”). Shortly before the hearing to consider confirmation of the Plan of Reorganization, the Equity
Committee also filed a motion seeking authority to prosecute an action on behalf of the estates of Old Loral and its
Debtor Subsidiaries seeking to unwind as fraudulent, a guarantee provided by Old Loral in 2001, of certain
indebtedness of Loral Orion, Inc. (the “Motion to Prosecute”). By separate Orders dated August 1, 2005, the
Bankruptcy Court confirmed the Plan of Reorganization (the “Confirmation Order”) and denied the Motion to
Prosecute (the “Denial Order”). On or about August 10, 2005, the LSPC appealed (the “Confirmation Appeal”) to the
United States District Court for the Southern District of New York (the “District Court”) the Confirmation Order and
the Denial Order. On February 3, 2006, we filed with the District Court a motion to dismiss the Confirmation
Appeal. On May 26, 2006, the District Court granted our motion to dismiss the Confirmation Appeal. The LSPC
subsequently filed a motion for reconsideration of such dismissal, which the District Court denied on June 14, 2006
(the “Reconsideration Order”). On or about July 12, 2006, a person purportedly affiliated with the LSPC appealed the
dismissal of the Confirmation Appeal and the Reconsideration Order to the United States Court of Appeals for the
Second Circuit. (the “Second Circuit Confirmation Appeal”). The Second Circuit Confirmation Appeal is currently
fully briefed and awaiting decision by the Court of Appeals.
During the course of Old Loral’s Chapter 11 Cases, the LSPC appealed to the United States District Court the
denial by the Bankruptcy Court of a number of motions seeking, among other things, an order compelling Old Loral
to hold an annual meeting of shareholders, revocation of the Confirmation Order, orders relating to fees and expenses
of professionals paid by the Debtors in the Chapter 11 Cases and an order providing for reimbursement from the
Debtors’ estates of certain fees and expenses incurred by the LSPC in connection with the Chapter 11 Cases. Old
Loral filed with the Bankruptcy Court a request for sanctions against the LSPC, seeking reimbursement for any and
all costs incurred by the Company in responding to actions taken by the LSPC in violation of a stipulation entered
into with the LSPC. At a hearing before the Bankruptcy Court on October 24, 2006, the LSPC agreed to withdraw
with prejudice all of its pending appeals against the Company, and the Company agreed to withdraw with prejudice
its request for sanctions. The LSPC and the Company have signed a stipulation, agreement and order to reflect these
agreements, which was approved by the Bankruptcy Court at a hearing held on October 24, 2006.
The Official Committee of Unsecured Creditors in the Chapter 11 Cases of Old Loral objected to a portion of
the fees paid by Old Loral to its financial advisor in the Chapter 11 Cases, Greenhill & Co., LLC (“Greenhill”),
claiming, among other things, that, under its engagement letter with Old Loral, Greenhill was not entitled to a
transaction fee as a result of the sale of Old Loral’s North American satellite fleet to Intelsat in March 2004 (the
“Intelsat Sale”). On July 21, 2006, the Bankruptcy Court entered an order (the “Greenhill Order”) in which it ruled
that Greenhill was not entitled to a transaction fee as a result of the Intelsat Sale, and, accordingly, that Greenhill was
obligated to return to the Company $4.6 million, subject to adjustment based on the outcome of certain remaining
issues in the matter. In October 2006, the Creditors’ Committee and Greenhill agreed to a settlement of their dispute
pursuant to which Greenhill returned to the Company $3.3 million. The Company recorded a reduction of selling,
general and administrative expenses related to this refund during the fourth quarter of 2006.
In November 2005, a shareholder of Old Loral on behalf of the LSPC filed with the FCC a petition for
reconsideration of the FCC’s approval of the transfer of our FCC licenses from Old Loral to reorganized Loral in
connection with the implementation of our Plan of Reorganization and a request for investigation by the FCC into the
financial matters and actions of the Company (the “FCC Appeal”). In December 2005, we filed with the FCC our
opposition to the FCC Appeal.
Other and Routine Litigation
We are subject to various other legal proceedings and claims, either asserted or unasserted, that arise in the
ordinary course of business. Although the outcome of these legal proceedings and claims cannot be predicted with
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 133
Site: BOWNE OF NEW YORK
[A/E]
CRC: 43103
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
133.00.00.00
*Y31806/133/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
7/4
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
certainty, we do not believe that any of these other existing legal matters will have a material adverse effect on our
consolidated financial position or our results of operations.
20. Segments
We are organized into two operating segments: Satellite Manufacturing and Satellite Services (see Note 1
regarding our operating segments). We use Adjusted EBITDA to evaluate operating performance of our segments, to
allocate resources and capital to such segments, to measure performance for incentive compensation programs, and
to evaluate future growth opportunities.
The common definition of EBITDA is “Earnings Before Interest, Taxes, Depreciation and Amortization”. In
evaluating financial performance, we use revenues and operating income (loss) before depreciation and amortization
(including amortization of stock based compensation), and reorganization expenses due to bankruptcy (“Adjusted
EBITDA”) as the measure of a segment’s profit or loss. Adjusted EBITDA is equivalent to the common definition of
EBITDA before: reorganization expenses due to bankruptcy; gain on discharge of pre-petition obligations and fresh-
start adjustments; gain (loss) on investments; other income (expense); equity in net income (losses) of affiliates; and
minority interest, net of tax.
Adjusted EBITDA allows us and investors to compare our operating results with that of competitors exclusive of
depreciation and amortization, interest and investment income, interest expense, reorganization expenses due to
bankruptcy, other income (expense), net losses of affiliates and minority interest. Financial results of competitors in
our industry have significant variations that can result from timing of capital expenditures, the amount of intangible
assets recorded, the differences in assets’ lives, the timing and amount of investments, the effects of other income
(expense), which are typically for non-recurring transactions not related to the on-going business, and effects of
investments not directly managed. The use of Adjusted EBITDA allows us and investors to compare operating
results exclusive of these items. Competitors in our industry have significantly different capital structures. The use of
Adjusted EBITDA maintains comparability of performance by excluding interest expense. In addition, during
Chapter 11, we only recognized interest expense on the actual interest payments we made. During this period, we did
not make any further interest payments on our debt obligations after March 17, 2004, the date we repaid our secured
bank debt. Reorganization expenses due to bankruptcy were only incurred during the period we were in Chapter 11.
These expenses have been excluded from Adjusted EBITDA to maintain comparability with our results during
periods we were not in Chapter 11 and with the results of competitors using similar measures.
We believe the use of Adjusted EBITDA along with U.S. GAAP financial measures enhances the understanding
of our operating results and is useful to us and investors in comparing performance with competitors, estimating
enterprise value and making investment decisions. Adjusted EBITDA as used here may not be comparable to
similarly titled measures reported by competitors. Adjusted EBITDA should be used in conjunction with U.S. GAAP
financial measures and is not presented as an alternative to cash flow from operations as a measure of our liquidity or
as an alternative to net income as an indicator of our operating performance.
F-59
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 134
Site: BOWNE OF NEW YORK
[A/E]
CRC: 242
EDGAR 2
Phone: (212)924-5500
BNY
134.00.00.00
*Y31806/134/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
9/4
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Intersegment revenues primarily consists of satellites under construction by Satellite Manufacturing for Satellite
Services and the leasing of transponder capacity by Satellite Manufacturing from Satellite Services. Summarized
financial information concerning the reportable segments is as follows (in millions):
2006 Segment Information
Successor Registrant
Revenues and Adjusted EBITDA:
Revenues(2)
Intersegment revenues
Operating segment revenues
Eliminations(3)
Revenues as reported
Segment Adjusted EBITDA before eliminations(4)(5)
Eliminations(3)
Adjusted EBITDA
Depreciation and amortization(6)(7)
Operating income from continuing operations
Interest and investment income
Interest expense
Other expense
Income tax provision
Equity loss in affiliates
Minority interest
Loss from continuing operations
Other Data:
Depreciation and amortization(6)(7)
Capital expenditures(7)
Total assets(7)
Satellite
Satellite
Manufacturing Services Corporate(1)
Total
$
$
59.9
636.6 $ 160.7
3.1
696.5 $ 163.8
$
65.9 $ 68.0 $
$ 797.3
63.0
860.3
(63.0 )
$ 797.3
(26.8 ) $ 107.1
(6.0 )
101.1
(71.3 )
29.8
31.5
(23.4 )
(7.8 )
(20.8 )
(7.2 )
(24.8 )
(22.7 )
$
$
$
$
23.3 $ 45.9 $
18.4 $ 63.7 $
944.6 $ 750.4 $
2.1 $
0.1 $
71.3
82.2
34.9 $ 1,729.9
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 135
Site: BOWNE OF NEW YORK
[A/E]
CRC: 49955
EDGAR 2
Phone: (212)924-5500
BNY
135.00.00.00
*Y31806/135/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
6/4
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
October 2, 2005 through December 31, 2005
2005 Segment Information
Revenues and Adjusted EBITDA:
Revenues(2)
Intersegment revenues
Operating segment revenues
Eliminations(3)
Revenues as reported
Segment Adjusted EBITDA before eliminations(4)(5)
Eliminations(3)
Adjusted EBITDA
Depreciation and amortization(6)(7)
Operating loss from continuing operations
Interest and investment income
Interest expense
Other expense
Income tax provision
Equity loss in affiliates
Minority interest
Loss from continuing operations
Other Data:
Depreciation and amortization(6)(7)
Capital expenditures(7)
Total assets(7)
Satellite
Satellite
Manufacturing Services Corporate(1)
Total
$
$
161.0 $ 36.1
0.9
161.8 $ 37.0
0.8
$ 197.1
1.7
198.8
(1.6 )
$ 197.2
$
11.8 $ 11.5 $
(11.0 ) $
$
12.3
(1.2 )
11.1
(16.0 )
(4.9 )
4.1
(4.4 )
(0.2 )
(1.8 )
(5.4 )
(2.7 )
(15.3 )
$
$
$
3.2 $ 12.4 $
3.0 $ 2.0 $
871.5 $ 741.4 $
0.4
— $
16.0
5.0
66.1 $ 1,679.0
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 136
Site: BOWNE OF NEW YORK
[A/E]
CRC: 59516
EDGAR 2
Phone: (212)924-5500
BNY
136.00.00.00
*Y31806/136/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
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Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Predecessor Registrant
January 1, 2005 through October 1, 2005
Revenues and Adjusted EBITDA:
Revenues(2)
Intersegment revenues
Operating segment revenues
Eliminations(3)
Revenues as reported
Segment Adjusted EBITDA before eliminations(4)(5)
Eliminations(3)
Adjusted EBITDA
Depreciation and amortization(6)(7)
Reorganization expenses due to bankruptcy
Operating loss from continuing operations
Gain on discharge of pre-petition obligations and fresh-start
Satellite
Satellite
Manufacturing Services Corporate(1)
Total
$
$
10.9
318.6 $ 111.3
3.2
329.5 $ 114.5
$ 429.9
14.1
444.0
(14.8 )
$ 429.2
$
15.2 $ 39.8 $
(17.3 ) $
37.7
(12.3 )
25.4
(61.3 )
(31.2 )
(67.1 )
adjustments(8)
Interest and investment income
Interest expense(8)
Other expense
Income tax benefit(8)
Equity loss in affiliates
Minority interest
Income from continuing operations
Other Data:
Depreciation and amortization(6)(7)
Capital expenditures(7)
Total assets(7)
1,101.5
6.4
(17.2 )
(0.9 )
10.9
(2.8 )
0.1
$ 1,030.9
$
$
$
11.9 $ 48.8 $
2.4 $ 2.2 $
510.7 $ 521.5 $
0.6 $
— $
61.3
4.6
68.8 $ 1,101.0
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 137
Site: BOWNE OF NEW YORK
[A/E]
CRC: 40483
EDGAR 2
Phone: (212)924-5500
BNY
137.00.00.00
*Y31806/137/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
6/4
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2004 Segment Information
Satellite
Satellite
Manufacturing Services Corporate(1)
Total
Revenues and Adjusted EBITDA:
Revenues(2)
Revenues from sales-type lease arrangement
Intersegment revenues
Operating segment revenues
Eliminations(3)
Revenues as reported
Segment Adjusted EBITDA before eliminations(4)(5)
Eliminations(3)
Adjusted EBITDA
Depreciation and amortization(6)(7)
Reorganization expenses due to bankruptcy
Operating loss from continuing operations
Interest and investment income
Interest expense
Other expense
Income tax provision
Equity income in affiliates
Minority interest
Loss from continuing operations
Other Data:
Depreciation and amortization(6)(7)
Capital expenditures(7)
Total assets(7)
$
$
299.6 $ 136.7
87.2
137.0
4.5
436.6 $ 228.4
$
(13.5 ) $ 23.3 $
(34.9 ) $
$ 436.3
87.2
141.5
665.0
(142.9 )
$ 522.1
(25.1 )
(24.0 )
(49.1 )
(134.8 )
(30.4 )
(214.3 )
9.9
(2.9 )
(0.5 )
(13.3 )
46.7
0.1
$ (174.3 )
$
$
$
22.9 $ 111.3 $
1.8 $ 22.8 $
382.2 $ 780.8 $
0.6 $ 134.8
24.8
0.2 $
55.7 $ 1,218.7
(1) Represents corporate expenses incurred in support of our operations and for the year ended December 31, 2006 and the period October 2,
2005 to December 31, 2005 includes $1.2 million and $3.9 million, respectively, of continuing expenses for bankruptcy related matters,
which after the adoption of fresh-start accounting are classified as corporate general and administrative expenses.
