Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(cid:59)(cid:3)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2010
OR
(cid:134)(cid:3)
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
Common stock, $.01 par value
Name of each exchange on which registered
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 (cid:134)(cid:3)No (cid:59)(cid:3)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes (cid:134)(cid:3)No (cid:59)(cid:3)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes (cid:59)(cid:3)No (cid:134)(cid:3)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes (cid:134)(cid:3)No (cid:134)(cid:3)
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 (cid:59)(cid:3)No (cid:134)(cid:3)
Indicate by check mark whether the registrant is a large accelerated filer, and accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in
Ruler 12b-2 of the Exchange Act. (Check one):
Large accelerated filer (cid:134)(cid:3)
Accelerated filer (cid:59)(cid:3)
Non-accelerated filer (cid:134)(cid:3)
(Do not check if a smaller reporting company)
Smaller reporting company (cid:134)(cid:3)
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2 of the Act).
Yes (cid:134)(cid:3)No (cid:59)(cid:3)
At March 1, 2011, 21,149,598 shares of the registrant’s voting common stock and 9,505,673 shares of the registrant’s non-voting
common stock were outstanding.
As of June 30, 2010, the aggregate market value of the common stock, the only common equity of the registrant currently issued
and outstanding, held by non-affiliates of the registrant, was approximately $520,752,485
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 Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes (cid:59)(cid:3)No
(cid:134)(cid:3)
Documents incorporated by reference are as follows:
Loral Notice of Annual Meeting of Stockholders and Proxy Statement for the Annual
Meeting of Stockholders to be held May 24, 2011
Document
Part and Item Number of
Form 10-K into which incorporated
Part II, Item 5(d)
Part III, Items 11 through 14
LORAL SPACE AND COMMUNICATIONS INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 2010
PART I
Item 1: Business
Item 1A: Risk Factors
Item 1B: Unresolved Staff Comments
Item 2: Properties
Item 3: Legal Proceedings
Item 4: Removed and Reserved
Item 5: Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
PART II
Securities
Item 6: Selected Financial Data
Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A: Quantitative and Qualitative Disclosures about Market Risk
Item 8: Financial Statements and Supplementary Data
Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A: Controls and Procedures
Item 9B: Other Information
Item 10: Directors and Executive Officers of the Registrant
Item 11: Executive Compensation
PART III
Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13: Certain Relationships and Related Transactions
Item 14: Principal Accountant Fees and Services
Item 15: Exhibits and Financial Statement Schedules
PART IV
Signatures
Exhibit 10.27
Exhibit 10.35
Exhibit 14.1
Exhibit 21.1
Exhibit 23.1
Exhibit 23.2
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
1
14
32
32
33
33
34
35
37
64
65
66
66
69
69
69
69
69
70
70
76
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Item 1. Business
Overview
PART I
THE COMPANY
Loral Space & Communications Inc., together with its subsidiaries (“Loral”, the “Company”, “we”, “our” and “us”), is a leading
satellite communications company engaged in satellite manufacturing with ownership interests in satellite-based communications
services. The term “Parent Company” is a reference to Loral Space & Communications Inc., excluding its subsidiaries.
Loral has two 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:
Loral participates in satellite services operations principally through its 64% economic interest in Telesat Holdings Inc.
(“Telesat Holdco”), which owns Telesat Canada (“Telesat”), a leading global FSS provider, with industry leading backlog, and
one of only three FSS providers operating on a global basis. Telesat owns and leases a satellite fleet that operates 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 and provide reliable, high-bandwidth services anywhere in their coverage areas, serving
as the backbone for many forms of telecommunications.
Segment Overview
Satellite Manufacturing
SS/L is a designer, manufacturer and integrator of powerful satellites and satellite systems for commercial and government
customers worldwide. SS/L’s design, engineering and manufacturing capabilities have allowed it to develop a large portfolio of highly
engineered, mission-critical satellites and secure a strong industry presence. This position provides SS/L with the ability to produce
satellites that meet a broad range of customer requirements for broadband internet service to the home, mobile video and internet
service, broadcast feeds for television and radio distribution, phone service, civil and defense communications, direct-to-home
television broadcast, satellite radio, telecommunications backhaul and trunking, weather and environment monitoring and air traffic
control. In addition, SS/L has applied its design and manufacturing expertise to produce spacecraft subsystems, such as batteries for
the International Space Station, and to integrate government and other add-on missions on commercial satellites, which are referred to
as hosted payloads.
As of December 31, 2010, SS/L had $1.6 billion in backlog for 20 satellites for customers including Intelsat Global S.A., SES
S.A., Telesat Holdings Inc., Hispasat, S.A., EchoStar Corporation, Sirius-XM Satellite Radio, TerreStar Corporation, Asia Satellite
Telecommunications Co. Ltd., Hughes Network Systems, LLC, ViaSat, Inc., Eutelsat/ictQatar, DIRECTV, Satélites Mexicanos, S.A.
de C.V. and Asia Broadcast Satellite.
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Since SS/L’s inception, it has delivered more than 240 satellites, which have achieved more than 1,700 years of cumulative on-
orbit service. SS/L’s satellite platform accommodates some of the world’s highest-power payloads for television, radio and
multimedia broadcast. SS/L is the only manufacturer to have produced to date high-power commercial satellites greater than 18-kW at
end-of-life, or EOL. In addition, SS/L is the first manufacturer to utilize a commercial ground-based beam forming, or GBBF, system,
which allows ground system upgrades to adjust for changes in service usage. For the period from 2005 through December 31, 2010,
SS/L-built satellites have had no satellite hardware operational failures resulting in insurance claim payments.
Satellite demand is driven by fleet replacement cycles, increased video, internet and data bandwidth demand and new satellite
applications. SS/L expects its future success to derive from maintaining and expanding its share of the satellite construction contracts
based on engineering, technical and manufacturing leadership; its value proposition and record of reliability; the increased demand for
new applications requiring high power and capacity satellites such as HDTV, 3-D TV and broadband; and SS/L’s expansion of
governmental contracts based on its record of reliability and experience with fixed-price contract manufacturing. We also expect SS/L
to benefit from the increased revenues from larger and more complex satellites. As such, increased revenues as well as system and
supply chain management improvements should enable SS/L to continue to improve its profitability.
SS/L products span the entire commercial market segment and SS/L’s customers include satellite service operators across all
satellite-based applications. SS/L’s highly flexible satellite platform accommodates a broad range of applications such as regional and
spot-beam technology and hybrid systems that maximize the value of orbital slot locations. As a result, SS/L is well-positioned for the
next stage of growth, including (i) additional satellites for existing customers, (ii) satellites for new customers, both established and
those developing new services and (iii) government satellites, both U.S. government, or USG, and non-USG, as well as government
hosted payloads and space subsystems.
Market and Competition
SS/L participates in the highly competitive commercial satellite manufacturing industry principally on the basis of superior
customer relationships, technical excellence, reliability and pricing. Other competitors for satellite manufacturing contracts include
Boeing, Lockheed Martin and Orbital Sciences in the U.S., Thales Alenia Space and EADS Astrium in Europe and Mitsubishi Electric
Corporation in Japan. SS/L’s continued success depends on its ability to provide highly reliable satellites on a cost-effective and
timely basis. SS/L may also face competition in the future from emerging low-cost competitors in India, Russia and China. The
number of satellite manufacturing contracts awarded varies annually and is difficult to predict. For example, based on readily available
industry information, we believe that, while only two contracts for mid- and high-power (8 kW or higher) commercial satellites were
awarded worldwide in 2002, there were 17 and 21 contracts awarded in 2010 and 2009, respectively. The current economic
environment may adversely affect the satellite market in the near-term. While we expect the replacement market to be reliable over the
next year, given the current credit crisis, potential customers that are highly leveraged or in the development stage may not be able to
obtain the financing necessary to purchase satellites.
Satellite Manufacturing Performance (1)
Total segment revenues
Eliminations
Revenues from satellite manufacturing as reported
Segment Adjusted EBITDA before eliminations
$
$
$
1,165
(6 )
1,159
143
$
$
1,008
(15 )
993
91
$
$
2010
Year ended December 31,
2009
(In millions)
$
$
2008
881
(12 )
869
45
(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 15 to the Loral consolidated financial
statements for the definition of Adjusted EBITDA).
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Total SS/L assets, located primarily in California, were $921 million and $864 million as of December 31, 2010 and 2009,
respectively. The increase is primarily due to growth in gross orbital receivables of $71 million in 2010. Total SS/L assets were
$799 million as of December 31, 2008. Backlog at December 31, 2010 was $1.6 billion. This included $219 million of backlog for the
construction of Telstar 14R, Nimiq 6 and Anik G1 for Telesat and the intercompany portion of ViaSat-1. Backlog at December 31,
2009 was $1.6 billion. This included $225 million of backlog for the construction of Telstar 14R and Nimiq 6 for Telesat and the
intercompany portion of ViaSat-1. It is expected that approximately 64% of the backlog as of December 31, 2010, will be recognized
as revenues during 2011. During 2010, revenues from EchoStar Corporation, Hughes Network Systems, LLC, Intelsat Global S.A.,
SES S.A. and Telesat Holdings Inc. were each individually greater than 10% of our total revenues.
Satellite Services
As of December 31, 2010, Telesat had 12 in-orbit satellites and three satellites under construction, one of which is 100% leased
for at least the design life of the satellite. Telesat provides video distribution and DTH video, as well as end-to-end communications
services using both satellite and hybrid satellite-ground networks.
Telesat categorizes its satellite services operations into broadcast, enterprise services and consulting and other, as follows:
Broadcast:
DTH. Both Canadian DTH service providers (Bell TV and Shaw Direct) use Telesat’s satellites as a distribution platform
for their services, delivering television programming, audio and information channels directly to customers’ homes. In addition,
Telesat’s Anik F3 and Nimiq 5 satellites are used by EchoStar (Dish Network) for DTH services in the United States.
Video Distribution. Major broadcasters, cable networks and DTH service providers use Telesat satellites for the full-time
transmission of television programming. Additionally, certain broadcasters and DTH service providers bundle value-added
services that include satellite capacity, digital encoding of video channels and uplinking and downlinking services to and from
Telesat satellites and teleport facilities. Telstar 18 delivers video distribution and contribution throughout Asia and offers
connectivity to the U.S. mainland via Hawaiian teleport facilities; Telstar 12 is also used to transmit television services. In both
Brazil and Chile, Telesat provides video distribution services on Telstar 14/Estrela do Sul.
Occasional Use Services. Occasional use services consist of satellite transmission services for the timely broadcast of video
news, sports and live event coverage on a short-term basis enabling broadcasters to conduct on-the-scene transmissions using
small, portable antennae.
Enterprise Services:
Data networks in North America and the related ground segment and maintenance services supporting these networks.
Telesat operates very small aperture terminal, or VSAT, networks in North America, managing thousands of VSAT terminals at
customer sites. For some of these customers Telesat offers end-to-end services including installation and maintenance of the end
user terminal, maintenance of the VSAT hub, and provision of satellite capacity. Other customers may be provided a subset of
these services. Examples of North American data network services include point of sale services for customers in Canada and
communications services to remote locations for the oil and gas industry.
International Enterprise Networks. Telesat provides Internet Protocol-based terrestrial extension services that allow
enterprises to reach multiple locations worldwide — many of which cannot be connected via terrestrial means. In addition, these
managed services also enable multi-cast and broadcast functionality, as with traditional video broadcast distribution, which takes
full advantage of satellite’s one to many attributes. These services are delivered to enterprises whose headquarters are typically
in the United States or Europe through both terrestrial partners and directly.
Ka-band Internet Services. Telesat provides Ka-band, two-way broadband Internet services in Canada through Barrett
Xplore Inc. and other resellers, and Ka-band satellite capacity to WildBlue which uses it to provide services in the United States.
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Telecommunication Carrier Services. Telesat provides satellite capacity and end-to-end services for data and voice
transmission to telecommunications carriers located throughout the world. These services include (i) connectivity and voice
circuits to remote locations in Canada for customers such as Bell Canada and NorthwesTel and (ii) space segment capacity and
terrestrial facilities for Internet backhaul and access, GSM backhaul, and services such as rural telephony to carriers around the
world.
Government Services. The United States Government is the largest single consumer of fixed satellite services in the world
and a significant user of Telesat’s international satellites. Over the course of several years, Telesat has implemented a successful
strategy to sell through government service integrators, rather than directly to United States Government agencies. Satellite
services are also provided to the Canadian Government, including a variety of services from a maritime network for a Canadian
Government entity to protected satellite capacity to the Department of National Defense for the North Warning System.
Consulting & Other:
Consulting operations allow for increased operating efficiencies by leveraging Telesat’s existing employees and facility
base. With over 40 years of engineering and technical experience, Telesat is a leading consultant in establishing, operating and
upgrading satellite systems worldwide, having provided services to businesses and governments in over 35 countries across six
continents. In 2010, the international consulting business provided satellite-related services in approximately 20 countries.
Telesat is the fourth largest FSS operator in the world and the largest in Canada, with a strong and growing business. It has a
leading position as a provider of satellite services in the North American video distribution market. Telesat provides services to both
of the major DTH providers in Canada, Bell TV and Shaw Direct, which together have approximately 2.9 million subscribers, as well
as to EchoStar (Dish Network) in the United States, which has over 14 million subscribers. Its international satellites are well
positioned in emerging, high growth markets and serve high value customers in those markets. Telstar 11N provides service to
American, European and African regions and aeronautical and maritime markets of the Atlantic Ocean Region. Telstar 12 provides
intercontinental connectivity from the Americas to the Middle East. Telstar 14/Estrela do Sul offers high powered coverage of the
Americas, the Gulf of Mexico, the Caribbean and the North Atlantic Ocean Region (“NAOR”). Telstar 18 delivers video distribution
and contribution throughout Asia and offers connectivity to the US mainland via Hawaiian teleport facilities. Telesat’s current
enterprise services customers include leading telecommunications service providers as well as a range of network service providers
and integrators, which provide services to enterprises, governments and international agencies and multiple ISPs.
Telesat offers its broad suite of satellite services to more than 400 customers worldwide, which include some of the world’s
leading television broadcasters, cable programmers, DTH service providers, ISPs, telecommunications carriers, corporations and
government agencies. Over 40 years of operation, Telesat has established long-term, collaborative relationships with its customers and
has developed a reputation for creating innovative solutions and providing services essential for its customers to reach their end users.
Telesat’s customers represent some of the strongest and most financially stable companies in their respective industries. These
customers frequently commit to long-term contracts for its services, which enhances the predictability of its future revenues and cash
flows and supports its future growth.
Telesat’s North American Broadcast and Enterprise Services customer service contracts are typically multi-year in duration and,
in the past, Telesat has successfully contracted all or a significant portion of a satellite’s capacity prior to commencing construction.
Market and Competition
Telesat is one of three global FSS operators. Telesat competes against other global, regional and national FSS operators and, for
certain services and in certain regions with providers of terrestrial-based communications services.
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Fixed Satellite Operators
The other two global FSS operators are Intelsat Global S.A. (“Intelsat”) and SES S.A. (“SES”). Telesat also competes with a
number of nationally or regionally focused FSS operators around the world, including Eutelsat S.A. (“Eutelsat”), the third largest FSS
operator in the world.
Intelsat, SES and Eutelsat are each substantially larger than Telesat in terms of both the number of satellites they have in-orbit as
well as their revenues. Telesat believes that Intelsat and its subsidiaries together have a global fleet of over fifty satellites, that SES
and its subsidiaries have a fleet of over forty satellites, and that Eutelsat and its subsidiaries have a fleet of over twenty satellites and
additional capacity on another three satellites. Due to their larger sizes, these operators are able to take advantage of greater economies
of scale, may be more attractive to customers, and may (depending on the specific satellite and orbital location in question) have
greater flexibility to restore service to their customers in the event of a partial or total satellite failure. In addition, their larger sizes
may enable them to devote more resources, both human and financial, to sales, operations, product development and strategic alliances
and acquisitions.
Regional and domestic providers: Telesat also competes against regional FSS operators, including:
•
•
•
•
in North America: Ciel, ViaSat/WildBlue, HNS, EchoStar, Satmex and Hispamar;
in Europe, Middle East, Africa: Eutelsat, Arabsat, Nilesat, HellasSat, Turksat and Spacecom;
in Asia: AsiaSat, Measat, Thaicom, APT, PT Telkom, Optus and Asia Broadcast Satellite; and
in Latin America: Satmex, Star One, Arsat, HispaSat and Hispamar.
A number of other countries have domestic satellite systems against which Telesat competes in those markets. In Canada,
Telesat’s largest market, Ciel, whose majority equity shareholder is SES, has begun operations in the DBS band, successfully
launched Ciel 2 in 2008, and in February 2009 announced that it had begun providing commercial service on Ciel 2 at the 129° WL
orbital location. In June 2008, Industry Canada granted Ciel six approvals in principle to develop and operate satellite services in other
frequency bands and orbital positions.
The Canadian Government opened Canadian satellite markets to foreign satellite operators as part of its 1998 World Trade
Organization commitments to liberalize trade in basic telecommunications services. As of February 2011, approximately 74 non-
Canadian FSS satellites are listed as having been approved by Industry Canada for use in Canada. Three of these are Telesat satellites
licensed by other administrations. The growth in satellite service providers using or planning to use Ka-band, including
ViaSat/WildBlue, Eutelsat, HNS, Yahsat and others, will result in increased competition.
Terrestrial Service Providers
Providers of terrestrial-based communications services compete with satellite operators. Increasingly, in developed and
developing countries alike, governments are providing funding and other incentives to encourage the expansion of terrestrial networks
resulting in increased competition for FSS operators.
Consulting Services
The market for satellite consulting services is generally comprised of a few companies qualified to provide services in specific
areas of expertise. Telesat’s competitors are primarily United States- and European-based companies.
Satellite Fleet & Ground Resources
As of December 31, 2010, Telesat had 12 in-orbit satellites and three satellites under construction, one of which is 100% leased
for at least the design life of the satellite.
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Telesat also has ground facilities located around the world, providing both control services to its satellite fleet, as well as to the satellites of other operators as part of its consulting services
offerings. It has two control centers located in Ottawa, Ontario and Allan Park, Ontario. A third control center, in Rio de Janeiro, Brazil is used to operate Telstar 14/Estrela do Sul. In addition,
Telesat leases other technical facilities that provide customers with a host of teleport and hub services.
Telesat’s North American focused fleet is comprised of three owned FSS satellites, Anik F1-R, Anik F2 and Anik F3, and four owned direct broadcast services, or DBS, satellites, Nimiq 1,
Nimiq 2, Nimiq 4 and Nimiq 5. Telesat’s international fleet is comprised of five owned FSS satellites, Anik F1, Telstar 11N, Telstar 12, Telstar 14/Estrela do Sul and Telstar 18.
The table below summarizes selected data relating to Telesat’s owned and leased in-orbit satellites as of December 31, 2010 :
Nimiq 1
Nimiq 2 (4)
Nimiq 4
Nimiq 5
Anik F1 (5)
Anik F2
Anik F1R (3)
Anik F3
Telstar 11N
Telstar 12 (6)
Telstar 14/Estrela
do Sul
Telstar 18 (7)
Orbital Location
Regions
Covered
91.1° WL Canada,
Continental United States
91.1° WL Canada,
Continental United
States
82° WL Canada
72.7° WL Canada,
Continental United States
107.3° WL South
America
111.1° WL Canada,
Continental United
States
107.3° WL North
America
118.7° WL Canada,
Continental United
States
37.55° WL North and
Central America,
Europe, Africa and the
maritime Atlantic
Ocean region
15° WL Eastern United
States, SE Canada,
Europe, Russia, Middle
East, South Africa,
portions of South and
Central America
63° WL Brazil And
portions of Latin
America, North
America, Atlantic
Ocean
138° EL India, South
East Asia, China,
Australia And Hawaii
Launch
Date
May 1999
Manufacturer’s
End-of-Service
Life
2011
Expected
End-of-
Orbital
Maneuver Life (1)
2024
December 2002
2015
September 2008
September 2009
November 2000
July 2004
September 2005
April 2007
2023
2024
2016
2019
2020
2022
February 2009
2024
2021
2027
2035
2018
2027
2023
2026
2026
C-band (2)
—
Ku-band (2)
32@24MHz
Ka-band
Transponders (1)
—
11@24MHz
—
—
L-band (3)
—
—
32@24 MHz
8@54 MHz
32@24MHz
Model
A2100 AX
(Lockheed Martin)
A2100 AX
(Lockheed Martin)
E3000
(EADS Astrium)
SS/L 1300
12@36MHz
16@27MHz
—
—
BSS702 (Boeing)
24@36MHz
32@27MHz
24@36MHz
32@27MHz
24@36MHz
32@27MHz
31@56/112 MHz
6@500MHz
1@56/112MHz
—
2@75MHz
(500MHz)
39@27/54MHz
—
BSS702 (Boeing)
2@20MHz
—
E3000
(EADS Astrium)
E3000
(EADS Astrium)
SS/L 1300
October 1999
2012
2016
—
37@54MHz
—
—
SS/L 1300
January 2004
2019
2011
—
June 2004
2017
2018
18@36MHz
1@54MHz
9@72MHz
9@36MHz
2@28MHz
1@56MHz
6@54MHz
1@40MHz
—
—
SS/L 1300
—
—
SS/L 1300
(1)
(2)
(3)
(4)
(5)
(6)
Telesat’s current estimate of when each satellite will be decommissioned, taking account of anomalies and malfunctions the satellites have experienced to date and other factors such as
remaining fuel levels, consumption rates and other available engineering data. These estimates are subject to change and it is possible that the actual orbital maneuver life of any of these
satellites will be shorter than Telesat currently anticipates. Further, it is anticipated that the payload capacity of each satellite may be reduced prior to the estimated end of commercial
service life. For example, Telesat currently anticipates that it will need to commence the turndown of transponders on Anik F1, as a result of further degradation in available power.
Includes the DBS Ku-Band, extended C-band and extended Ku-band in certain cases.
Telesat does not provide service in the L-band. The L-band payload is licensed to Telesat’s customer by the FCC.
It is expected that the available capacity in Nimiq 2 will be reduced over time as a result of power system limitations due to malfunctions affecting available power. The number of Ku-band
transponders stated above refers to the number of active saturated Ku-band transponders as of December 31, 2010.
Anik F1’s orbital maneuver life is constrained by power availability.
Telstar 12 has 38 54 MHz transponders. Four of these transponders are leased to Eutelsat to settle coordination issues and Telesat leases back three of these transponders.