(2) Includes revenues from affiliates of $11.3 million in 2006, $4.1 million for the period October 2, 2005 to December 31, 2005,
$10.0 million for the period January 1, 2005 to October 1, 2005 and $7.8 million in 2004, respectively.
(3) Represents the elimination of intercompany sales and intercompany Adjusted EBITDA, primarily for satellites under construction by SS/L
for wholly owned subsidiaries.
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 138
Site: BOWNE OF NEW YORK
[A/E]
CRC: 41819
EDGAR 2
Phone: (212)924-5500
BNY
138.00.00.00
*Y31806/138/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
8/4
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(4) Satellite manufacturing includes:
Adjusted EBITDA before specific identified charges
Transponders rights provided to SS/L in the Satmex Settlement
Agreement
Accrued warranty obligations
Write-off of long-term receivables due to contract modifications
Provisions for inventory obsolescence
Satellite manufacturing segment Adjusted EBITDA before eliminations
$
Successor Registrant
Predecessor Registrant
For the Period For the Period
October 2,
January 1,
Year Ended
December 31, December 31,
2005 to
2005 to
October 1,
2006
2005
2005
Year Ended
December 31,
2004
$
56.8 $
20.5 $
27.4 $
10.8
19.0
(8.2 )
—
(1.7 )
65.9 $
—
(7.2 )
—
(1.5 )
11.8 $
—
(10.1 )
—
(2.1 )
15.2 $
—
(9.7 )
(11.3 )
(3.3 )
(13.5 )
Satellite manufacturing excludes charges of $24 million for the year ended December 31, 2004, as a result of the settlement of all orbital
receivables on satellites sold to Intelsat. This settlement had the effect of reducing future orbital receipts by $25 million, including $15 million
relating to a satellite that was under construction in 2004. Consistent with our internal reporting for satellite manufacturing, this decrease in
contract value for the satellite that was under construction in 2004 was not being reflected as a decrease in satellite manufacturing revenues.
These charges had no effect on our consolidated results in 2004.
(5) Satellite Services Revenue and EBITDA include $14.9 million resulting from receipt of a customer termination payment for the year ended
December 31, 2006. Satellite Services recognized for the year ended December 31, 2004, $7.7 million of EBITDA for a sales-type lease
arrangement for satellite capacity and an impairment charge of $12.0 million relating to our Telstar 14/Estrela do Sul-1 satellite and related
assets to reduce the carrying values to the expected proceeds from insurance.
(6) Includes additional depreciation expense of $9 million for 2004, due to accelerating the estimated life of our Telstar 11 satellite from
March 2005 to June 2004. Also, includes stock compensation charges.
(7) Amounts are presented after the elimination of intercompany profit and include $217.5 million, $88.2 million and zero goodwill for
Satellite Manufacturing, Satellite Services and Corporate, respectively, as of December 31, 2006.
(8) In connection with our emergence from Chapter 11 and our adoption of fresh-start accounting on October 1, 2005 we recognized a gain on
discharge of pre-petition obligations and fresh-start adjustments of $1.101 billion, related interest expense of $13.2 million and a tax
benefit of $15.4 million (see Note 4).
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 139
Site: BOWNE OF NEW YORK
[A/E]
CRC: 60105
EDGAR 2
Phone: (212)924-5500
BNY
139.00.00.00
*Y31806/139/5*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
7/5
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Revenue by Customer Location
The following table presents our revenues by country based on customer location for the year ended
December 31, 2006, for the periods from October 2, 2005 to December 31, 2005 and January 1, 2005 to October 1,
2005, and for the year ended December 31, 2004 (in thousands).
Successor Registrant
Predecessor Registrant
Year Ended
December 31,
2006
United States
Japan
Thailand
Spain
Mexico
People’s Republic of China
(including Hong Kong)(1)
Other
$ 691,986 $
6,758
997
5,682
7,735
26,607
57,568
$ 797,333 $
For the Period
October 2,
2005 to
For the Period
January 1,
2005 to
December 31,
October 1,
2005
170,103 $
4,193
2,711
3,418
1,327
Year Ended
December 31,
2004
2005
350,622 $ 303,258
47,641
20,378
5,292
1,693
13,486
6,010
7,483
7,122
2,411
13,002
197,165 $
4,498
39,962
97,628
46,237
429,183 $ 522,127
(1) The 2004 amount includes $87 million for a sales-type lease arrangement for satellite capacity.
During 2006, four of our customers accounted for approximately 17%, 15%, 11% and 11% of our consolidated
revenues. During 2005, four of our customers accounted for approximately 13%, 13%, 11% and 10% of our
consolidated revenues. During 2004, two of our customers accounted for approximately 26% and 17% of our
consolidated revenues. With the exception of our satellites in-orbit, our long-lived assets are primarily located in the
United States.
21. Related Party Transactions
MHR Fund Management LLC
On February 27, 2007, Loral completed the sale to affiliates of MHR Fund Management LLC (“MHR”) of
$300 million of 7.5% convertible perpetual preferred stock pursuant to an Amended and Restated Securities Purchase
Agreement with MHR, which was originally executed on October 17, 2006, and which was amended and restated on
February 27, 2007 (as so amended and restated, the “Securities Purchase Agreement”) (see Note 23).
Pursuant to the Plan of Reorganization, on November 21, 2005, Loral and Loral Skynet entered into a
registration rights agreement with funds affiliated with MHR. Pursuant to the Plan of Reorganization, each holder of
an Allowed Claim, as that term is used in the Plan of Reorganization, that receives a distribution pursuant to the plan
of ten percent (10%) or greater of any of (i) Loral common stock, (ii) Loral Skynet preferred stock or (iii) Loral
Skynet notes (collectively, the “Registrable Securities”) is entitled to receive certain registration rights under the
registration rights agreement (each such holder, and any future holder of such securities who becomes a party to the
registration rights agreement, a “Registration Rights Holder”). Pursuant to the registration rights agreement, in
addition to certain piggy-back registration rights granted to the Registration Rights Holders, certain Registration
Rights Holders may also demand, under certain circumstances, that the Registrable Securities be registered under the
Securities Act of 1933, as amended, in each case subject to the terms and conditions of the registration rights
agreement. On February 27, 2007, in connection with the $300 million preferred stock financing with MHR, this
registration rights agreement was amended to include as Registrable Securities the Loral preferred stock and the
equity securities issuable upon conversion thereof or in connection therewith.
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 140
Site: BOWNE OF NEW YORK
[A/E]
CRC: 9859
EDGAR 2
Phone: (212)924-5500
BNY
140.00.00.00
*Y31806/140/5*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
11/5
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Pursuant to the Plan of Reorganization, holders of certain claims at Loral Orion, Inc. were entitled to subscribe
for up to $120 million of Loral Skynet notes. MHR and P. Schoenfeld Asset Management LLC agreed to backstop
95% and 5%, respectively, of the rights offering, in consideration of a $6 million fee, paid in additional Loral Skynet
notes, as well as reimbursement of certain related costs and expenses. In connection with this backstop agreement,
MHR received $5.7 million principal amount of Loral Skynet notes for its backstop commitment.
Funds affiliated with MHR own preferred stock convertible currently into approximately 26% of the common
stock of Protostar Ltd. (“Protostar”) (13% after conversion of Protostar’s convertible notes) and have the right to
nominate two of nine directors to the Protostar’s board of directors. Protostar acquired the Chinasat 8 satellite from
China Telecommunications Broadcast Satellite Corporation and China National Postal and Telecommunications
Appliances Corporation under an agreement reached in 2006, and, pursuant to a contract with Protostar valued at
$24 million, SS/L is modifying the satellite to meet Protostar’s needs.
In connection with the $300 million preferred stock financing with MHR, we paid MHR a placement fee of
$6.75 million, paid a $1.5 million fee to MHR’s financial advisor and reimbursed fees and out pocket expenses
incurred by MHR’s legal counsel. We have also reimbursed fees and out-of-pocket expenses incurred by legal
counsel to MHR in connection with our reorganization.
Dr. Rachesky and Mr. Goldstein are co-founders and managing principals of MHR. Mr. Devabhaktuni is also a
managing principal of MHR. Dr. Rachesky, Mr. Goldstein and Mr. Devabhaktuni are directors of Loral.
Other Relationships
0
6
.