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(7)
Includes 16.6 MHz of C-band capacity provided to the Government of Tonga in lieu of a cash payment for the use of the orbital
location. The satellite carries additional transponders (the “APT transponders”), not shown on the table, as to which APT has a
prepaid lease through the end of life of the satellite in consideration for APT’s funding a portion of the satellite’s cost. This
transaction was accounted for as a sales-type lease, because substantially all of the benefits and risks incident to the ownership of
the leased transponders were transferred to APT. Telesat has agreed with APT among other things that if Telesat is able to obtain
the necessary approvals and licenses from the U.S. government under U.S. export laws, it would transfer title to the APT
transponders on Telstar 18 to APT, as well as a corresponding interest in the elements on the satellite that are common to or
shared by the APT transponders and the Telesat transponders. As required under its agreement with APT, Telesat acquired two
transponders from APT for an additional payment in August 2009.
In addition, Telesat has the rights to the following satellite capacity to end of life of these satellites:
•
•
•
Satmex 5: Three-36MHz Ku-band transponders;
Satmex 6: Two-36MHz C-band transponders; Two-36MHz Ku-band transponders; and
Agila 2 (Mabuhay): Two-36MHz C-band transponders and five and one half 36 MHz Ku-band transponders
The table below summarizes selected data relating to Telesat’s satellites under construction as of December 31, 2010:
Telstar 14R/Estrela do Sul 2
Nimiq 6
Anik G1
Orbital Location
Regions Covered
Planned In-Service Date
Manufacturer’s End-of-Service-Life
Customer Committed Capacity
Transponders:
Ku-band
C-band
X-band
Model
Satellite Services Performance (1)
63 o WL
South America,
Continental US,
Andean Region,
North and Mid-Atlantic
Ocean Region
Second half of 2011
2026
N/A
TBD
Canada,
Canada, Continental
Continental US US, South America,
107.3° WL
Pacific Ocean
Mid-2012
2027
100%
Second half of 2012
2027
35%
16 @ 27 MHz
12 @ 36 MHz
24 @ 36 MHz
3 @ 36 MHz
58 @36 MHz
32 @ 24 MHz
SS/L 1300
SS/L 1300
SS/L 1300
Until October 31, 2007, the operations of our satellite services segment were conducted through Loral Skynet Corporation
(“Loral Skynet”), which leased transponder capacity to commercial and government customers for video distribution and
broadcasting, high-speed data distribution, Internet access and communications, and provided managed network services to customers
using a hybrid satellite and ground-based system. It also provided professional services such as fleet operating services to other
satellite operators. At October 31, 2007, Loral Skynet had four in-orbit satellites and had one satellite under construction at SS/L.
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On October 31, 2007, Loral and its Canadian partner, Public Sector Pension Investment Board (“PSP”), through Telesat Holdco,
a newly-formed joint venture, completed the acquisition of Telesat from BCE Inc. (“BCE”). In connection with this acquisition, Loral
transferred on that same date substantially all of the assets and related liabilities of Loral Skynet to Telesat. We refer to this acquisition
and transfer of assets and liabilities of Loral Skynet as the Telesat transaction. Loral holds a 64% economic interest and a 33 1 / 3 %
voting interest in Telesat Holdco (see Note 6 to the Loral consolidated financial statements). We use the equity method of accounting
for our investment in Telesat Holdco.
Revenue:
Total segment revenues
Affiliate eliminations (2)
Revenues from satellite services as reported
Adjusted EBITDA:
Total segment Adjusted EBITDA
Affiliate eliminations (2)
Adjusted EBITDA from satellite services after eliminations
2010
Year ended December 31,
2009
(In millions)
2008
$
$
$
$
797
(797 )
—
607
(607 )
—
$
$
$
$
692
(692 )
—
488
(488 )
—
$
$
$
$
685
(685 )
—
436
(427 )
9
(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 15 to the consolidated financial statements
for the definition of Adjusted EBITDA).
(2)
Affiliate eliminations represent the elimination of amounts attributable to Telesat.
Total Telesat assets were $5.3 billion, $5.0 billion and $4.3 billion as of December 31, 2010, 2009 and 2008, respectively.
Backlog was approximately $5.5 billion and $5.2 billion as of December 31, 2010 and 2009, respectively. The increases in backlog
and asset carrying value are primarily due to exchange rate changes. It is expected that approximately 11% of the backlog at
December 31, 2010 will be recognized as revenue in 2011.
We use the equity method of accounting for our investment in Telesat Holdco, and its results are not consolidated in our financial
statements. Our share of the operating results from our investment in this company is included in equity in net income (losses) of
affiliates in our consolidated statements of operations and our investment is included in investments in affiliates in our consolidated
balance sheet.
Other
We also own 56% of XTAR, LLC (“XTAR”), a joint venture between Loral and Hisdesat Servicios Estrategicos, S.A.
(“Hisdesat”). XTAR owns and operates an X-band satellite, XTAR-EUR located at 29 o 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 7.2 72
MHz X-band transponders on the Spainsat satellite located at 30 o 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
Defense, U.S. Department of State, various agencies of the Spanish Government, the Belgium Ministry of Defense, the Norwegian
Ministry of Defense and the Danish armed forces. For more information on XTAR see Note 6 to the Loral consolidated financial
statements.
Satellite Manufacturing
Export Regulation and Economic Sanctions Compliance
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 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 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.
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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, U.S. Government licenses or approvals generally will have to be obtained for the transfer of technical data and
defense services between Loral and Telesat, and between 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.
In addition, if a satellite project involves countries, individuals or entities that are the subject of U.S. economic sanctions
(“Sanctions Targets”) or, in certain situations, is intended to provide services to Sanctions Targets, SS/L’s participation in the project
may be prohibited altogether or licenses or other approvals from the U.S. Treasury Department’s Office of Foreign Assets Control
(“OFAC”) may also be required. See Item 1A — “Segment Risk Factors — We are subject to export control and economic sanctions
laws, which may result in delays, lost business and additional costs.”
Satellite Services
Telecommunications Regulation
As an operator of a global satellite system, Telesat is regulated by government authorities in Canada, the United States and other
countries in which it operates and is subject to the frequency and orbital slot coordination process of the International
Telecommunication Union (“ITU”). Telesat’s ability to provide satellite services in a particular country or region is subject also to the
technical constraints of its satellites, international coordination, local regulation and licensing requirements.
Canadian Regulatory Environment
Telesat’s operations are subject to regulation and licensing by Industry Canada pursuant to the Radiocommunication Act
(Canada) and by the Canadian Radio-Television and Telecommunications Commission (“CRTC”), under the Telecommunications Act
(Canada). Industry Canada has the authority to issue licenses, establish standards, assign Canadian orbital locations and plan the
allocation and use of the radio frequency spectrum, including the radio frequencies upon which Telesat’s satellites and earth stations
depend. The Minister responsible for Industry Canada has broad discretion in exercising this authority to issue licenses, fix and amend
conditions of licenses and to suspend or even revoke licenses. Telesat’s licenses to operate the Anik F and Nimiq satellites require it to
comply with research and development and other industrial and public benefit commitments, to pay annual radio authorization fees
and to provide all-Canada satellite coverage.
Industry Canada traditionally licensed satellite radio spectrum and associated orbital locations on a first-come, first-served basis.
Currently, however, a competitive licensing process is employed for certain spectrum resources where it is anticipated that demand
will likely exceed supply, including the licensing of certain FSS and broadcasting satellite service (“BSS”) orbital locations and
associated spectrum resources. Authorizations are granted for the life of a satellite, although radio licenses (e.g., FSS licenses) are
renewed annually. As a result of policy concerns about the continuity of service and other factors, there is generally a strong
presumption of renewal provided license conditions are met.
The Canadian Government opened Canadian satellite markets to foreign-licensed satellite operators as part of its 1998 World
Trade Organization (“WTO”) commitments to liberalize trade in basic telecommunications services, with the exception of direct-to-
home (“DTH”) television services that are provided through FSS or DBS facilities. In September 2005, the Canadian Government
revised its satellite-use policy to permit the use of foreign-licensed satellites for digital audio radio services in Canada. Further
liberalization of the policy may occur and could result in increased competition in Canadian satellite markets. On June 13, 2007,
Industry Canada announced that Telesat would be awarded five new licenses for Canadian satellite spectrum and rights to the related
orbital positions. Telesat was subsequently awarded an authorization for extended Ku-band, FSS and RDBS spectrum at another
location.
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The Telecommunications Act authorizes the CRTC to regulate various aspects of the provision of telecommunications services
by Telesat and other telecommunications service providers. Since the passage of the Act in 1993, the CRTC has gradually forborne
from regulating an increasing number of services provided by regulated companies. Under the current regulatory regime, Telesat has
pricing flexibility subject to a price ceiling of CAD 170,000 per transponder per month on certain full period FSS services offered in
Canada under minimum five-year arrangements. Telesat’s DBS services offered within Canada are also subject to CRTC regulation,
but have been treated as distinct from its fixed satellite services and facilities. Telesat requires CRTC approval of customer agreements
relating to the sale of all DBS capacity in Canada, including the rates, terms and conditions of service set out therein. Section 28(2) of
the Telecommunications Act provides that the CRTC may allocate satellite capacity to particular broadcasting undertakings if it is
satisfied that the allocation will further the implementation of the broadcasting policy for Canada.
Telesat was originally established by the Government of Canada in 1969, under the Telesat Act. As part of the Canadian
government’s divestiture of its shares in Telesat, pursuant to the Telesat Reorganization and Divestiture Act (1991), or the Telesat
Divestiture Act, Telesat was continued on March 27, 1992 as a business corporation under the Canada Business Corporations Act, the
Telesat Act was repealed and the Government sold its shares in Telesat. Under the Telesat Divestiture Act, Telesat remains subject to
certain special conditions and restrictions. The Telesat Divestiture Act provides that no legislation relating to the solvency or winding-
up of a corporation applies to Telesat and that its affairs cannot be wound up unless authorized by an Act of Parliament. In addition,
Telesat and its shareholders and directors cannot apply for Telesat’s continuation in another jurisdiction or dissolution unless
authorized by an Act of Parliament.
In July 2010, the Government of Canada adopted the legislative amendments that were proposed in its 2010 budget that
eliminated the application of certain foreign ownership restrictions under the Telecommunications Act and Radiocommunications Act,
to Canadian satellite operators, like Telesat. Telesat believes the elimination of these restrictions will give it access to additional
sources of capital and, more generally, greater strategic flexibility to enhance it’s competitive position. The legislative amendments do
not affect the nature of Loral’s ownership interest in, or rights with respect to the governance of Telesat, nor do they alter the
Canadian government’s authority to review foreign investment in Canadian companies under the Investment Canada Act including the
authority to review any changes to the nature of Loral’s ownership.
United States Regulatory Environment
The Federal Communications Commission, or FCC, regulates the provision of satellite services to, from or within the United
States. Certain of Telesat’s satellites are owned and operated through a US subsidiary and are regulated by the FCC.
Telesat has chosen to operate its US-authorized satellites on a non-common carrier basis, and it is not subject to rate regulation or
other common carrier regulations enacted under the US Communications Act of 1934. Telesat pays FCC filing fees in connection with
its space station and earth station applications and annual fees to defray the FCC’s regulatory expenses. Annual and quarterly status
reports must be filed with the FCC for interstate/international telecommunications, and Telesat must contribute funds supporting the
FCC’s Universal Service Fund, or USF, with respect to eligible United States telecom revenues on a quarterly and annual basis. The
USF contribution rate is adjusted quarterly and is currently set at 15.5% for the first quarter of 2011. At the present time, the eligible
revenue to determine USF contributions excludes revenue from bare transponder capacity (space segment only agreements).
The FCC currently grants satellite authorizations on a first-come, first-served basis to applicants who demonstrate that they are
legally, technically and financially qualified, and where the public interest will be served by the grant. There are no assurances that
applications will be granted. Under licensing rules, a bond must be posted for up to $3 million when an FSS satellite authorization is
granted. Some or the entire amount of the bond may be forfeited if there is failure to meet any of the milestones imposed under the
authorization (including milestones for satellite construction, launch and commencement of operations). Under 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 the 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.
Telesat, through its U.S. subsidiary, Skynet Satellite Corporation, has FCC authorization for two existing U.S.-licensed satellites
which operate in the Ku-band: Telstar 12 at 15° WL and Telstar 11N at 37.55° WL.
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To facilitate the provision of FSS satellite services in C- and Ku-band frequencies in the United States market, foreign licensed
operators may apply to have their satellites placed on the FCC’s Permitted Space Station List. Telesat’s Anik Fl, Anik Fl-R, Anik F2,
Anik F3, and Telstar 14/Estrela do Sul satellites are currently on this list.
The United States made no WTO commitment to open its DTH, DBS or digital audio radio services to foreign competition, and
instead indicated that provision of these services by foreign operators would be considered on a case-by-case basis, based on an
evaluation of the effective competitive opportunities open to United States operators in the country in which the foreign satellite was
licensed (i.e., an ECO-sat test) as well as other public interest criteria. While Canada currently does not satisfy the ECO-sat test in the
case of DTH and DBS service, the FCC has found, in a number of cases, that provision of these services into the United States using
Canadian-licensed satellites would provide significant public interest benefits and would therefore be allowed. United States service
providers, Digital Broadband Applications Corp., DIRECTV and EchoStar, have all received FCC approval to access Canadian-
authorized satellites under Telesat’s direction and control in Canadian-licensed orbital locations to provide DTH-FSS or DBS service
into the United States.
The approval of the FCC for the Telesat transaction was conditioned upon compliance by Telesat with commitments made to the
Department of Justice, the Federal Bureau of Investigation and the Department of Homeland Security relating to the availability of
certain records and communications in the United States in response to lawful United States law enforcement requests for such access.
Regulation Outside Canada and the United States
Telesat also operates satellites through licenses granted by countries other than Canada and the United States.
The Brazilian national telecommunications agency, ANATEL, has authorized Telesat, through its subsidiary, Telesat Brasil
Capacidade de Satelites Ltda. (TBCS), to operate a Ku-band FSS satellite at the 63° WL orbital location. In December 2008, TBCS
entered into a new 15-year Concession Agreement with ANATEL which requires TBCS to dedicate a minimum amount of bandwith
to serve Brazil until 2014. After May 2014, this requirement will be removed. The Concession Agreement obligates TBCS to operate
the satellite in accordance with Brazilian telecommunications law and contains provisions to enable ANATEL to levy fines for failure
to perform according to the Concession terms. Brazil also has a Universal Service Fund (“FUST”) to subsidize the cost of
telecommunications service in Brazil. The sale of “bare transponder capacity” in Brazil, however, which is TBCS’ primary business,
is not considered a telecommunications service and revenues from such sales are not assessable for contributions to the fund.
Telesat, through its subsidiary Telesat Satellite LP, owns Telstar 18, which operates at the 138° EL orbital location under an
agreement with APT, which has been granted the right to use the 138° EL orbital location by The Kingdom of Tonga. APT is the
direct interface with these regulatory bodies. Because Telesat gained access to this orbital location through APT, there is greater
uncertainty with respect to its ability to maintain access to this orbital location for replacement satellites.
In addition to regulatory requirements governing the use of orbital locations, most countries regulate transmission of signals to
and from their territory. Telesat has landing rights in more than 140 countries worldwide.
International Regulatory Environment — International Telecommunication Union
The ITU is responsible for allocating the use by different countries of a finite number of orbital locations and radio frequency
spectrum available for use by commercial communications satellites. The ITU Radio Regulations set forth the processes that
governments must follow to apply for and secure rights to use orbital locations and the obligations and restrictions that govern such
use. The ITU Radiocommunication Bureau (ITU-BR) is responsible for receiving, examining, tracking and otherwise managing the
applications in the context of the rules set forth in the Radio Regulations. The process includes, for example, a “first in time, first in
right” system for assigning rights to orbital locations and time limits for bringing orbital locations into use.
In accordance with the ITU Radio Regulations, as noted above, the Canadian and other governments have rights to use certain
orbital locations and frequencies. These governments have in turn authorized Telesat to use several orbital locations and radio
frequencies in addition to those used by its current satellites. Under the ITU Radio Regulations, Telesat must begin using these orbital
locations and frequencies within a fixed period of time, or the governments in question would lose their priority rights and the orbital
location and frequencies likely would become available for use by another satellite operator.
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The ITU Radio Regulations also govern the process used by satellite operators to coordinate their operations with other nearby
satellites, so as to avoid harmful interference. Each member state is required to give notice of, coordinate and register its proposed use
of radio frequency assignments and associated orbital locations with the ITU-BR. This ensures that there is an orderly process to
accommodate each country’s orbital location needs.
Once a member state has advised the ITU-BR that it desires to use a given frequency at a given orbital location, other member
states notify that state and the ITU-BR of any use or intended use that would conflict with the original proposal. These nations are then
obligated to negotiate with each other in an effort to coordinate the proposed uses and resolve interference concerns. If all outstanding
issues are resolved, the member state governments so notify the ITU-BR, and the frequency use is registered in the ITU’s Master
Register (“MIFR”). Following this notification, the registered satellite networks are entitled under international law to interference
protection from subsequent or nonconforming uses. A state is not entitled to invoke the protections in the ITU Radio Regulations
against harmful interference if that state decided to operate a satellite at the relevant orbital location without completing the
coordination and notification process.
In the event disputes arise during the coordination process or thereafter, the ITU Radio Regulations do not contain a mandatory
dispute resolution mechanism or an enforcement mechanism. Rather, the rules invite a consensual dispute resolution process for
parties to reach a mutually acceptable agreement. Neither the rules nor international law provide a clear remedy for a party where this
voluntary process fails. Some of Telesat’s satellites have been coordinated and registered in the MIFR and therefore enjoy priority
over all later-filed requests for coordination and any non-conforming uses. In other cases, entry into the MIFR is still pending. While
the ITU Radio Regulations, however, set forth procedures for resolving disputes, as a practical matter, there is no mandatory dispute
resolution and no mechanism by which to enforce an agreement or entitlement under the rules.
Although non-governmental entities, including Telesat, participate at the ITU, only national administrations have full standing as
ITU members. Consequently, Telesat must rely on the government administrations of Canada, the United States, Brazil, and the
United Kingdom (respectively, Industry Canada, the FCC, ANATEL, and OFCOM) to represent its interests in those jurisdictions,
including filing and coordinating orbital locations within the ITU process with the national administrations of other countries,
obtaining new orbital locations and resolving disputes through the consensual process provided for in the ITU’s rules.
Satellite Manufacturing
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 167 patents
in the United States and has applications for 13 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 2011 and 2029.
Satellite Services
As of December 31, 2010 Telesat had five patents, all in the United States. These patents expire between 2018 and 2021.
There can be no assurance that any of the foregoing 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. and
Canadian 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 or Telesat would infringe. In such event, to obtain a license from a patent
holder, royalties would have to be paid, which would increase the cost of doing business. Moreover, in the case of SS/L, it would be
required to refund money to customers for components that are not useable as a result of such infringement or redesign its products in
a manner to avoid infringement. SS/L may also be required under the terms of its customer contracts to indemnify its customers for
related damages.
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Satellite Manufacturing
RESEARCH AND DEVELOPMENT
SS/L’s research and development expenditures involve the design, experimentation and the development of space and satellite
products. Research and development costs are expensed as incurred. SS/L’s research and development costs were $20 million for
2010, $23 million for 2009 and $35 million for 2008 and are included in selling, general and administrative expenses in our
consolidated statements of operations.
Satellite Services
Telesat’s research and development expenditures are incurred for the studies associated with advanced satellite system designs,
and experimentation and development of space, satellite and ground communications products. This also includes the development of
innovative and cost effective satellite applications for sovereignty, defense, broadcast, broadband and enterprise services segments.
Telesat has undertaken proof-of-concept interactive broadband technologies trials to provide much needed health, education,
government and other applications to remote and under-served areas. Telesat continues to research advanced compression and
transmission technology to support HDTV and other advanced television services and evaluate technology on behalf of the World
Broadcast Union and European Space Agency.
FOREIGN OPERATIONS
Loral’s revenues from foreign customers, primarily in Europe, Canada and Asia represented 44%, 46% and 30% of our
consolidated revenues for the years ended December 31, 2010, 2009 and 2008, respectively.
Satellite Manufacturing
SS/L’s revenues from foreign customers, primarily in Europe, Canada and Asia represented 44%, 46% and 29% of SS/L
revenues for the years ended December 31, 2010, 2009 and 2008, respectively. As of December 31, 2010, 2009 and 2008,
substantially all of SS/L’s long-lived assets were located in the United States. See Item 1A — Risk Factors below for a discussion of
the risks related to operating internationally. See Note 15 to the Loral consolidated financial statements for detail on SS/L’s domestic
and foreign sales.
Satellite Services
Telesat’s revenues from non-U.S. customers, primarily in Canada, Asia, Europe and Latin America represented 68% of its
consolidated revenues for the years ended December 31, 2010 and 2009 and 66% of its consolidated revenues for the year ended
December 31, 2008. At December 31, 2010, 2009 and 2008 substantially all of its long-lived assets were located outside of the United
States, primarily in Canada, with the exception of in-orbit satellites.
EMPLOYEES
As of December 31, 2010, Loral had approximately 2,700 full-time employees and approximately 280 contract employees, none
of whom are subject to collective bargaining agreements. Almost all of the foregoing employees are employed in the satellite
manufacturing segment. We consider our employee relations to be good.
As of December 31, 2010, Telesat, including subsidiaries, had 480 full and part time employees, approximately 2% of whom are
subject to collective bargaining agreements. Telesat considers its employee relations to be good.
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OTHER
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”) pursuant to the terms of the fourth amended joint plan of reorganization, as modified (“the Plan of
Reorganization”).
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 Investment Risk Factors
Our revenues and profitability may be adversely affected by swings in the global financial markets, which may have a
material adverse effect on our customers and suppliers.
Swings in the global financial markets that include illiquidity, market volatility, changes in interest rates and currency exchange
fluctuations can be difficult to predict and negatively affect the ability of certain customers to make payments when due. Such swings
may materially and adversely affect us due to the potential insolvency of suppliers and customers, inability of customers to obtain
financing for their satellites and transponder leases, decreased customer demand, delays in supplier performance and contract
terminations. Our customers may not have access to capital or a willingness to spend capital on our satellites and transponder leases,
or their levels of cash liquidity with which to pay for satellites they have ordered from us and transponder leases may be adversely
affected. Our suppliers’ access to capital and liquidity with which to maintain their inventories, production levels or product quality
may be adversely affected, which could cause them to raise prices or cease operations. As a result, we may experience a material
adverse effect on our business, results of operations and financial condition. These potential effects of swings in the global financial
markets are difficult to forecast and mitigate.