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3
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1
In the ordinary course of business, SS/L has entered into satellite construction contracts and Loral Skynet
Corporation as entered into telemetry, tracking and control agreements and transponder lease agreements with
affiliates of Echostar Communications Corporation, a corporation that owns more than 5% of our common stock.
In 2006, K&F Industries, Inc. (“K&F”), a subsidiary of K&F Industries Holdings, Inc., a company of which
Bernard L. Schwartz was Chairman of the Board, provided administrative and certain other services to us. Loral paid
K&F a fee based on the cost of such services plus out of pocket expenses. For the year ended December 31, 2006,
K&F billed us approximately $156,000. In 2005, we provided administrative and certain other services to K&F. K&F
paid us a fee based on the cost of such services plus out of pocket expenses. For the period October 2, 2005 to
December 31, 2005 and the period January 1, 2005 to October 1, 2005, we billed K&F $12,000 and $146,000,
respectively. In addition, K&F charged us $44,000 and $108,000 for the periods October 2, 2005 to December 31,
2005 and January 1, 2005 to October 1, 2005, respectively, for certain expenses and services.
During 2006, we paid BLS Group LLC and BLS Aviation, LLC (companies owned by Mr. Schwartz) and The
Air Group (a company commissioned by Mr. Schwartz to handle his corporate jet affairs) approximately $16,000,
$9,000 and $162,000, respectively, for our use of Mr. Schwartz’s corporate jet. Additionally, in 2006, Loral
reimbursed the BLS Group LLC $6,000. During 2005, we paid BLS Group LLC and The Air Group approximately
$14,000 and $2,000, respectively, for our use of Mr. Schwartz’s corporate jet.
Robert B. Hodes, a former director and member of our Compensation Committee until his resignation from the
Board of Directors on February 28, 2006, is counsel to the law firm of Willkie Farr & Gallagher LLP, which acts as
our counsel.
For the year ended December 31, 2005, we paid fees and disbursements in the amount of approximately $91,000
for corporate communications consultations and related services to Kekst & Company Incorporated, of which
company Gershon Kekst, is President and principal stockholder. Prior to November 21, 2005, Mr. Kekst was a
director of Old Loral.
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 141
Site: BOWNE OF NEW YORK
[A/E]
CRC: 65424
EDGAR 2
Phone: (212)924-5500
BNY
141.00.00.00
*Y31806/141/4*
Y31806
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Date: 15-MAR-2007 18:01:35.60
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Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
22. Selected Quarterly Financial Information (unaudited, in thousands, except per share amounts)
March 31,
June 30,
September 30, December 31,
Quarter Ended
Year ended December 31, 2006
Revenues
Operating income (loss)
Income (loss) before income taxes, equity in net losses and
minority interest
Minority interest(1)
Net income (loss)
Basic and diluted loss per share(2):
Income (loss) per share
$ 171,976 $ 192,883 $ 226,794 $ 205,680
18,988
17,566
(6,216 )
(520 )
(5,826 )
(6,000 )
(15,840 )
(1,088 )
(6,000 )
(11,395 )
16,472
(6,366 )
1,186
20,559
(6,428 )
3,329
(0.79 )
(0.57 )
0.06
0.16
Predecessor Registrant
Quarter Ended
Successor
Registrant
October 2 to
September 30, October 1, December 31,
March 31,
June 30,
Year ended December 31, 2005
Revenues
Operating loss from continuing operations
Minority interest(1)
Loss from continuing operations
Gain on discharge of pre-petition obligations
and fresh-start adjustments
Gain on sale of discontinued operations, net of
taxes
Net (loss) income
Basic and diluted (loss) earnings per share(1):
Continuing operations
Discontinued operations
(Loss) earnings per share
$ 132,378 $ 136,762 $ 160,043 $
(23,959)
—
(26,221)
(16,741 )
—
(18,776 )
(26,395 )
—
(27,800 )
— $ 197,165
(4,945 )
—
(2,667 )
—
(15,261 )
—
—
—
—
1,101,453
—
—
(26,221)
11,371
(7,405 )
2,596
(25,204 )
—
1,103,679
—
(15,261 )
(0.59 )
—
(0.59 )
(0.43 )
0.26
(0.17 )
(0.63 )
0.06
(0.57 )
25.02
—
25.02
(0.76 )
—
(0.76 )
(1) The Loral Skynet Preferred Stock is reflected as minority interest on our consolidated statement of operations.
(2) The quarterly earnings per share information is computed separately for each period. Therefore, the sum of such quarterly per share
amounts may differ from the total for the year.
23. Subsequent Event
On February 27, 2007, Loral completed a $300 million preferred stock financing pursuant to the Securities
Purchase Agreement entered into with MHR on October 17, 2006. Loral sold 136,526 shares of its 7.5% Series A-1
perpetual preferred stock (the “Series A-1 Preferred Stock”) and 858,486 shares of its 7.5% Series B-1 perpetual
preferred stock (the “Series B-1 Preferred Stock” and together with the Series A-1 Preferred Stock, the “Loral Series-
1 Preferred Stock”) at a purchase price of $301.504 per share to various funds affiliated with MHR. Each share of the
Series A-1 Preferred Stock is convertible, at the option of the holder, into ten shares of Loral common stock at an
initial conversion price of $30.1504 per share. Following shareholder approval of the creation of a new
F-67
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 142
Site: BOWNE OF NEW YORK
[A/E]
CRC: 59667
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
142.00.00.00
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Y31806
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Date: 15-MAR-2007 18:01:35.60
11/4
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
class of Class B-1 non-voting common stock, each share of the Series B-1 Preferred Stock will be convertible, at the
option of the holder, into ten shares of this Class B-1 non-voting common stock at an initial conversion price of
$30.1504 per share. Under certain circumstances, the Series B-1 Preferred Stock and the Class B-1 non-voting
common stock may also be converted by the holder into Loral common stock, in the case of the Series B-1 Preferred
Stock, at the same conversion price, and in the case of the Class B-1 non-voting common stock, on a share for share
basis. The initial conversion price reflects a premium of 12% to the closing price of Loral’s common stock on the day
before the Securities Purchase Agreement was entered into. Dividends on the Loral Series-1 Preferred Stock will be
paid in kind (i.e., in additional shares of Loral Series-1 Preferred Stock) through April 2011. Thereafter, if Loral
satisfies certain financial requirements, the dividends will be payable in cash or in kind at Loral’s option. Pursuant to
the terms of this financing, MHR has the right to nominate one additional member to the Loral board. Loral plans to
use the proceeds from this financing, together with its existing resources, to pursue both internal and external growth
opportunities in the satellite communications industry and strategic transactions or alliances, including completion of
the Telesat acquisition.
As a result of the difference between the fair market value of the common stock on the date the financing was
completed, as compared to the initial conversion price, the Company will reflect a beneficial conversion feature of
the Loral Series-1 Preferred Stock as a component of its earnings per share calculation for the quarter ended
March 31, 2007 for the Series A-1 Preferred Stock and for the Series B-1 Preferred Stock, in the period in which
shareholder approval of the creation of the new class of Class B-1 non-voting common stock is received. This
beneficial conversion feature, currently estimated to be a maximum of approximately $170 million in the aggregate
(assuming shareholder approval of the Class B-1 non-voting common stock is obtained and before any discount in
value for the Class B-1 non-voting common stock because of its non-voting status), will not be recorded as a charge
to net income, but will serve as a one-time reduction in the calculation of both the basic and diluted earnings per
share results. Accordingly, our basic and diluted earnings per share results will be reduced by approximately $8.60
per share for the beneficial conversion feature for such periods, in the aggregate. In the future, to the extent that
dividends on the Loral Series-1 Preferred Stock are paid in additional shares of Loral Series-1 Preferred Stock, we
will incur additional beneficial conversion features that would affect the basic and diluted earnings per share
calculations in a similar manner.
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 143
Site: BOWNE OF NEW YORK
[A/E]
CRC: 5833
EDGAR 2
Phone: (212)924-5500
BNY
143.00.00.00
*Y31806/143/5*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
10/5
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
CONDENSED BALANCE SHEETS
(In thousands)
SCHEDULE I
Current assets:
Cash and cash equivalents
Accounts receivable
Other current assets
Total current assets
Property, plant and equipment, net
Investments in and advances to subsidiaries
Other assets
Total assets
Current liabilities:
Accounts payable
Accrued employment costs
Other current liabilities
Total current liabilities
Pension and other postretirement liabilities
Long-term liabilities
Total liabilities
Shareholders’ equity:
Common stock
Paid-in capital
Accumulated deficit
Accumulated other comprehensive income
Total shareholders’ equity
Total liabilities and shareholders’ equity
December 31,
2006
2005
$ 16,696 $ 8,309
227
538
1,627
5,156
10,163
22,390
1,758
1,129
685,321
696,368
11,146
6,637
$ 731,033 $ 703,879
$
321 $ 5,555
5,551
17,550
28,656
15,529
32,530
76,715
6,515
23,736
30,572
14,561
38,898
84,031
200
200
642,210
644,708
(15,261 )
(37,981 )
15
40,075
647,002
627,164
$ 731,033 $ 703,879
See accompanying notes to condensed financial information of the parent company.
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 144
Site: BOWNE OF NEW YORK
[A/E]
CRC: 38807
EDGAR 2
Phone: (212)924-5500
BNY
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Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
7/4
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
CONDENSED STATEMENTS OF OPERATIONS
(in thousands)
Selling, general and administrative expenses
Income (loss) from continuing operations before
reorganization expenses due to bankruptcy
Reorganization expenses due to bankruptcy
Income (loss) from operations
Gain on discharge of pre-petition obligations and
fresh-start adjustments
Interest and investment income
Interest expense
Other expense
Income (loss) from operations before income taxes,
equity income (losses) in subsidiaries and affiliates
Income tax (provision) benefit
Income (loss) from operations before equity (losses)
Successor Parent
Predecessor Parent
Year Ended
December 31,
2006
For the Period
October 2,
2005 to
For the Period
January 1,
2005 to
December 31,
October 1,
2005
2005
Year Ended
December 31,
2004
$
(1,127 ) $
516 $
— $
4,279
1,127
—
1,127
—
24,800
—
—
(516 )
—
(516 )
—
(5,539 )
(5,539 )
(4,279 )
(3,885 )
(8,164 )
—
2,724
—
—
352,202
20
(389 )
(3 )
—
10
—
—
25,927
(14,767 )
2,208
(3,225 )
346,291
32,099
(8,154 )
(1,077 )
0
6
.
5
3
:
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1
income in subsidiaries and affiliates
Equity (loss) income in subsidiaries, net of taxes
Net (loss) income
11,160
(33,880 )
(22,720 ) $
(9,231 )
378,390
(1,017 )
(14,244 )
(167,464 )
666,459
(15,261 ) $ 1,044,849 $ (176,695 )
$
See accompanying notes to condensed financial information of the parent company.
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 145
Site: BOWNE OF NEW YORK
[A/E]
CRC: 17105
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
145.00.00.00
*Y31806/145/5*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
9/5
LORAL SPACE & COMMUNICATIONS INC.
SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
CONDENSED STATEMENTS OF CASH FLOW
(in thousands)
Operating activities:
Net (loss) income
Non-cash items:
Gain on discharge of pre-petition obligations and
fresh-start adjustments
Equity losses in subsidiaries
Deferred taxes
Depreciation and amortization
Stock option compensation
Due from (to) subsidiaries
Accounts receivable
Other current assets and other assets
Accounts payable
Accrued expenses and other current liabilities
Pension and other postretirement liabilities
Income taxes payable
Long-term liabilities
Merger of subsidiary into parent in connection with
Plan of Reorganization
Other
Net cash provided by (used in) operating activities
Investing activities:
Capital expenditures
Note receivable from subsidiary
Investments in and advances to subsidiaries
Investments in and advances to affiliates
Net cash (used in) provided by investing activities
Financing activities:
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents — beginning of period
Cash and cash equivalents — end of period
Successor Parent
Predecessor Parent
Year Ended
December 31,
2006
For the Period
October 2,
2005 to
For the Period
January 1,
2005 to
December 31,
October 1,
2005
2005
Year Ended
December 31,
2004
$
(22,720 ) $
(15,261 ) $ 1,044,849 $ (176,695 )
—
33,880
(1,427 )
758
1,374
25,321
(311 )
(6,588 )
(5,234 )
6,687
427
(291 )
6,368
—
272
38,516
(129 )
(30,000 )
—
—
(30,129 )
—
8,387
8,309
$
16,696 $
—
14,244
1,427
464
—
(19,902 )
(62 )
(53 )
(37 )
(9,667 )
(222 )
1,661
696
—
—
(26,712 )
(24 )
—
—
—
(24 )
(352,202 )
(666,459 )
(30,607 )
—
—
58
—
1,732
(1,536 )
1,418
—
(1,492 )
—
—
167,464
—
—
—
4,527
—
1,147
—
(476 )
—
—
1,077
34,012
—
29,773
—
—
—
3,747
3,747
—
—
(2,956 )
—
—
—
—
—
—
(26,736 )
35,045
8,309 $
—
33,520
1,525
35,045 $
—
(2,956 )
4,481
1,525
See accompanying notes to condensed financial information of the parent company
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 146
Site: BOWNE OF NEW YORK
[A/E]
CRC: 21296
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
146.00.00.00
*Y31806/146/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
8/3
LORAL SPACE & COMMUNICATIONS INC.
SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
NOTES TO CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
1. Basis of Presentation
Loral Space & Communications Inc. (“New Loral”) together with its subsidiaries is a leading satellite
communications company with substantial activities in satellite manufacturing and satellite-based communications
services. New Loral, a Delaware corporation, was formed on June 24, 2005, to succeed to the business conducted by
its predecessor registrant, Loral Space & Communications Ltd. (“Old Loral”), which emerged from chapter 11 of the
federal bankruptcy laws on November 21, 2005 (the “Effective Date”).
We adopted fresh start accounting as of October 1, 2005, in accordance with Statement of Position No. 90-7,
Financial Reporting of Entities in Reorganization Under the Bankruptcy Code (“SOP 90-7”). Accordingly, our
financial information disclosed under the heading “Successor Registrant” for the periods ended and as of
December 31, 2006 and 2005, respectively, is presented on a basis different from, and is therefore not comparable to,
our financial information disclosed under the heading “Predecessor Registrant” for the period ended and as of
October 1, 2005 (the date we adopted fresh-start accounting) or for prior periods.
The terms “Loral,” the “Company,” “we,” “our” and “us,” when used in this report with respect to the period
prior to our emergence, are references to Old Loral, and when used with respect to the period commencing after our
emergence, are references to New Loral. These references include the subsidiaries of Old Loral or New Loral, as the
case may be, unless otherwise indicated or the context otherwise requires.
Loral is a holding company which is the ultimate parent of all Loral subsidiaries and is the registrant of Loral’s
common stock. The accompanying condensed financial statements reflect the financial position, results of operations
and cash flows of Loral on a separate parent company basis. All subsidiaries of Loral are reflected as investments
accounted for under the equity method of accounting. Accordingly, intercompany payables and receivables have not
been eliminated.
Loral’s significant transactions with its subsidiaries other than the investment account and related equity in net
(loss) income of subsidiaries are the allocation of general corporate expenses to its subsidiaries and in the case of
New Loral include a management fee paid by certain of its subsidiaries.
No cash dividends were paid to Loral by its subsidiaries or its affiliates during 2006, the period October 2, 2005
to December 31, 2005, the period January 1, 2005 to October 1, 2005 and for the year ended December 31, 2004.
These condensed financial statements should be read in conjunction with Loral’s consolidated financial
statements and the accompanying notes thereto.
2. Guarantees and Contingencies
Loral has guaranteed performance obligations of Space Systems/Loral, Inc. (“SS/L”) under certain of SS/L’s
customer contracts.
Of the matters described under the heading Financial Matters in Note 19, Commitments and Contingencies, to
the consolidated financial statements, Loral has certain obligations to the U.S. Department of State pursuant to a
consent agreement.
Of the matters described under the heading Legal Proceedings in Note 19 to the consolidated financial
statements, Loral is a party to all of these contingencies with the exception of the litigation with Rainbow DBS
Holdings, Inc.
F-72
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 147
Site: BOWNE OF NEW YORK
[A/E]
CRC: 42169
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
147.00.00.00
*Y31806/147/5*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
9/5
SCHEDULE II
LORAL SPACE & COMMUNICATIONS INC.
VALUATION AND QUALIFYING ACCOUNTS
For the Year Ended December 31, 2006, 2005 and 2004
(in thousands)
Additions
Description
Predecessor Registrant:
Year ended 2004
Allowance for billed receivables
Allowance for long-term receivables
Total Receivables allowance
Inventory allowance
Deferred tax valuation allowance
January 1, 2005-October 1, 2005
Allowance for billed receivables
Inventory allowance
Deferred tax valuation allowance
Successor Registrant:
October 2, 2005-December 31, 2005
Allowance for billed receivables
Inventory allowance
Deferred tax valuation allowance
Year ended 2006
Allowance for billed receivables
Inventory allowance
Deferred tax valuation allowance
Balance at Charged to Charged to Deductions Balance at
Beginning Costs and Other
Expenses
of Year
Accounts(1) Reserves(2)
End of
Year
From
(13 ) $ (3,101 ) $ 6,445
$ 11,703 $
20,177
—
—
(13 ) $ (23,278 ) $ 6,445
$ 31,880 $
$ 41,736 $
— $ (11,060 ) $ 34,000
$ 670,922 $ 81,029 $ (5,014 ) $ (87,154 ) $ 659,783
(2,144 ) $
—
(2,144 ) $
3,324 $
(20,177 )
$ 6,445 $
$ 34,000 $
$ 659,783 $ (321,244 ) $ (1,615 ) $
942 $ 4,509
— $ (2,207 ) $ 33,920
— $ 336,924
(2,880 ) $
2,127 $
2 $
$ 4,509 $
$ 33,920 $
$ 336,924 $
953 $
1,525 $
422 $
— $
— $ 5,462
— $ (1,703 ) $ 33,742
— $ 337,346
— $
$ 5,462 $
$ 33,742 $
$ 337,346 $
(307 ) $
1,678 $
1 $ (3,532 ) $ 1,624
— $ (5,822 ) $ 29,598
— $ 3,905 $ (36,367 ) $ 304,884
(1) Allowance for long-term receivables recorded as a reduction to revenues. Deferred tax valuation allowance against Old Loral deferred tax
assets recorded to goodwill.
(2) Receivable allowance reflects write-offs of uncollectible accounts. Inventory allowance was primarily reduced as a result of disposals of
the related inventory. Reversal of excess deferred tax valuation allowance recorded as a reduction to goodwill.
F-73
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 148
Site: BOWNE OF NEW YORK
[A/E]
CRC: 17925
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
148.00.00.00
*Y31806/148/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
7/4
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Members of
XTAR, L.L.C.
600 Third Avenue
New York, NY 10016
We have audited the accompanying consolidated balance sheet of XTAR, L.L.C. and subsidiary (the
“Company”) as of December 31, 2006, and the related consolidated statements of operations, members’ equity, and
cash flows for the year then ended. These financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The Company is not required to have, nor were
we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2006, and the results of its operations and its cash flows for the year
then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
New York, NY
March 13, 2007
F-74
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 149
Site: BOWNE OF NEW YORK
[A/E]
CRC: 64725
EDGAR 2
Phone: (212)924-5500
BNY
149.00.00.00
*Y31806/149/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
8/4
Table of Contents
XTAR, L.L.C.
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
December 31, December 31,
2006
2005
(unaudited)
Current assets:
Cash
Accounts receivable, net
Other current assets
Total current assets
Property, plant and equipment, net (Note 5)
Other assets, net (Note 6)
Total assets
LIABILITIES AND MEMBERS’ EQUITY
Current liabilities:
Accounts payable
Accrued employment costs
Income taxes payable
Deferred revenue
Note payable (Note 7)
Customer advances
Payable to related parties (Note 9)
Total current liabilities
Term loan (Note 10)
Other long-term liabilities (Note 11)
Total liabilities
Members’ equity:
Loral Skynet
Hisdesat
Total members’ equity
Total liabilities and members’ equity
See notes to consolidated financial statements.
F-75
$
3,091 $
2,595
717
6,403
125,248
469
5,687
751
914
7,352
134,905
503
$ 132,120 $ 142,760
$
321 $
431
21
—
5,754
462
13,156
20,145
12,603
20,493
53,241
144
438
27
2,191
13,714
—
4,722
21,236
11,653
18,363
51,252
44,235
34,644
78,879
51,307
40,201
91,508
$ 132,120 $ 142,760
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 150
Site: BOWNE OF NEW YORK
[A/E]
CRC: 25079
EDGAR 2
Phone: (212)924-5500
BNY
150.00.00.00
*Y31806/150/5*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
9/5
Table of Contents
XTAR, L.L.C.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
Year Ended December 31,
2005
2004
2006
Revenues from satellite services
Related party revenues from satellite services
Cost of satellite services
Selling, general and administrative expenses
Operating loss
Interest and investment income
Interest expense
Other income (expense)
Loss before taxes
Income tax provision
Net loss
$ 8,416 $
6,918
20,735
3,232
(8,633 )
150
3,496
(134 )
(12,113 )
516
(unaudited) (unaudited)
—
—
898
1,488
(2,386 )
30
—
(2 )
(2,358 )
4
(2,362 )
2,870 $
6,573
11,674
3,194
(5,425 )
153
3,376
32
(8,616 )
986
(9,602 ) $
$ (12,629 ) $
See notes to consolidated financial statements.