The SS/L credit agreement is subject to financial and other covenants that must be met for SS/L to utilize the revolving
facility.
On December 20, 2010, SS/L entered into an amended and restated credit agreement with several banks and other financial
institutions. The SS/L credit agreement provides for a $150 million senior secured revolving credit facility. The revolver matures on
January 24, 2014. This credit agreement contains certain covenants, both financial and non-financial, which SS/L must be able to meet
to draw on the revolver. The covenants include, among other things, a consolidated leverage ratio test, a consolidated interest coverage
ratio test and restrictions on the incurrence of additional indebtedness, capital expenditures, investments, dividends or stock
repurchases, asset sales, mergers and consolidations, liens, changes to the line of business and other matters customarily restricted in
such agreements. While SS/L has been in compliance with all covenants to date, there can be no assurance that SS/L will be able to
meet its covenant requirements in the future and maintain the availability to use the revolver. SS/L’s liquidity would be materially and
adversely affected if it is unable to do so.
Our potential indebtedness makes us vulnerable to adverse developments.
There are certain restrictions in SS/L’s credit agreement on SS/L incurring indebtedness from sources other than the existing
SS/L credit agreement. If new debt is added, such indebtedness could impose additional restrictive covenants. The incurrence of debt
under the SS/L credit agreement and any additional significant debt that we may incur would make us vulnerable to, among other
things, adverse changes in general economic, industry and competitive conditions.
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Increases in interest rates could increase interest costs under SS/L’s credit facility.
Borrowings under SS/L’s credit facility are limited to Eurodollar Loans for periods ending in one, two, three or six months or
daily loans for which the interest rate is adjusted daily based upon changes in the Prime Rate, Federal Funds Rate or one month
Eurodollar Rate. Because of the nature of the borrowing under a revolving credit facility, the borrowing rate adjusts to changes in
interest rates over time. For a $150 million credit facility, if it were fully borrowed, a 1% change in interest rates would affect annual
interest expense by $1.5 million.
Instability in financial markets could adversely affect our ability to access additional capital.
In recent years, the volatility and disruption in the capital and credit markets have reached unprecedented levels. If these
conditions continue or worsen, there can be no assurance that we will not experience a material adverse effect on SS/L’s ability to
borrow money, including under SS/L’s senior secured revolving credit facility, or have access to capital, if needed. Although our
lenders have made commitments to make funds available to SS/L in a timely fashion, SS/L’s lenders may be unable or unwilling to
lend money. In addition, if we determine that it is appropriate or necessary to raise capital in the future, the future cost of raising funds
through the debt or equity markets may be more expensive or those markets may be unavailable. If we were unable to raise funds
through debt or equity markets, it could have a material adverse effect on our business, results of operations and financial condition.
Loral Space & Communications Inc., the parent company, is a holding company with no current operations; we are dependent
on cash flow from our operating subsidiaries and affiliates to meet our financial obligations.
The parent company is a holding company with three primary assets, its equity interest in its wholly-owned subsidiary, SS/L, and
its equity interests in its affiliates, Telesat and XTAR. The parent company has no independent operations or operating assets and has
ongoing cash requirements. The ability of SS/L, Telesat and XTAR to make payments or distributions to the parent company, whether
as dividends or as payments under applicable management agreements or otherwise, will depend on their operating results, including
their ability to satisfy their own cash flow requirements and obligations including, without limitation, their debt service obligations.
Moreover, covenants contained in the debt agreements of SS/L and Telesat impose limitations on their ability to dividend funds to the
parent company. Even if the applicable debt covenants would permit Telesat to pay dividends, the parent company will not have the
ability to cause Telesat to do so. See below “While we own 64% of Telesat on an economic basis, we own only 33 1 / 3 % of its voting
stock and therefore do not have the right to elect or appoint a majority of its Board of Directors.” Likewise, any dividend payments by
XTAR would require the prior consent of our Spanish partner in the joint venture.
The parent company earns a management fee of $5 million a year from Telesat. Telesat’s loan documents permit this
management fee from Telesat to be paid to the parent company only in the form of notes, with such fee becoming payable in cash only
at such time that Telesat meets certain financial performance criteria set forth in the loan documents. Whether Telesat meets the
financial performance criteria to enable payment is dependent upon foreign exchange rates which are constantly fluctuating. It is
uncertain at this time whether Telesat will be permitted to pay the management fee in 2011.
SS/L made a $50 million dividend payment to the parent company in January 2011 as permitted under SS/L’s credit agreement
which SS/L amended and restated in December 2010. SS/L pays the parent company a management fee of $1.5 million in cash each
year. The parent company also allocates a portion of its annual overhead expenses to SS/L. The parent company required SS/L to
make overhead expense allocation payments to it in 2010. The SS/L credit agreement restricts these overhead expense allocation
payments to an amount not to exceed $15 million in any fiscal year and imposes a liquidity restriction that must be met for SS/L to
make such payment. The SS/L credit agreement also limits loans by SS/L to the parent company. There can be no assurance that SS/L
will be permitted to make expense allocation payments or loans to the parent company in the future.
Since January 2008, we have been investing in a Canadian broadband business which has been a use of cash for the Company.
On March 1, 2011, Loral entered into agreements to sell this business to Telesat. It is expected that upon closing the transaction, the
Company will receive $13 million plus reimbursement of approximately $48 million, representing Loral’s net costs incurred through
the closing date. This transaction is expected to close in March 2011. There can be no assurance, however, that this transaction will
close. If the transaction does not close, the Company intends to continue to fund the business.
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While we own 64% of Telesat on an economic basis, we own only 33 1 / 3 % of its voting stock and therefore do not have the
right to elect or appoint a majority of its Board of Directors.
While we own 64% of the economic interests of Telesat, we hold only 33 1 / 3 % of its voting interests. Although the restrictions
on foreign ownership of Canadian satellites have recently been removed by the government of Canada, we are still subject to our
shareholders agreement with PSP and the articles of incorporation of Telesat Holdco, which do not allow us to own more voting stock
of Telesat Holdco than we currently own. Also, under our shareholders agreement, the governance and management of Telesat is
vested in its 10-member Board of Directors, comprised of three Loral appointed directors, three PSP appointed directors and four
independent directors, two of whom also own Telesat shares with nominal economic value and 30% and 6 2 / 3 % of the voting
interests for Telesat directors, respectively. While we own a greater voting interest in Telesat than any other single stockholder with
respect to election of directors and we and PSP, which owns 30% of the voting interests for directors and 66 2 / 3 % of the voting
interests for all other matters, together own a majority of Telesat’s voting power, circumstances may occur where our interests and
those of PSP diverge or are in conflict. In that case, PSP, with the agreement of at least three of the four independent directors may,
subject to veto rights that we have under Telesat’s shareholders agreement, cause Telesat to take actions contrary to our wishes. These
veto rights are, however, limited to certain extraordinary actions — for example, the incurrence of more than $100 million of
indebtedness or the purchase of assets at a cost in excess of $100 million. Moreover, our right to block these actions under the
shareholders agreement falls away if, subject to certain exceptions, either (i) ownership or control, directly or indirectly by Dr. Mark
H. Rachesky (President of MHR Fund Management LLC, or MHR, which, through its affiliated funds is our largest stockholder) of
our voting stock falls below certain levels or (ii) there is a change in the composition of a majority of the members of Loral’s board of
directors over a consecutive two-year period.
Our equity investment in Telesat may be at risk because of Telesat’s leverage.
At December 31, 2010, Telesat had outstanding indebtedness of CAD 2.9 billion and additional borrowing capacity of CAD
153 million under its revolving facility, based on a U.S. dollar/Canadian dollar exchange rate of $1.00/CAD 0.9980. Approximately
CAD 2.0 billion of this total borrowing capacity is debt that is secured by substantially all of the assets of Telesat. This indebtedness
represents a significant amount of indebtedness for a company the size of Telesat. The agreements governing this indebtedness impose
operating and financial restrictions on Telesat’s activities. These restrictions on Telesat’s ability to operate its business could seriously
harm its business by, among other things, limiting its ability to take advantage of financing, merger and acquisition and other
corporate opportunities, which could in time adversely affect the value of our investment in Telesat.
As of December 31, 2010, Telesat had indebtedness of CAD $2.0 billion which bears interest at variable rates. If market interest
rates were to rise, this would result in higher debt service requirements. To alleviate a portion of this risk, in 2007 Telesat entered into
interest rate swaps that converted $600 million of its outstanding floating U.S. dollar debt and CAD 630 million of its outstanding
Canadian dollar debt into fixed rate debt for periods extending into 2010 and 2011. In 2009, Telesat extended the maturity of the
existing CAD 630 million floating to fixed interest rate swaps to October 2014 and entered into an additional delayed-start floating to
fixed CAD 300 million interest rate swap maturing in October 2014.
Telesat’s indebtedness includes $1.7 billion that is denominated in U.S. dollars and is unhedged with respect to foreign exchange
rates. Unfavorable exchange rate changes could affect Telesat’s ability to repay or refinance this debt.
A breach of the covenants contained in any of Telesat’s loan agreements, including without limitation, a failure to maintain the
financial ratios required under such agreements, could result in an event of default. If an event of default were to occur, Telesat’s
lenders would be able to accelerate repayment of the related indebtedness, and it may also trigger a cross default under other Telesat
indebtedness. If Telesat is unable to repay its secured indebtedness when due (whether at the maturity date or upon acceleration as a
result of a default), the lenders will have the right to proceed against the collateral granted to them to secure such indebtedness, which
consists of substantially all of the assets of Telesat and its subsidiaries. Telesat’s ability to make payments on, or repay or refinance,
its debt, will depend largely upon its future operating performance. In the event that Telesat is not able to service its indebtedness,
there would be a material adverse effect on the value of our equity investment in Telesat.
Telesat also has CAD 141 million of 7% (8.5% following a performance failure) senior preferred stock that may be redeemed by
the holders thereof commencing October 31, 2019. This preferred stock enjoys rights of priority over the Telesat equity securities held
by us.
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Certain asset sales by Telesat may trigger material adverse tax consequences for us.
Upon completion of the Telesat transaction, we deferred a tax gain of approximately $308 million arising from the contribution
by Loral Skynet to Telesat of substantially all of its assets and related liabilities. If Telesat were to sell or otherwise dispose of
substantially all of such contributed assets in one or more taxable transactions prior to November 1, 2012, we would be required to
recognize this deferred gain with retroactive effect to 2007, resulting in additional tax liability to us of approximately $119 million
plus interest. Telesat has agreed that, prior to November 1, 2012, without our prior consent, it will not dispose of assets having a value,
whether individually or in the aggregate, in excess of $50 million if such disposition would, in our reasonable determination, result in
an adverse tax consequence to us. If we were to exercise this veto right and prevent Telesat from consummating such an asset sale, it
may, however, adversely affect the value of our investment in Telesat.
The Telesat information in this report is based solely on information provided to us by Telesat.
Because we do not control Telesat, we do not have the same control and certification processes with respect to the information
contained in this report on our satellite services segment that we have for the reporting on our satellite manufacturing segment. We are
also not involved in managing Telesat’s day to day operations. Accordingly, the Telesat information contained in this report is based
solely on information provided to us by Telesat and has not been separately verified by us.
Telesat’s financial results and our U.S. dollar reporting of Telesat’s financial results will be affected by volatility in the
Canadian/U.S. dollar exchange rate.