F-76
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 151
Site: BOWNE OF NEW YORK
[A/E]
CRC: 36547
EDGAR 2
Phone: (212)924-5500
BNY
151.00.00.00
*Y31806/151/7*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
12/7
Table of Contents
XTAR, L.L.C.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
2005
2004
2006
Operating activities:
Net loss
Non-cash items:
Depreciation and amortization
Non-cash interest expense
Other — Accretion to launch consideration payable to Arianespace
Changes in operating assets and liabilities:
Accounts receivable and other current assets
Accounts payable and other current liabilities
Deferred revenue
Income taxes payable
Long-term liabilities
Payable to related parties
Net cash provided by (used in) operating activities
Investing activities:
Capital expenditures
Net cash used in investing activities
Financing activities:
Hisdesat term loan
Notes payable borrowings (repayments)
Equity contribution — Loral
Equity contribution — Hisdesat
Net cash provided by (used in) financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents — beginning of year
Cash and cash equivalents — end of year
(unaudited) (unaudited)
$ (12,629 ) $
(9,602 ) $
(2,362 )
9,693
1,950
1,525
(1,646 )
631
(2,191 )
(6 )
605
8,432
6,364
7,195
2,280
1,070
(1,378 )
(30 )
2,191
23
—
1,861
3,610
8
—
—
13
(180 )
—
3
—
535
(1,983 )
—
—
(19,548 )
(19,548 )
(6,971 )
(6,971 )
—
—
—
(8,960 )
10,787
(3,500 )
7,354
5,778
(8,960 ) 20,419
4,481
(2,596 )
1,206
5,687
5,687 $
$ 3,091 $
—
—
5,235
4,114
9,349
395
811
1,206
See notes to consolidated financial statements.
F-77
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 152
Site: BOWNE OF NEW YORK
[A/E]
CRC: 53252
EDGAR 2
Phone: (212)924-5500
BNY
152.00.00.00
*Y31806/152/8*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
10/8
Table of Contents
XTAR, L.L.C.
CONSOLIDATED STATEMENTS OF MEMBERS’ EQUITY
(In thousands)
Balance January 1, 2004 (unaudited)
Additional capital contributions
(unaudited)
Net loss (unaudited)
Balance December 31, 2004 (unaudited)
Additional capital contributions
(unaudited)
Net loss — for the period January 01,
2005 to November 21, 2005
(unaudited)
(Sale)/purchase of membership interests
(unaudited)
Net loss — for the period November 22,
2005 to December 31, 2005 (unaudited)
Balance December 31, 2005 (unaudited)
Net loss
Balance December 31, 2006
$
Loral Space &
Communications
Corporation
$
27,619 $
(758 )
26,861
Space Systems/ Loral International LLC Estrategicos, S.A. Total
Loral Skynet
Hisdesat Servicios
17,799
5,235
(565 )
22,469
7,354
$
35,573 $ 80,991
4,114 9,349
(1,039 ) (2,362 )
38,648 87,978
5,778 13,132
(2,327 )
(1,344 )
(2,885 ) (6,556 )
(24,534 )
(28,479 )
53,013
—
— $
—
— $
(1,706 )
51,307
(7,072 )
44,235 $
(1,340 ) (3,046 )
40,201 91,508
(5,557 ) (12,629 )
34,644 $ 78,879
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 153
Site: BOWNE OF NEW YORK
[A/E]
CRC: 9981
EDGAR 2
Phone: (212)924-5500
BNY
153.00.00.00
*Y31806/153/5*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
8/5
Table of Contents
XTAR, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, unless otherwise noted)
1. Organization and Principal Business
XTAR, L.L.C. (“XTAR” or the “Company”), is a joint venture between Loral Skynet International, LLC (“Loral
Skynet”), a wholly-owned subsidiary of Loral Space & Communications Inc. (“Loral”) and Hisdesat Servicios
Estrategicos, S.A. (“Hisdesat”), a consortium comprised of leading Spanish telecommunications companies,
including Hispasat, S.A., and agencies of the Spanish government. Loral Skynet owns 56% of XTAR and Hisdesat
owns 44%. Prior to Loral Skynet acquiring the 56% interest in November 2005, Loral’s other subsidiaries namely,
Space Systems/ Loral, Inc. (“SS/L”) and Loral Space and Communications Holdings Corporation held 30.5% and
25.5% interest in XTAR, respectively. XTAR was formed to provide satellite-based X-band communications
services to United States, Spanish and allied governments. XTAR operates in accordance with an operating
agreement dated July 12, 2001, as amended, which requires approval from both Loral and Hisdesat for significant
operating decisions.
XTAR successfully launched its XTAR-EUR satellite, which was constructed by SS/L, on February 12, 2005
and it commenced service in March 2005. XTAR also leases X-band transponders (marketed as XTAR-LANT) on
the Spainsat satellite, which was constructed by SS/L for Hisdesat. Spainsat was successfully launched on March 11,
2006 and commenced service in April 2006. The XTAR-EUR and XTAR-LANT satellites provide high-power
X-band communication services over a large portion of the earth, including North America west to Colorado Springs,
Colorado; South America, Europe, and the Middle East; Asia east to Singapore; and the Atlantic and Indian Oceans.
2. Basis of Presentation
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XTAR has a December 31 year-end. The financial statements for each of the three years in the period ended
December 31, 2006, have been prepared in accordance with U.S. generally accepted accounting principles
(“U.S. GAAP”).
The accompanying consolidated financial statements and related footnotes as of December 31, 2005 and 2004
and for the years then ended are unaudited. They have been prepared on a basis consistent with that used in preparing
the 2006 consolidated financial statements and footnotes thereto and, in the opinion of management, include all
adjustments (consisting of normal recurring accruals) necessary for a fair presentation of XTAR’s financial position,
results of operations and cash flows as of December 31, 2005 and 2004 and for the years then ended.
3. Summary of Significant Accounting Policies
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the amounts of revenues and expenses reported for the period.
Actual results could differ from estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of XTAR and its wholly owned subsidiary. All
intercompany transactions and balances have been eliminated.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and highly liquid investments with original maturities of three
months or less.
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 154
Site: BOWNE OF NEW YORK
[A/E]
CRC: 19706
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
154.00.00.00
*Y31806/154/5*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
8/5
XTAR, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in thousands, unless otherwise noted)
Property, Plant and Equipment
Property, plant and equipment are stated at historical cost. Depreciation is provided on the straight-line method
for the satellite and related equipment over the estimated useful lives of the related assets. Leasehold improvements
on transponders leased from Spainsat are being amortized over the life of the lease, which equates to the estimated
useful life of the underlying satellite asset. Below are the estimated useful lives of our property, plant and equipment
as of December 31, 2006:
Satellite-in-orbit
Earth stations
Equipment, furniture and fixtures
Leasehold improvement on Spainsat Transponders
Valuation of Satellite, Long-Lived Assets
Years
15
7-15
3
15
The carrying value of our satellite and long-lived assets is reviewed for impairment in accordance with
Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets (“SFAS 144”). We periodically evaluate potential impairment loss relating to our satellite and other long-lived
assets, when a change in circumstances occurs, by assessing whether the carrying amount of these assets can be
recovered over their remaining lives through future undiscounted expected cash flows generated by those assets
(excluding financing costs). If the expected undiscounted future cash flows were less than the carrying value of the
long-lived asset, an impairment charge would be recorded based on such asset’s estimated fair value. Changes in
estimates of future cash flows could result in a write-down of the asset in a future period. Estimated future cash flows
from our satellite could be impacted by, among other things:
(cid:129) Changes in estimates of the useful life of the satellite
(cid:129) Changes in estimates of our ability to operate the satellite at expected levels
(cid:129) Changes in the manner in which the satellite is to be used
(cid:129) The loss of one or several significant customer contracts on the satellite
If an impairment loss was indicated for a satellite, such amount would be recognized in the period of occurrence,
net of any insurance proceeds to be received so long as such amounts are determinable and receipt is probable. If no
impairment loss was indicated in accordance with SFAS 144, and we received insurance proceeds, the proceeds
would be recognized in our statement of operations.
Revenue Recognition
We provide satellite capacity under lease agreements that generally provide for the use of satellite transponders
for periods generally ranging from three months to three years. Some of these agreements have certain obligations,
including providing spare or substitute capacity, if available, in the event of satellite failure. If no spare or substitute
capacity is available, the agreement may be terminated. Revenue under transponder lease agreements is recognized
as services are performed, provided that a contract exists, the price is fixed or determinable and collectibility is
reasonably assured. Revenues under contracts that include fixed lease payment increases are recognized on a straight-
line basis over the life of the lease.
Income Taxes
XTAR is a Delaware limited liability company treated as a partnership for U.S. tax purposes. As such, no
U.S. income tax provision (benefit) is included in the accompanying financial statements since U.S. income taxes
F-80
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 155
Site: BOWNE OF NEW YORK
[A/E]
CRC: 4361
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
155.00.00.00
*Y31806/155/5*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
9/5
XTAR, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in thousands, unless otherwise noted)
are the responsibility of its members. XTAR is subject to foreign income taxes on certain income from sources
outside the United States.
Additional Cash Flow Information
The following represents supplemental information to the consolidated statements of cash flows:
Supplemental information:
Financed launch vehicle acquisition
Capital expenditure incurred and unpaid — Arianespace incentive cap
Capital expenditure incurred and unpaid — related parties
Interest paid
Foreign taxes paid, net of refunds
2006
December 31,
2005
2004
$ — $ 12,300 $ —
$ — $ 17,293 $ —
$ 2 $
562 $ 1,229
$ — $ — $ —
963 $ —
$ 522 $
Loral and Hisdesat provide certain services to XTAR (Note 9) and they have agreed to defer their receivables
from XTAR until March 31, 2008. Without such deferment, the net cash provided by (used in) operating activities
for the years ended December 31, 2006, 2005 and 2004 would have been $ (2,068), $ 1,749 and $ (2,518),
respectively.
Net Loss Allocation
Net losses are allocated to the capital accounts of the members in proportion to their percentage interests. Under
the terms of the LLC Operating Agreement, members’ capital accounts are calculated in accordance with the
principles of U.S. Treasury regulations governing the allocation of taxable income and loss including adjustments to
reflect the fair value (including intangibles) of company assets upon certain capital transactions including a sale of
membership interests. Such adjustments are not permitted under generally accepted accounting principles and,
accordingly, are not reflected in the accompanying financial statements.
Foreign Currency
XTAR uses the US dollar as its functional currency. Foreign currency denominated current assets and liabilities
are remeasured into U.S. dollars at the period end rate and the expenses are translated at the average exchange rate in
effect during each period. Non current assets, liabilities and equity are maintained at historical cost. Gains or losses
are recognized in other income/(expense) on the consolidated statements of operations. During the years ended
December 31, 2006, 2005 and 2004, the net foreign currency transaction gains/(losses) were $ (134), $32 and $ (2),
respectively.
Comprehensive Income
Comprehensive income (loss) is comprised of two components: net loss and other comprehensive income (loss).
Other comprehensive income (loss) refers to revenue, expenses, gains and losses that under U.S. GAAP are recorded
as an element of members’ equity, but are excluded from net loss. Comprehensive loss for the years ended
December 31, 2006, 2005 and 2004 was the same as net loss.
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 156
Site: BOWNE OF NEW YORK
[A/E]
CRC: 51836
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
156.00.00.00
*Y31806/156/5*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
10/5
XTAR, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in thousands, unless otherwise noted)
4. New Accounting Pronouncements
FIN 48
In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48
clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements and
prescribes a recognition threshold and measurement attribute for the financial statement recognition and
measurement of tax positions taken or expected to be taken in a tax return. The interpretation also provides guidance
on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
FIN 48 will be effective for the Company beginning fiscal 2007. While we are still evaluating the impact of adopting
FIN 48, we believe the impact upon adoption will be minimal.
SFAS 157
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, (“SFAS 157”), to define fair
value, establish a framework for measuring fair value in accordance with generally accepted accounting principles
(GAAP) and expand disclosures about fair value measurements. SFAS 157 requires quantitative disclosures using a
tabular format in all periods (interim and annual) and qualitative disclosures about the valuation techniques used to
measure fair value in all annual periods. We are required to adopt the provisions of this statement as of January 1,
2008. We are currently evaluating the impact of adopting SFAS 157.
EITF 06-3
In June 2006, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue No. 06-3, How
Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income
Statement (That Is, Gross versus Net Presentation). The guidance in this Issue is effective for interim and annual
reporting periods beginning after December 15, 2006. In the 2006 consolidated statement of operations the Company
has included $522 in gross revenue for taxes collected from customers to be remitted to government authorities.
SAB 108
In September of 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No. 108, Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. This bulletin
summarizes the SEC staff’s views regarding the process of quantifying financial statement misstatements.
Implementation of SAB No. 108 did not have any impact on the Company’s financial statements.
SFAS 159
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities (SFAS 159). SFAS 159 expands opportunities to use fair value measurements in financial reporting and
permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS 159 is
effective for us on January 1, 2008, although we can choose to adopt it on January 1, 2007 if we also adopt
SFAS 157 at that time. We have not decided if we will early adopt SFAS 159 or if we will choose to measure any
eligible financial assets and liabilities at fair value.
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 157
Site: BOWNE OF NEW YORK
[A/E]
CRC: 43756
EDGAR 2
Phone: (212)924-5500
BNY
157.00.00.00
*Y31806/157/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
10/3
Table of Contents
XTAR, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in thousands, unless otherwise noted)
5. Property, Plant and Equipment
Satellite in-orbit
Earth stations
Equipment, furniture and fixtures
Leasehold improvement on transponders
Accumulated depreciation and amortization
Property, plant and equipment, net
December 31,
2006
2005
$ 130,436 $ 130,436
9,177
9,177
383
385
2,100
2,100
142,096
142,098
(7,191 )
(16,850 )
$ 125,248 $ 134,905
The basis for all property, plant and equipment is historical cost. Depreciation and amortization expense for
property, plant and equipment was $ 9,693, $7,195 and $8 for the years ended December 31, 2006, 2005 and 2004,
respectively.
The transponder capacity on our satellite in-orbit is available for lease to customers. Future minimum lease
receipts due from customers under long-term operating leases for transponder capacity as of December 31, 2006 are
as follows:
Year
2007
2008
2009
2010
2011
Thereafter
6. Other Assets
Intangible assets:
Regulatory and orbital slot
Accumulated amortization
Intangible assets, net
Other assets
Total other assets
$ 9,878
7,172
2,627
563
580
—
December 31,
2006
2005
$ 518 $ 518
(26 )
(60 )
492
458
11
11
$ 469 $ 503
In connection with the execution of the Company’s LLC operating agreement, Hisdesat agreed to freely license
XTAR the right to the XTAR-EUR orbital slot provided that XTAR would reimburse the related orbital slot filing
and regulatory fees. The Company has paid $518 of such filing and regulatory fees and has recorded the amounts as
an intangible asset on the consolidated balance sheet amortized over a 15 year useful life.
F-83
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 158
Site: BOWNE OF NEW YORK
[A/E]
CRC: 14284
EDGAR 2
Phone: (212)924-5500
BNY
158.00.00.00
*Y31806/158/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
7/3
Table of Contents
XTAR, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in thousands, unless otherwise noted)
Total pre-tax amortization expense was $34.5, $26 and nil for the years ended December 31, 2006, 2005 and
2004, respectively. Annual pre-tax amortization for intangible assets for the five years ended December 31, 2011 is
estimated to be as follows:
Year
2007
2008
2009
2010
2011
7. Note Payable
Arianespace:
Principal amount
Interest accrued and due
Total
0
6
.
5
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Arianespace Launch Service Agreement
$ 34.5
34.5
34.5
34.5
34.5
December 31,
2006
2005
$ 3,340 $ 12,300
2,414
1,414
$ 5,754 $ 13,714
XTAR entered into a Launch Services Agreement with Arianespace, S.A. (“Arianespace”) providing for the
launch of its satellite on Arianespace’s Ariane 5 ECA launch vehicle. Arianespace initially provided, from the launch
date of the XTAR-EUR satellite, a one-year, $15,800, 10% interest paid-in-kind (i.e., paid in additional debt), loan
for a portion of the launch price. The remainder of the launch price consists of a revenue-based fee, discussed in
Note 11, to be paid over time by XTAR. This loan is secured by certain of XTAR’s assets, including the XTAR-EUR
satellite, ground equipment and rights to the orbital slot (the “Collateral”). If XTAR is unable to repay the
Arianespace loan when due, Arianespace may seek to foreclose on the Collateral. XTAR amended the loan
agreement on October 25, 2005 and extended the maturity date to November 2, 2006, and agreed to make
amortization payments of $3,500 each on November 30, 2005 and February 28, 2006. The amendment further
provided that commencing July 2006, any excess cash balance over $3,000 shall be used to pre-pay the outstanding
loan balance. By another amendment dated October 16, 2006, Arianespace agreed to extend the maturity date of the
loan from November 2, 2006 to September 30, 2007, in return for XTAR agreeing to minimum cash sweep payments
of $3,000 by November 15, 2006, $5,000 by February 15, 2007 and $7,000 by May 15, 2007, as well as foregoing
the ability to incur secured debt on the Collateral. XTAR paid $3,500 principal payments on November 30, 2005 and
February 28, 2006. In addition to the two stipulated payments, XTAR paid a sum of $5,460 in the later half of 2006
towards the principal amount. As of December 31, 2006, $5,754 comprising principal and accrued interest was
outstanding under the Arianespace loan.
XTAR has agreed with Arianespace under its loan agreement that it will maintain in-orbit insurance for its
XTAR-EUR satellite in an amount sufficient to pay off the Arianespace loan in full, with Arianespace named as loss
payee for such portion. Following repayment of the Arianespace loan, XTAR is required to maintain in-orbit
insurance of at least $15 million with Arianespace named as loss payee for such amount for so long as XTAR has
incentive payment obligations to Arianespace under the launch services agreement. To the extent that XTAR
procures additional insurance beyond this required amount, Arianespace has the right to receive a portion of such
excess insurance proceeds, pro rata based on the amount of the incentive cap then outstanding under the launch
F-84
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 159
Site: BOWNE OF NEW YORK
[A/E]
CRC: 19285
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
159.00.00.00
*Y31806/159/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
8/4
XTAR, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in thousands, unless otherwise noted)
services agreement relative to the interests of the other loss payees. XTAR is also required under the terms of its
promissory note with Hisdesat to name Hisdesat as the loss payee for up to $10.8 million of the amount insured.
8. Income Taxes
The provision for income taxes on the loss from operations before taxes consists of a current foreign tax
provision in the amount of $516, $986 and $4 for the years ended December 31, 2006, 2005 and 2004, respectively.
XTAR is a Delaware limited liability company treated as a partnership for U.S. tax purposes. As such, no
U.S. income tax provision (benefit) is required since U.S. income taxes are the responsibility of its members.
Generally, taxable income or loss, deductions and credits are passed through to its members in proportion to their
percentage interest.
XTAR is subject to foreign income taxes on certain income from sources outside the United States, including
sales to customers in certain countries, such as Spain, where a withholding tax is imposed against the gross sale in
lieu of a tax on net income, and branch income earned in certain foreign countries. During 2006 and 2005 we paid
$522 and $963 of Spanish withholding tax.
9. Related Party Transactions:
In addition to the transaction described in Note 10, XTAR has additional transactions with its affiliates. The
following describes such related party transactions.
Lease of Capacity to Hisdesat on XTAR-EUR
XTAR leases X-Band space segment capacity to Hisdesat on XTAR-EUR satellite. Hisdesat started leasing
capacity on XTAR-EUR in April 2005. Hisdesat initially signed a contract for leasing capacity for a period of
14 months beginning April 2005. Hisdesat signed another contract for a 3 year period beginning June 1, 2006 for a
monthly fee of $372 (net of imposed foreign taxes). Revenue recognized under the above contracts during the years
ended December 31, 2006, 2005 and 2004 were $6,918, $6,573 and nil, respectively. Hisdesat is current with its
payment obligations to XTAR and there were no amounts outstanding as of December 31, 2006 and 2005.
XTAR and Hisdesat have also entered into a back-to-back service agreement whereby Hisdesat leases from
XTAR space segment capacity to be re-leased by Hisdesat to its customers. Under the terms of this agreement
minimal capacity was leased out to Hisdesat during the period ended December 31, 2006.
XTAR has agreed to provide back-up service to Hisdesat in the event of a partial or total failure of the Spainsat
satellite. Accordingly, the 238 MHz of transponder capacity on XTAR-EUR that would be utilized to provide such
back-up service can be leased by XTAR only on a preemptible basis. Hisdesat is not required to make any payments
to XTAR until such capacity is actually utilized, at which time, if the full 238 MHz is utilized, Hisdesat would pay to
XTAR $1.3 million per month for such capacity.
Lease Obligation to Hisdesat
XTAR signed an agreement with Hisdesat in February 2002 to procure satellite transponder capacity on the
Spainsat (XTAR-LANT) satellite for commercial resale to XTAR customers. The agreement provides a minimum
lease obligation of 25% ramping up to 90% of the 8 transponders made available by Hisdesat through the end of life
of Spainsat satellite. Spainsat was successfully launched on March 11, 2006 and commenced service in April 2006.
XTAR’s lease obligation to Hisdesat for the XTAR-LANT transponders was initially $7,744 per year, ultimately
growing to $27,486. Under this lease agreement, Hisdesat may also be entitled under certain circumstances to a share
of the revenues generated on the XTAR-LANT transponders. Cost of satellite services recognized under the lease
obligations for the years ended December 31, 2006, 2005 and 2004 were $5,201, nil and nil, respectively. Total
F-85
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 160
Site: BOWNE OF NEW YORK
[A/E]
CRC: 42361
EDGAR 2
Phone: (212)924-5500
BNY
160.00.00.00
*Y31806/160/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
7/3
Table of Contents
XTAR, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in thousands, unless otherwise noted)
amount due to Hisdesat under the lease obligation for the years ended December 31, 2006 and 2005, are $4,596 and
nil, respectively. The following table presents the future minimum lease payments:
Year
2007
2008
2009
2010
2011
Thereafter
$ 13,155
23,051
23,420
23,794
24,175
244,631
Operations Services Agreements with Hisdesat
XTAR signed an agreement with Hisdesat in January 2005 whereby Hisdesat provides ground control system
operation and maintenance services through the end of life of XTAR-EUR satellite. XTAR is to pay Hisdesat Euros
41 per month ($54 on the basis of exchange rate as of December 31, 2006). Cost of satellite services recognized
under this agreement for the years ended December 31, 2006, 2005 and 2004 were $696, $646 and $478,
respectively. XTAR and Hisdesat have also entered into an agreement whereby Hisdesat provides XTAR tax and
legal representation in Spain. Expenses related to these services are included in selling, general and administrative
expenses and for the years ended December 31, 2006, 2005 and 2004 amounted to $99, $69 and nil, respectively.