Portions of Telesat’s revenue, expenses and debt are denominated in U.S. dollars and changes in the U.S. dollar/Canadian dollar
exchange rate may have a negative impact on Telesat’s financial results and affect the ability of Telesat to repay or refinance its
borrowings.
Loral reports its investment in Telesat in U.S. dollars while Telesat reports its financial results in Canadian dollars. Loral reports
its investment in Telesat using the equity method of accounting. As a result, Telesat’s results of operations are subject to conversion
from Canadian dollars to U.S. dollars. Changes in the U.S. dollar relationship to the Canadian dollar affect how our financial results as
they relate to Telesat are reported in our consolidated financial statements. There was a significant movement in US$/CAD exchange
rates during 2010; the exchange rate moved from US$1.00/CAD 1.0532 at December 31, 2009 to US$1.00/CAD 0.9980 at
December 31, 2010.
XTAR has not generated sufficient revenues to meet all of its contractual obligations, which are substantial.
XTAR’s take-up rate in its service has been slower than anticipated. As a result, it has deferred certain payments owed to us,
Hisdesat and Telesat, including payments due under an agreement with Hisdesat to lease certain transponders on the Spainsat satellite.
These lease obligations were $24 million in 2010 with increases thereafter to a maximum of $28 million per year through the end of
the useful life of the satellite, which is estimated to be in 2022. In addition, XTAR has entered into an agreement with Hisdesat
whereby the past due balance on the Spainsat transponders of $32.3 million as of December 31, 2008, together with a deferral of
$6.7 million in payments due in 2009, became payable to Hisdesat over 12 years through annual payments of $5 million. Also, XTAR
has a convertible loan from Hisdesat in the amount of approximately $17 million, including accrued interest, which is due in
June 2011. XTAR’s lease and other obligations to Hisdesat, which will aggregate in excess of $376 million over the life of the
satellite, are substantial, especially in light of XTAR’s limited revenues to date. XTAR has agreed that most of its excess cash balance
would be applied towards making limited payments on these obligations, as well as payments of other amounts owed to us, Hisdesat
and Telesat in respect of services provided by them to XTAR. Unless XTAR is able to generate a substantial increase in its revenues,
these obligations will continue to accrue and grow, which may have a material and adverse effect on our equity interest in XTAR. As
of December 31, 2010, $3.0 million was due to Loral from XTAR.
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As part of our business strategy, we may complete acquisitions, undertake restructuring efforts or engage in other strategic
transactions. These actions could adversely affect our business, results of operations and financial condition.
As part of our business strategy, we may engage in discussions with third parties regarding, or enter into agreements relating to,
acquisitions, restructuring efforts or other strategic transactions in order to manage our product and technology portfolios or further
our strategic objectives. In order to pursue this strategy successfully, we must identify suitable acquisition or alliance candidates and
complete these transactions, some of which may be large and complex. Any of these activities may result in disruptions to our
business and may not produce the full efficiency and cost reduction benefits anticipated.
II. Segment Risk Factors
•
Risk Factors Associated With Satellite Manufacturing
The satellite manufacturing market is highly competitive.
SS/L competes with companies such as Lockheed Martin, Boeing and Orbital Sciences in the United States, Thales, Alenia
Space and EADS Astrium in Europe and Mitsubishi Electric Corp. in Japan. We also expect that in the future SS/L will compete with
emerging low-cost competitors in India, Russia and China. Many of SS/L’s competitors are larger and have substantially greater
resources than we do. Furthermore, it is possible that other domestic or foreign companies or governments, some with greater
experience in the space industry and many with greater financial resources than we possess, could seek to produce satellites that could
render SS/L’s satellites less competitively viable. Some of SS/L’s foreign competitors currently benefit from, and others may in the
future benefit from, subsidies from or other protective measures by their home countries or government-supported financing of
customer purchases and the ability to avoid U.S. export controls. Moreover, as a result of our interest in Telesat, SS/L may experience
difficulty in obtaining orders from certain customers engaged in the satellite services business who compete with Telesat.
Our financial performance is dependent on SS/L’s ability to generate a sustainable order rate and to continue to increase its
backlog. This can be challenging and may fluctuate on an annual and quarterly basis as the number of satellite construction contracts
varies and is difficult to predict. Furthermore, the satellite manufacturing industry has suffered from substantial overcapacity
worldwide for a number of years, resulting in competitive pressure on pricing 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 assumption of risk by manufacturers, including SS/L.
The cyclicality of SS/L’s end-user markets could have a material adverse effect on our financial results.
Many of the end markets SS/L serves have historically been cyclical and have experienced periodic downturns. The factors
leading to, and the severity and length of, a downturn are difficult to predict and it is possible that we will not appropriately anticipate
changes in the underlying end markets SS/L serves. It is also difficult to predict whether any increased levels of business activity will
continue as a trend into the future. If we fail to anticipate changes in the end markets SS/L serves, our business, results of operations
and financial condition could be materially adversely affected.
Many of SS/L’s contracts with its customers include performance incentives that subject us to risk.
Most of SS/L’s satellite construction contracts permit SS/L’s customers to pay a portion of the purchase price (typically about
10%) for the satellite over the life of the satellite (typically 15 years), subject to the continued performance of the satellite, referred to
as orbital receivables. Since these orbital receivables could be affected by future satellite performance, SS/L may not be able to collect
all or a portion of these receivables. See “— SS/L’s contracts are subject to adjustments, cost overruns and termination.” SS/L
generally does not insure for these orbital receivables and, in some cases, agrees with our customers not to insure them.
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SS/L records the present value of orbital receivables as revenue during the construction of the satellite, which is typically two to
three years. SS/L generally receives the present value of these orbital receivables 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 SS/L’s
own error.
In addition to performance of the satellite, there can be no assurance that a customer will not delay payment of an orbital
receivable to, or seek financial relief from, SS/L if such customer has financial difficulties. Nonpayment of an orbital receivable by a
customer for performance or other reasons could have an adverse effect on our cash flows. In addition, if SS/L’s customers fall behind
or default on payments to SS/L of orbital receivables, our liquidity will be adversely affected.
Some of SS/L’s contracts provide for performance incentives to the customer in the form of warranty payback, which means that
in the event satellite anomalies develop after launch, SS/L would owe the customer a specified penalty payment. SS/L does not insure
these contingent liabilities. We have recorded reserves in our financial statements based on current estimates of SS/L’s warranty
liabilities. There is no assurance that our actual liabilities to SS/L’s customers in respect of these warranty liabilities will not be greater
than the amount reserved.
The satellite manufacturing industry is characterized by technological change, and if SS/L cannot continue to develop,
manufacture and market innovative satellite applications that meet customer requirements our sales may suffer.
The satellite manufacturing industry is characterized by technological developments necessary to meet changing customer
demand for complex and reliable services. SS/L needs to invest in technology to meet its customers’ changing needs. Technological
development is expensive and requires long lead time. It is possible that SS/L may not be successful in developing new technology or
that the technology it is successful in developing may not meet the needs of its customers or potential new customers. SS/L’s
competitors may also develop technology that better meets the needs of SS/L’s customers, which may cause those customers or
potential new customers to buy satellites from SS/L’s competitors rather than SS/L.
It is possible that SS/L’s satellites will not be successfully developed or manufactured.
The satellites SS/L develops and manufactures are technologically advanced and complex and sometimes include novel systems
that must function in highly demanding and harsh environments. From time to time, SS/L experiences failures or cost overruns in
developing and manufacturing its satellites, delays in delivery and other operational problems. Some of SS/L’s satellite contracts
impose monetary penalties on SS/L for delays and for performance difficulties, which penalties could be significant and have a
material adverse effect on our financial condition.
Certain of SS/L’s on-orbit satellites have known performance issues.
Component failure is not uncommon in complex satellites. Costs resulting from component failure may result in warranty
expenses, loss of orbital receivables and/or additional loss of revenues due to the postponement or cancellation of subsequently
scheduled operations or satellite deliveries and may have a material adverse effect on our financial condition and results of operations.
Negative publicity from satellite failures may also impair SS/L’s ability to win new contracts from existing and new customers.
Some satellites SS/L has built have experienced minor losses of power from their solar arrays. Thirty-one of SS/L’s satellites
currently on-orbit have experienced partial losses of power from their solar arrays. 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. A partial or complete loss of a satellite could result in an incurrence of warranty
payments by, or a loss of orbital receivables to, SS/L.
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SS/L’s major customers account for a sizable portion of SS/L’s revenues, and the loss of, or a reduction in, orders from these
customers could result in a decline in revenues.
A sizable portion of SS/L’s revenue is derived from a limited number of customers and we expect that SS/L’s results of
operations in the foreseeable future will continue to depend on SS/L’s ability to continue to service such customers. It is possible that
any of SS/L’s major customers could cease entering into satellite construction contracts with SS/L or could significantly reduce or
delay the number of satellites that it orders and purchases from SS/L. The loss of, or a reduction in, orders from any major customer
could cause a decline in our overall revenue and have a material adverse effect on our business, results of operations and financial
condition.
SS/L’s future operating results are dependent on the growth in the businesses of SS/L’s customers and on SS/L’s ability to sell
to new customers.
SS/L’s growth is dependent on the growth in the sales of the services of SS/L’s customers as well as the development by SS/L’s
customers of new services. If we fail to anticipate changes in the businesses of SS/L’s customers and their changing needs, or
successfully identify and enter new markets, our results of operations and financial position could be adversely affected. The markets
SS/L serves may not grow in the future and we may not be able to maintain adequate gross margins or profits in these markets. A
decline in demand in one or several end-user markets of SS/L’s customers could have a material adverse effect on the demand for
SS/L’s satellites and have a material adverse effect on our business, results of operations and financial condition.
SS/L’s contracts are subject to adjustments, cost overruns 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 profits or increase of losses, borne solely by SS/L. Under such contracts, SS/L may receive progress
payments, or SS/L 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 is generally
liable to its customers for schedule delays and other non-performance by its suppliers, which may be largely outside of SS/L’s control.
Non-performance may increase costs and subject SS/L to damage claims from customers and termination of the contract for
default. SS/L’s contracts contain detailed and complex technical specifications to which the satellite must be built. It is very common
that satellites built by SS/L do not conform in every single aspect to, and contain a small number of minor deviations from, the
technical specifications. In the case of more significant deviations, however, SS/L may incur increased costs to bring the satellite
within or close to the contractual specifications or a customer may exercise its contractual right to terminate the contract for default. In
some cases, such as when the actual weight of the satellite exceeds the specified weight, SS/L may incur a predetermined penalty with
respect to the deviation. SS/L’s failure to deliver a satellite to its customer by the specified delivery date, which may result from
factors beyond SS/L’s control, such as delayed performance or non-performance by the subcontractors or failure to obtain necessary
governmental licenses for delivery, would also be harmful to us unless mitigated by applicable contract terms, such as excusable
delay. As a general matter, SS/L’s failure to deliver beyond any contractually provided grace period would result in incurrence of
liquidated damages, which may be substantial, and if SS/L is still unable to deliver the satellite upon the end of the liquidated damages
period, the customer will generally have the right to terminate the contract for default. If a contract is terminated for default, SS/L
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 SS/L’s 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 our business.
In addition, many of SS/L’s contracts may be terminated for convenience by the customer. 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; however, there is no guarantee that any such recovery will be obtained.
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A dispute could arise relating to a satellite in construction.