Amounts due to Hisdesat under these agreements as of December 31, 2006 and December 31, 2005 stood at $2,907
and $1,827, respectively.
Hisdesat Management Agreement with XTAR
XTAR and Hisdesat have entered into a management agreement whereby Hisdesat provides general & specific
services of technical, financial, commercial and administrative nature to XTAR in Europe and Latin America. For the
services rendered by Hisdesat, XTAR is to pay a quarterly, management fee equal to 2.9% of XTAR’s quarterly
gross revenues. Expenses recognized under the agreement included in selling, general and administrative expense for
the years ended December 31, 2006, 2005 and 2004 were $443, $274 and nil, respectively. Amounts due to Hisdesat
under the Management Agreement as of December 31, 2006 and December 31, 2005 stood at $717 and $274,
respectively.
Loral Skynet Corporation Service Agreements and Arrangements with XTAR
XTAR signed agreements with Loral Skynet Corporation (“LSC”) (a subsidiary of Loral) in January 2004
whereby LSC is to provide telemetry, tracking and control (TT&C) services, access management services through
the end of life of XTAR-EUR satellite, satellite construction oversight services and satellite access management.
XTAR is to pay LSC $45 per month for TT&C and $27 per month for access management. Cost of satellite services
recognized under these agreements for the years ended December 31, 2006, 2005 and 2004 are $ 933, $863 and nil,
respectively.
XTAR and LSC have also entered into agreements whereby LSC provides to XTAR (i) certain general and
administrative services, and (ii) US employee benefits administration. Selling, general and administrative expenses
recognized under these agreements for the years ended December 31, 2006, 2005 and 2004 are $424, $254 and $233,
respectively. Also, certain XTAR employees participate in the Loral pension plans. Loral charges XTAR for this cost
which amounted to $55, $101 and nil for the years ended December 31, 2006, 2005 and 2004, respectively. Amounts
due to Skynet under these agreements as of December 31, 2006 and December 31, 2005 were $4,013 and $2,266,
respectively.
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 161
Site: BOWNE OF NEW YORK
[A/E]
CRC: 25223
EDGAR 2
Table of Contents
Phone: (212)924-5500
BNY
161.00.00.00
*Y31806/161/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
6/3
XTAR, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in thousands, unless otherwise noted)
Loral Skynet Corporation Management Agreement with XTAR
XTAR and LSC have entered into a management agreement whereby LSC provides general & specific services
of a technical, financial, commercial and administrative nature to XTAR. For the services rendered by LSC, XTAR is
to pay a quarterly, management fee equal to 3.7% of XTAR’s quarterly gross revenues. Selling, general and
administrative expenses recognized under these agreements for the years ended December 31, 2006, 2005 and 2004
were $567, $349 and nil, respectively. Amounts due to LSC under the management agreement as of December 31,
2006 and December 31, 2005 stood at $916 and $349, respectively.
Deferment arrangement with Loral and Hisdesat
As of December 31, 2006 and 2005, XTAR owes Hisdesat and Loral, including its subsidiaries, $13,156 and
$4,722, respectively (“Outstanding balances”), for various service agreements. Hisdesat and Loral have agreed that
XTAR may defer payment of the Outstanding balances, in addition to any additional amounts incurred and unpaid
under the various service agreements on or after January 1, 2007, through at least March 31, 2008.
10. Term Loan
Hisdesat Term Loan
In January 2005, Hisdesat provided XTAR with a convertible 8% loan in the amount of $10,787 due 2011, for
which Hisdesat received enhanced governance rights in XTAR. If Hisdesat were to convert the loan into XTAR
equity, Loral Skynet’s equity interest in XTAR would be reduced to 51% and Hisdesat’s equity interest would
increase to 49%. The following table presents the principal amount and interest accrued due on the term loan.
Principal amount
Interest accrued and due
Total
11. Other Long Term Liabilities
December 31,
2006
2005
$ 10,787 $ 10,787
866
1,816
$ 12,603 $ 11,653
As described in Note 7, XTAR entered into a Launch Services Agreement with Arianespace providing for the
launch of its XTAR-EUR satellite on Arianespace’s Ariane 5 ECA launch vehicle. Arianespace provided a one-year,
$15,800, 10% interest paid-in-kind loan for a portion of the launch price in addition to a revenue-based fee (incentive
portion) to be paid over time for the remainder of the launch price. The incentive portion of the launch service price
is based on 3.5% of annual operating revenues during the 15 year in-orbit operations of the satellite subject to a
maximum threshold, as defined in the Launch Services Agreement (the “Incentive Cap”). The Incentive Cap is set at
$20,000 through December 2007 and shall be increased by $208 each month beginning January 2008 to a maximum
of $50,000 on December 1, 2019. The Company has the option to prepay some or all of this incentive portion and
once the incentive payments actually paid to Arianespace equals the Incentive Cap at any point in time, we will have
no further payment obligation to Arianespace. At the end of XTAR-EUR’s useful life, the Company will have no
further obligation to Arianespace on the incentive portion, even if the aggregate amount of the incentive fee
payments shall not have reached the $50,000 Incentive Cap.
F-87
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: 10-K, Doc: 1, Page: 162
Site: BOWNE OF NEW YORK
[A/E]
CRC: 55513
EDGAR 2
Phone: (212)924-5500
BNY
162.00.00.00
*Y31806/162/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
6/3
Table of Contents
XTAR, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in thousands, unless otherwise noted)
The following table summarizes the long term liabilities as of December 31, 2006 and December 31, 2005.
Long-Term Liabilities:
Straight-lining of Spainsat lease
Arianespace Incentive
Total Long-Term Liabilities
12. Revenue Information
Revenue by Customer Location
December 31,
2006
2005
605
—
$
19,888 $ 18,363
$ 20,493 $ 18,363
The following table presents our revenues by country based on customer location for each of the three years in
the period ended December 31, 2006.
United States
Spain
0
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5
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13. Financial Instruments
2005
2006
2004
$ 8,416 $ 2,870 $ —
—
6,918
$ 15,334 $ 9,443 $ —
6,573
The following methods and assumptions were used to estimate the fair value of financial instruments.
The carrying amount of cash and cash equivalents approximates fair value because of the short maturity of those
instruments. The fair value of the Company’s notes payable and term loan, with a conversion option, is estimated
based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for
debt of the same remaining maturities.
The estimated fair value of XTAR’s financial instruments is as follows:
Arianespace note payable
Hisdedsat term loan
F-88
December 31, 2006
Carrying
Fair
Amount Value
$ 5,754 $ 5,904 $ 13,714 $ 14,244
$ 12,603 $ 12,371 $ 11,653 $ 10,950
December 31, 2005
Carrying
Fair
Amount Value
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: EX-10.19, Doc: 2, Page: 1
Description: Exhibit 10.19
Site: BOWNE OF NEW YORK
[E/O]
CRC: 7492
EDGAR 2
Phone: (212)924-5500
BNY
400.00.00.00
*Y31806/400/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
0/3
AMENDMENT NO. 2
TO
EMPLOYMENT AGREEMENT
Exhibit 10.19
This Amendment No. 2 (“Amendment No. 2”) to the Employment Agreement dated as of November 21, 2005, as amended by
Amendment No. 1 thereto dated June 19, 2006 (“Amendment No. 1” and, as so amended, the “Employment Agreement”), between Loral Space
& Communications Inc., a Delaware corporation (the “Company”), and Avi Katz (the “Executive”) is entered into as of January 4, 2007.
WHEREAS, the Company and Executive are presently parties to the Employment Agreement; and
WHEREAS, the Company and Executive desire to amend the Employment Agreement as set forth herein to restore Executive’s Base
Salary and Target Annual Bonus to those in effect prior to the changes effected by Amendment No. 1;
NOW, THEREFORE, the Employment Agreement is hereby amended as follows:
1.
Capitalized terms used herein without definition shall have the meaning ascribed thereto in the Agreement.
2.
Executive’s Base Salary in effect prior to January 1, 2007 (the “Amendment No. 2 Effective Date”) was $394,243 per annum (the
“Reduced Base Salary”). Effective as of the Amendment No. 2 Effective Date, Executive’s Base Salary as set forth in Section 4(a) of
the Employment Agreement, shall be restored to $438,048 per annum (the “Restored Base Salary”). The Restored Base Salary shall be
and become the “Base Salary” for all purposes of the Employment Agreement.
With respect to the Company’s MIB Program for the 2007 fiscal year or any subsequent fiscal year during the Term and Executive’s
entitlement to an Annual Bonus thereunder, Executive’s “Target Annual Bonus” under Section 4(b) of the Employment Agreement
shall be restored to forty percent (40%) of Executive’s Base Salary (the “Restored Target Annual Bonus”). Except as otherwise set
forth herein with respect to the Company’s MIB Program for the 2006 fiscal year, the Restored Target Annual Bonus shall be and
become the “Target Annual Bonus” for all purposes of the Employment Agreement. Nothing herein shall affect Executive’s
entitlement to or calculation of Executive’s Target Annual Bonus with respect to the Company’s MIB Program for the 2006 fiscal year
as set forth in Amendment No. 1. For the avoidance of doubt, Executive’s Target Annual Bonus for the 2006 fiscal year shall be fifty
percent (50%) of his Base Salary, provided, however, that, for purposes of calculating Executive’s Annual Bonus for 2006, any
3.
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: EX-10.19, Doc: 2, Page: 2
Description: Exhibit 10.19
Site: BOWNE OF NEW YORK
[E/O]
CRC: 7707
EDGAR 2
Phone: (212)924-5500
BNY
401.00.00.00
*Y31806/401/2*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
0/2
Annual Bonus paid shall be reduced by the amount of Base Salary Executive received in the period from January 1, 2006 to July 1,
2006 (the “Interim Period”) that is in excess of the Reduced Base Salary he would have received had the Reduced Base Salary been in
effect during the Interim Period.
4.
If (x) Executive’s employment with the Company is terminated upon the expiration of the Term or (y) the Term under the
Employment Agreement is not renewed or extended and Executive continues to be employed by the Company after the Term on an “at
will” basis and Executive’s employment is thereafter terminated, Executive shall be designated by the Plan Administrator thereunder
as an “Eligible Employee” and covered by, and entitled to severance benefits under, the severance policy adopted by the Board of
Directors and in effect on the date hereof (a copy of which previously has been provided to Executive as Exhibit A to Amendment
No. 1) or such other severance policy generally applicable to employees of the corporate office as may then have been adopted in good
faith by the Board of Directors and then be in effect. For purposes of calculating severance to which Executive may be entitled with
respect to a termination of Executive’s employment upon or after expiration of the Term, references in the applicable severance policy
to Base Salary shall mean Executive’s Base Salary then in effect.
5.
Notwithstanding any provision in the Employment Agreement to the contrary, if any provision of the Employment Agreement (or of
any award of compensation, including equity compensation or benefits) would cause Executive to incur any additional tax or interest
under Code Section 409A or any regulations or Treasury guidance promulgated thereunder, the Company shall, after consulting with
Executive, reform such provision to comply with Code Section 409A; provided that the Company agrees to maintain, to the maximum
extent practicable, the original intent and economic benefit to Executive of the applicable provision without violating the provisions of
Code Section 409A. Notwithstanding any provision in the Employment Agreement to the contrary, any payment otherwise required to
be made thereunder to Executive at any date as a result of the termination of Executive’s employment shall be delayed for such period
of time as may be necessary to satisfy Section 409A(a)(2)(B)(i) of the Internal Revenue Code of 1986, as amended from time to time
(the “Code”). On the earliest date on which such delayed payments can be made without violating the requirements of section 409A(a)
(2)(B)(i) of the Code, there shall be paid to Executive, in a single cash lump sum, an amount equal to the aggregate amount of all
payments delayed pursuant to the preceding sentence.
6.
Provisions of this Amendment shall survive any termination of employment and the expiration of the Term if so provided herein or if
necessary or desirable fully to accomplish the purposes of such provision, including, without limitation, the obligations of the
Company under Section 4 hereof.
Except as expressly amended by this Amendment No. 2, the Employment Agreement remains in full force and effect and nothing in
this Amendment No. 2
-2-
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: EX-10.19, Doc: 2, Page: 3
Description: Exhibit 10.19
Site: BOWNE OF NEW YORK
[E/O]
CRC: 27082
EDGAR 2
Phone: (212)924-5500
BNY
402.00.00.00
*Y31806/402/2*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
0/2
shall otherwise affect any other provision of the Employment Agreement or the rights and obligations of the parties thereto.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment No. 2 as of the day and year first above written.
LORAL SPACE & COMMUNICATIONS INC.
By: /s/ Michael B. Targoff
Name: Michael B. Targoff
Title: Chief Executive Officer
/s/ Avi Katz
Avi Katz
-3-
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: EX-12.1, Doc: 3, Page: 1
Site: BOWNE OF NEW YORK
[A/E]
CRC: 52935
EDGAR 2
Phone: (212)924-5500
BNY
167.00.00.00
*Y31806/167/5*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
7/5
Exhibit 12.1
LORAL SPACE & COMMUNICATIONS INC.
COMPUTATION OF DEFICIENCY OF EARNINGS TO COVER FIXED CHARGES
Successor Registrant
Predecessor Registrant
For the Period
October 2,
Year Ended
December 31, December 31,
2005 to
2006
2005
For the Period
January 1,
2005 to
October 1,
2005(3)
Year Ended
December 31,
2004
Year Ended Year Ended
December 31, December 31,
2003
2002
Income (loss) from continuing operations
before income taxes, equity income (losses)
in affiliates and minority interest
$
Plus fixed charges:
Interest expense
Interest component of rent expense(1)
Less: capitalized interest
Earnings available to cover fixed charges
Fixed charges(2)
Deficiency of earnings to cover fixed charges $
$
$
30,117 $
(5,395 ) $
(65,570 ) $ (207,852 ) $ (368,355 ) $ (237,540 )
25,961
6,824
(2,512 )
60,390 $
(73,767 ) $
4,408
1,625
—
638 $
(8,700 ) $
3,904
9,059
(957 )
3,982
4,949
—
51,185
15,380
(10,293 )
(56,639 ) $ (195,846 ) $ (343,873 ) $ (181,268 )
(45,345 ) $ (155,751 )
28,223
10,402
(14.143 )
(12,963 ) $
(8,931 ) $
13,377 $
8,062 $
65,570 $ 208,809 $ 389,218 $ 337,019
(1) The interest component of rent expense is deemed to be approximately 25% of total rent expense.
(2) For 2006, dividends on the Loral Skynet Preferred Stock have been grossed-up using a normalized effective tax
rate of 39.5%.
(3) Does not reflect the effect of the gain on the discharge of pre-petition obligations and fresh-start adjustments,
and the interest expense and income tax benefit recognized in connection with the Plan of Reorganization.
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: EX-21.1, Doc: 4, Page: 1
Site: BOWNE OF NEW YORK
[A/E]
CRC: 5707
EDGAR 2
Phone: (212)924-5500
BNY
168.00.00.00
*Y31806/168/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
5/3
The active subsidiaries owned directly or indirectly by Loral Space & Communications Inc. as of March 1,
2007, all 100% owned (except as noted below) consist of the following:
Exhibit 21.1
Loral Space & Communications Holdings Corporation
Loral Skynet Corporation(1)
Loral Asia Pacific Satellite (HK) Limited
Loral Skynet International, L.L.C.
Loral Holdings Ltd.
Loral Space do Brasil Ltda.
Loral Skynet do Brasil Ltda.
Loral Skynet (IOM) Limited
Loral Communications Services, Inc.
Loral Ground Services, L.L.C.
Loralsat CIA Ltda(2)
Loral Skynet Network Services, Inc.
Loral Skynet Network Services (Europe) Ltd.
Loral Skynet Network Services Holdings L.L.C.
Loral CyberStar International, Inc.
Tel-Link Communications Private Limited
Loral CyberStar GmbH(3)
ONS-Mauritius
Loral CyberStar Services, Inc.
Loral CyberStar Holdings, L.L.C.
Loral CyberStar de Argentina SRL
Loral CyberStar, L.L.C.
CyberStar, L.L.C.
Loral Satmex Ltd.
Skynet Satellite Holdings Corporation
Skynet Satellite Corporation
Space Systems/Loral, Inc.
International Space Technology, Inc.(4)
Cosmotech(4)
Loral Holdings Corporation
Loral General Partner, Inc.
LGP (Bermuda) Ltd.
Loral Holdings LLC
Mexico Satellite, LLC(5)
Loral Global Services N.V.
Loral Global Services B.V.
4363205 Canada Inc.(6)
4363213 Canada Inc.(6)
4363230 Canada Inc.(6)
NOTES
Delaware
Delaware
Hong Kong
Delaware
Bermuda
Brazil
Brazil
Isle of Man
Delaware
Delaware
Ecuador
Delaware
United Kingdom
Delaware
Delaware
India
Germany
Mauritius
Delaware
Delaware
Argentina
Delaware
Delaware
Bermuda
Delaware
Delaware
Delaware
Delaware
Russian Federation
Delaware
Delaware
Bermuda
Delaware
Delaware
Netherlands Antilles
Netherlands
Canada
Canada
Canada
(1) 100% of Loral Skynet Series A 12% Non-convertible Preferred Stock is owned by third parties
(2) Only 95% owned directly or indirectly
(3) Only 99.5% owned directly or indirectly
(4) Only 51.0% owned directly or indirectly
(5) Only 77.78% owned directly or indirectly
(6) Company formed for the purpose of effecting the Telesat acquisition; upon closing of such acquisition, Public
Sector Pension Investment Board will acquire its direct or indirect proportionate interest in such company.
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: EX-23.1, Doc: 5, Page: 1
Site: BOWNE OF NEW YORK
[A/E]
CRC: 55000
EDGAR 2
Phone: (212)924-5500
BNY
169.00.00.00
*Y31806/169/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
4/3
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No. 333-132795 on Form S-8 of our
report dated March 15, 2007, relating to the consolidated financial statements and financial statement schedules of
Loral Space & Communications Inc. and its subsidiaries (the “Company”) (which report expresses an unqualified
opinion and contains explanatory paragraphs which indicate that (1) the Company adopted fresh-start reporting, as of
October 1, 2005, (2) the Company changed its method of accounting for pensions and other employee benefits, as of
December 31, 2006 (3) the Company changed its method of accounting for stock-based compensation, effective
October 1, 2005, and (4) the Company has classified certain of its operations as discontinued operations) and of our
report, dated March 15, 2007 relating to management’s report on the effectiveness of internal control over financial
reporting, both of which appear in the Annual Report on Form 10-K of Loral Space & Communications Inc. for the
year ended December 31, 2006.
DELOITTE & TOUCHE LLP
New York, NY
March 15, 2007
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: EX-31.1, Doc: 6, Page: 1
Site: BOWNE OF NEW YORK
[A/E]
CRC: 63789
EDGAR 2
Phone: (212)924-5500
BNY
163.00.00.00
*Y31806/163/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
7/3
Exhibit 31.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael B. Targoff, certify that:
1. I have reviewed this Annual Report on Form 10-K of Loral Space & Communications Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
/s/ MICHAEL B. TARGOFF
Michael B. Targoff
Chief Executive Officer
March 15, 2007
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: EX-31.2, Doc: 7, Page: 1
Site: BOWNE OF NEW YORK
[A/E]
CRC: 9865
EDGAR 2
Phone: (212)924-5500
BNY
164.00.00.00
*Y31806/164/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
7/3
Exhibit 31.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Richard J. Townsend, certify that:
1. I have reviewed this Annual Report on Form 10-K of Loral Space & Communications Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
/s/ RICHARD J. TOWNSEND
Richard J. Townsend
Executive Vice President and Chief Financial Officer
March 15, 2007
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: EX-32.1, Doc: 8, Page: 1
Site: BOWNE OF NEW YORK
[A/E]
CRC: 52314
EDGAR 2
Phone: (212)924-5500
BNY
165.00.00.00
*Y31806/165/4*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
6/4
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Loral Space & Communications Inc. (the “Company”) on Form 10-K
for the period ending December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof
(the “Report”), I, Michael B. Targoff, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
/s/ MICHAEL B. TARGOFF
Michael B. Targoff
Chief Executive Officer
March 15, 2007
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BOWNE INTEGRATED TYPESETTING SYSTEM
Name: LORAL SPACE & COMMUN
Y31806.SUB, DocName: EX-32.2, Doc: 9, Page: 1
Site: BOWNE OF NEW YORK
[A/E]
CRC: 49290
EDGAR 2
Phone: (212)924-5500
BNY
166.00.00.00
*Y31806/166/3*
Y31806
Operator: BNY99999T
Date: 15-MAR-2007 18:01:35.60
5/3
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Loral Space & Communications Inc. (the “Company”) on Form 10-K
for the period ending December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof
(the “Report”), I, Richard J. Townsend, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
/s/ RICHARD J. TOWNSEND
Richard J. Townsend
Executive Vice President and Chief Financial Officer
March 15, 2007
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