SS/L and one of its customers, EchoStar Corporation (“EchoStar”), have agreed to suspend final construction of a satellite
pending, among other things, further analysis relating to efforts to meet the satellite performance criteria or confirmation that
alternative performance criteria would be acceptable. In May 2010, SS/L provided EchoStar, at its request, with a proposal to
complete construction and prepare the satellite for launch under the current specifications. In August 2010, SS/L provided EchoStar, at
its request, additional proposal information. There can be no assurance that a dispute will not arise with EchoStar as to whether the
satellite meets its technical performance specifications or in the situation where a dispute does arise that SS/L would prevail. Failure to
resolve such dispute, or future disputes with this or other customers, in a timely and cost-efficient manner could have a material
adverse effect on our financial condition.
Certain of SS/L’s customers are highly leveraged and may not fulfill their contractual payment obligations with SS/L.
SS/L has certain commercial customers that are either highly leveraged or in the development stage that are not fully funded.
There is a risk that these customers will be unable to meet their payment obligations to SS/L under their satellite construction
contracts. This risk is increased due to current economic conditions. For example, one of SS/L’s customers, TerreStar Networks Inc.
(“TerreStar”), filed for protection under Chapter 11 of the Bankruptcy Code on October 19, 2010. As of December 31, 2010, SS/L had
$19 million of past due receivables from TerreStar related to an in-orbit SS/L built satellite and other related ground system
deliverables and $16 million of past due receivables from TerreStar related to a second satellite under construction. SS/L had
previously exercised its contractual right to stop work on the satellite under construction as a result of TerreStar’s payment default.
The in-orbit satellite long-term orbital receivable balance, net of fair value adjustment, reflected on the balance sheet at December 31,
2010 is $15 million. The long term orbital receivable balance reflected on the balance sheet for the satellite under construction is
$13 million. In addition, there are approximately $3 million of costs that have been committed to and will be incurred in the future,
substantially relating to the ground system deliverables. In February 2011, TerreStar withdrew its proposed plan of reorganization and
has indicated that it will explore an alternative plan of reorganization or a sale of its assets. Prior to withdrawing its plan, TerreStar
had indicated that it intended to assume its contract for the satellite under construction. In March 2011, TerreStar filed a motion to
authorize it to reject its contracts for the in-orbit satellite and related ground system deliverables. If TerreStar were to reject its
contracts for the in-orbit satellite and related ground system deliverables, and assuming that SS/L received no recovery on its claim as
a creditor with respect to these contracts, SS/L believes that it would incur a loss of approximately $27 million, SS/L’s cash flow in
the short term would be reduced by $20 million and SS/L’s cash flow over the approximate 15-year life of the satellite would be
reduced by an additional $18 million of long term orbital receivables plus interest.
Moreover, most of SS/L’s satellite contracts include orbital receivables, and certain of SS/L’s satellite contracts may require
SS/L to provide vendor financing to its customers, or a combination of these contractual terms. To the extent that SS/L’s contracts
contain orbital receivables provisions or SS/L provides vendor financing to its customers, our financial exposure is further increased.
In some cases, these arrangements are provided to (i) customers that are new companies, (ii) companies in the early stages of building
new businesses or (iii) highly leveraged companies, in some cases, with near-term debt maturities. These companies or their
businesses may not be successful and, accordingly, they may not be able to fulfill their payment obligations under their contracts with
SS/L.
There can be no assurance that SS/L will have sufficient funds to meet its cash requirements in the future.
There can be no assurance that SS/L will have sufficient funds to meet its cash requirements in future years beyond 2010. SS/L
has high fixed costs relating primarily to labor and overhead. Based on SS/L’s current cost structure, we estimate that SS/L covers its
fixed costs, including depreciation and amortization, with an average of four to five satellite awards a year depending on the size,
power, pricing and complexity of the satellite. If SS/L’s satellite awards fall below four to five awards per year, SS/L would be
required to phase in a reduction of costs to accommodate this lower level of activity. The timing of any reduced demand for satellites,
if it were to occur, is difficult to predict. It is, therefore, difficult to anticipate the need to reduce costs to match any such slowdown in
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business, especially when SS/L has significant backlog business to perform. A delay in matching the timing of a reduction in business
with a reduction in expenditures could adversely affect the liquidity of SS/L and us. If SS/L does not have sufficient funds, it will be
required to borrow under its credit agreement or will have to obtain new financing, either in the form of debt or equity, to increase
cash availability. In light of current market conditions, there can be no assurance that SS/L will be able to obtain such financing on
favorable terms, if at all. Failure to obtain such financing could have a material adverse effect on the ability of SS/L and us to manage
unforeseen cash requirements, to meet contingencies and to fund growth opportunities.
Many of SS/L’s costs are fixed and SS/L may not be able to cut costs sufficiently to maintain profitability in the event of a
downturn in its business.
SS/L is a large-scale systems integrator, requiring a large staff of highly skilled and specialized workers, 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 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. This reduces SS/L’s flexibility to reduce workforce costs in the event of a slowdown or downturn in SS/L’s business. In
addition, the manufacturing and test facilities that SS/L owns or leases under long-term agreements are fixed costs that cannot be
adjusted quickly to account for significant variance in production requirements or economic conditions.
The availability of facility space and qualified personnel may affect SS/L’s ability to perform its contracts in a timely and
efficient manner.
SS/L has won a number of satellite construction contracts over the last few years and, as a result, its backlog has expanded
significantly. In order to complete construction of all the satellites in backlog and to enable future growth, SS/L has modified and
expanded its manufacturing facilities to accommodate as many as nine to 13 satellite construction awards per year, depending on the
complexity and timing of the specific satellites, and SS/L can accommodate the integration and testing of 13 to 14 satellites at any
given time in its Palo Alto facility. However, due to scheduling requirements, SS/L relies on outside suppliers for certain critical
production and testing activities, such as thermal vacuum testing. It is possible that such outside suppliers will not be able to
accommodate SS/L’s scheduling requirements, which may cause SS/L to incur additional costs or fail to meet contractual delivery
deadlines. Further, SS/L may not be able to hire or retain enough employees with the requisite skills and training and, accordingly,
SS/L may not be able to perform its contracts as efficiently as planned or grow its business to the planned level.
SS/L’s ability to obtain certain satellite construction contracts depends, in part, on its ability to provide the customer with
financing.
In the past, SS/L has provided partial financing to customers to enable it to win certain satellite construction contracts. The
financing has typically been in the form of orbital receivables, vendor financing and/or loans by SS/L and direct investments by Loral
in the customer or the satellite. SS/L’s credit agreement limits its ability to provide customers with financing. If SS/L is unable to
provide financing to a customer, it could lose the satellite construction contract to a competitor that could provide financing. See
above “— The satellite manufacturing market is highly competitive”.
SS/L relies on certain key suppliers whose failure or delayed performance could adversely affect us.
To build satellites, SS/L relies on suppliers, some of which are competitors, to provide SS/L with certain component parts. The
number of suppliers capable of providing these components is limited, and, in some cases, the supplier is a sole source, based upon the
unique nature of the product or the customer requirement to procure components with proven flight heritage. These suppliers are not
all large, well-capitalized companies, and to the extent they experience financial difficulties, their ability to timely deliver components
that satisfy a customer’s contract requirements could be impaired. In the past, SS/L’s performance under its construction contracts
with its customers has been adversely affected because of a supplier’s failure or delayed performance. As discussed above under “—
SS/L’s contracts are subject to adjustments, cost overruns and termination,” a failure by SS/L to meet its contractual delivery
requirements could give rise to liquidated damage payments by SS/L or could cause a customer to terminate its construction contract
with SS/L for default.
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SS/L faces risks in conducting business internationally and is subject to risks that may have a material adverse effect on our
results of operations.
For the year ended December 31, 2010, approximately 44% of SS/L’s revenues were generated from customers outside of the
United States. SS/L 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 its services or by political and economic instability in the
countries in which it conducts business. Almost all of SS/L’s contracts with foreign customers require payment in U.S. dollars, and
customers in developing countries could have difficulty obtaining U.S. dollars to pay SS/L due to currency exchange controls and
other factors. Also, if SS/L needs to pursue legal remedies against its foreign business partners or customers, SS/L may have to sue
them abroad where it could be difficult for SS/L to enforce its rights.
SS/L sells certain of its communications satellites and other products to non-U.S. customers. SS/L also procures certain key
product components from non-U.S. vendors. International contracts are subject to numerous risks that may have a material adverse
effect on our operating results, including:
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political and economic instability in foreign markets;
restrictive trade policies of the U.S. government and foreign governments;
inconsistent product regulation by foreign agencies or governments;
imposition of product tariffs and burdens;
the cost of complying with a variety of U.S. and international laws and regulations, including regulations relating to import-
export control;
the complexity and necessity of using non-U.S. representatives and consultants;
inability to obtain required U.S. or foreign country export licenses; and
foreign currency exposure. See “— SS/L is exposed to foreign currency exchange rate risks that could have a material
adverse effect on our business, results of operations or financial condition.”
SS/L relies on patents, and infringement by SS/L of third-party patents would increase its costs, and third parties may
challenge its patents.
SS/L relies, in part, on patents and industry expertise to develop and maintain its competitive position. At December 31, 2010,
SS/L held 167 patents in the United States and had applications for 13 patents pending in the United States. SS/L’s 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. SS/L’s patents that are currently in force expire between 2011 and 2029. There
is a risk that competitors could challenge or infringe SS/L’s patents. It is also possible that SS/L will infringe current or future third-
party patents or third-party trade secrets. In the event of infringement, SS/L could be required to pay royalties to obtain a license from
the patent holder or refund money to customers for components that are not useable or redesign its products to avoid infringement, all
of which would increase SS/L’s costs. SS/L could also be subject to injunctions prohibiting it from using components. SS/L may also
be required under the terms of its customer contracts to indemnify its customers for damages relating to infringements.
For example, one third party has asserted that SS/L is infringing certain pending patent applications. To the extent patents are
issued to such third party in a form that covers the technology SS/L uses to manufacture satellites, and such patents are found to be
valid, SS/L could be enjoined from using such technology and may be required to either take a license under or design around such
patents.
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SS/L’s operations are subject to business interruptions and casualty losses.
SS/L’s business is subject to numerous inherent risks, particularly unplanned events such as inclement weather, explosions, fires,
earthquakes, terrorist acts, other accidents, equipment failures and transportation interruptions. While SS/L’s insurance coverage could
offset losses relating to some of these types of events, to the extent any such losses are not covered by insurance, it could have a
material adverse effect on our business, results of operations and financial condition.
SS/L relies on its information technology systems to manage numerous aspects of SS/L’s business and a disruption of these
systems could adversely affect SS/L’s business.
SS/L’s information technology, or IT, systems are an integral part of its business. SS/L depends on its IT systems and software
applications it has developed internally for scheduling, sales order entry, purchasing, materials management, accounting and
production functions. Some of SS/L’s systems are not fully redundant, and SS/L’s disaster recovery planning does not account for all
eventualities. A serious disruption to SS/L’s IT systems could significantly limit SS/L’s ability to manage and operate its business
efficiently, which in turn could have a material adverse effect on our business, results of operations and financial condition.
SS/L is exposed to foreign currency exchange rate risks that could have a material adverse effect on our business, results of
operations or financial condition.
SS/L is exposed to foreign currency exchange rate risks that are inherent in its satellite sales contracts, anticipated satellite sales
and vendor purchase commitments that are denominated in currencies other than the U.S. dollar. SS/L’s exposure to foreign currency
exchange rates relates primarily to the euro and the Japanese yen. In addition, SS/L purchases certain supplies and materials from
suppliers located outside of the U.S. Failure to sufficiently hedge or otherwise manage foreign currency risks properly could have a
material adverse effect on our business, results of operations or financial condition.
For the year ended December 31, 2010, approximately 44% of SS/L’s revenues were generated from customers outside of the
United States. Almost all of SS/L’s contracts with foreign customers require payment in U.S. dollars. Customers in developing
countries could have difficulty obtaining U.S. dollars to pay SS/L due to currency exchange controls and other factors. Exchange rate
fluctuations may adversely affect the ability of our customers to pay in U.S. dollars. Certain European customers, or potential
customers, conduct their business in euros and may choose to contract with SS/L in euros, for which SS/L will need to hedge its
foreign exchange exposure. Also, devaluation of the euro versus the U.S. dollar may hurt SS/L’s competitive position with respect to
its European-based competitors.
SS/L is subject to U.S. and foreign laws and regulations, including U.S. export control and economic sanctions laws, which
may result in delays, lost business and additional costs, and any changes in any of these laws and regulations may have a
material and adverse effect on our business and results of operations.
The satellite manufacturing industry is highly regulated due to the sensitive nature of satellite technology. It is possible that the
laws and regulations governing SS/L’s business and operations will change in the future. There may be a material adverse effect on
our business and results of operations if SS/L is required to alter its business operations to comply with such changes in law or if
SS/L’s ability to sell its products and services on a global basis is reduced or restricted due to increased U.S. or foreign government
regulation.
SS/L is required by the International Traffic in Arms Regulations, or ITAR, administered 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 or
provide defense services to foreign persons. In addition, if a satellite project involves countries, individuals or entities that are the
subject of U.S. economic sanctions, which we refer to here as Sanctions Targets, or is intended to provide services to Sanctions
Targets, SS/L’s participation in the project may be prohibited altogether or licenses or other approvals from the U.S. Treasury
Department’s Office of Foreign Assets Control, or OFAC, may be required. The delayed receipt of or the failure to obtain the
necessary U.S. Government licenses, approvals and agreements may prohibit entry into or interrupt the completion of a satellite
contract by SS/L and could lead to a customer’s termination of a contract for default, monetary penalties and/or the loss of incentive
payments. SS/L has in the past failed to obtain the export licenses necessary to deliver satellites to its Chinese customers.
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Some of SS/L’s customers and potential customers, along with insurance underwriters and brokers, have asserted that U.S.
export control laws and regulations governing disclosures to foreign persons excessively restrict their access to information about the
satellite during construction and on-orbit. OFAC sanctions and requirements may also limit certain business opportunities or delay or
restrict SS/L’s ability to contract with potential foreign customers or operators. To the extent that SS/L’s non-U.S. competitors are not
subject to these export control or economic sanctions laws and regulations, they may enjoy a competitive advantage with foreign
customers, and it could become increasingly difficult for the U.S. satellite manufacturing industry, including SS/L, to recapture this
lost market share. Customers concerned over the possibility that the U.S. government may deny the export license necessary for SS/L
to deliver their purchased satellite to them, or the restrictions or delays imposed by the U.S. government licensing requirements, even
where an export license is granted, may elect to choose a purportedly “ITAR-free” satellite offered by one of SS/L’s European
competitors over SS/L’s satellite. SS/L is further disadvantaged by the fact that a purportedly “ITAR-free” satellite may be launched
less expensively in China on the Chinese Long March rocket, a launch vehicle that, because of ITAR restrictions, is not available to
SS/L or other suppliers subject to ITAR restrictions.
SS/L uses estimates in accounting for many contracts. Changes in these estimates could have a material adverse effect on our
future financial results.
Contract accounting requires significant judgments relative to assessing risks, estimating contract revenues and costs and making
assumptions for scheduling and technical issues. Due to the nature of many of SS/L’s contracts, the estimation of total revenues and
costs at completion is complicated and subject to many variables. For example, significant assumptions have to be made regarding the
length of time to complete the contract because costs also include expected increases in wages and prices for materials. Incentives,
penalties and award fees related to performance on contracts are considered in estimating revenue and profit rates, and are recorded
when there is sufficient information for SS/L to assess anticipated performance.
Because of the significance of the judgments and estimation processes described above, it is possible that materially different
amounts could be obtained if different assumptions were used or if the underlying circumstances or estimates were to change or
ultimately be different from SS/L’s expectations. Changes or inaccuracies in underlying assumptions, circumstances or estimates may
have a material adverse effect upon future period financial results.
Industry consolidation in the satellite services industry may adversely affect SS/L.
Industry consolidation has resulted in the formation of satellite operators with greater satellite resources and increased coverage.
This consolidation and any additional consolidation in the future 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, risk allocation and other contractual terms.
We do not control satellite procurement decisions at Telesat.
Although we hold 64% of the economic interests in Telesat, we do not control satellite procurement decisions at Telesat, and it is
possible that Telesat will not purchase additional satellites from SS/L. Moreover, any decision relating to the enforcement of existing
or future satellite contracts between Telesat and SS/L will be made on arms-length terms and, in certain cases, subject to approval by
the disinterested directors of Telesat. Moreover, as a result of our interest in Telesat, SS/L may experience difficulty in obtaining
orders from certain customers engaged in the satellite services business who compete with Telesat. In addition, Telesat’s board of
directors and shareholders have authorized a process to explore an initial public offering or other strategic alternatives. As a result of
such process, it is possible that SS/L could cease to be an affiliate of Telesat, which could adversely affect SS/L’s ability to obtain
future satellite construction orders from Telesat.
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Federal government contracts may be terminated by the federal government at any time prior to their completion and contain
other unfavorable provisions, which could lead to unexpected loss of sales and reduction in backlog.
SS/L contracts with the federal government. Under the terms of federal government contracts, the federal government may
unilaterally:
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terminate or modify existing contracts;
reduce the value of existing contracts through partial termination;
delay the payment of SS/L’s invoices by government payment offices;
audit SS/L’s contract-related costs; and
suspend SS/L from receiving new contracts pending resolution of any alleged violations of procurement laws or
regulations.
The federal government may terminate or modify any of its contracts with SS/L either for its convenience, or if SS/L defaults by
failing to perform under the terms of the applicable contract. A termination arising out of SS/L’s default could expose SS/L to liability
and have a material adverse effect on SS/L’s ability to compete for future contracts and subcontracts. If the federal government
terminates and/or materially modifies any of SS/L’s contracts or if any applicable options are not exercised, SS/L’s failure to replace
sales generated from such contracts would result in lower sales and could adversely affect our earnings, which could have a material
adverse effect on our business, results of operations and financial condition.
SS/L’s business could be adversely affected by a negative audit or other actions, including suspension or debarment, by the
federal government.
As a federal government contractor, SS/L must comply with and is affected by laws and regulations relating to the formation,
administration and performance of government contracts. These laws and regulations affect how SS/L does business with the federal
government and its prime government contractors and subcontractors, and, in some instances, impose added costs on SS/L’s business.
Federal government agencies routinely audit and investigate government contractors. These agencies review each contractor’s contract
performance, cost structure and compliance with applicable laws, regulations and standards. Such agencies also review the adequacy
of, and a contractor’s compliance with, its internal control systems and policies, including the contractor’s purchasing, property,
estimating, compensation and management information systems. Any costs found to be improperly allocated to a specific contract will
not be reimbursed.
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Risk Factors Associated With Satellite Services
A substantial amount of Telesat revenues are derived from only a few of its customers. A loss of one or more of these major
customers, or a material adverse change in any such customer’s business or financial condition, could materially reduce
Telesat future revenues and contracted backlog.
For the year ended December 31, 2010, Telesat’s top five customers together accounted for approximately 51% of its revenues.
At December 31, 2010, Telesat’s top five backlog customers together accounted for approximately 89% of its backlog. If any of
Telesat’s major customers chose to not renew their contracts at the expiration of the existing terms or sought to negotiate concessions,
particularly on price, that could have a material adverse effect on Telesat’s results of operations, business prospects and financial
condition. Telesat’s customers could experience a downturn in their business or find themselves in financial difficulties, which could
result in their ceasing or reducing their use of Telesat’s services (or becoming unable to pay for services they had contracted to buy).
In addition, the industries in which some of Telesat’s customers operate are undergoing significant consolidation, and Telesat’s
customers may be acquired by other companies, including by its competitors. Such acquisitions could adversely affect Telesat’s ability
to sell services to such customers and to any end-users whom they serve.
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Additionally, Telesat’s largest customer, Bell TV, is part of BCE. Since the Telesat transaction, Telesat is no longer a subsidiary
of BCE or an affiliate of Bell TV and may have lost certain competitive advantages with respect to Bell TV. There is no guarantee that
Bell TV will continue using Telesat’s services after the expiration of its current contracts.
Launch delays or failures may result in delays in operations.
Delays in launching satellites are not uncommon and result from construction delays, the unavailability of appropriate launch
vehicles, launch failures and other factors. Delays in satellite launches would result in delays in Telesat’s revenues, could affect plans
to replace an in-orbit satellite prior to the end of its useful life, could result in the expiration or cancellation of launch insurance, could
result in the loss of orbital slot rights, termination of contracts by affected customers and a reduction in contracted backlog. Upon
termination of a customer contract, Telesat would be required to refund any prepayments made to it by its terminating customer,
which in the case of a major customer, may be substantial.
Satellite launches are risky, and some launch attempts have ended in complete or partial failure. A significant delay or launch
failure of a Telesat satellite may have a material adverse effect on Telesat’s results of operations, business prospects and financial
condition, which in turn would have a material adverse effect on our results and condition.
For example, the March 15, 2008 failure of a Proton rocket to lift its satellite payload to the appropriate orbit caused a delay in
the planned launch of the Nimiq 4 satellite, originally scheduled to be launched on a Proton rocket in mid-2008. Although Nimiq 4
successfully launched in September 2008, the launch delay caused a delay in receipt of revenues from that satellite in 2008 and
deferred the backlog run-off previously anticipated for Nimiq 4 in 2008. The launch of Telstar 14R/Estrela do Sul, which is planned to
be launched in mid-2011, may likewise also be delayed if the launch vehicle on which it is scheduled to be launched suffers a failure
prior to the launch of Telstar 14R.
After launch, satellites remain vulnerable to in-orbit failures which may result in reduced revenues and profits and other
financial consequences.
Satellites utilize highly complex technology and operate in the harsh environment of space and therefore are subject to
significant operational risks while in orbit. 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.
Some of Telesat’s satellites have had malfunctions and other anomalies, and in certain cases are currently operating using back-
up components because of the failure of their primary components. If the back-up components fail, however, and Telesat is unable to
restore capability through redundancy or other means, these satellites could lose capacity or be total losses. Any single anomaly or
series of anomalies or other failure could cause Telesat’s revenues, cash flows and backlog to decline materially, could require it to
recognize an impairment loss and could require Telesat to expedite its satellite replacement program, affecting its profitability and
increasing its financing needs. It could also require Telesat to repay prepayments made by customers of the affected satellite. It could
also result in a customer terminating its contract for service on the affected satellite. If the affected satellite involves one of Telesat’s
major customers, there could be a material adverse effect on Telesat’s operations, prospects, results and financial condition, which in
turn would adversely affect us.
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 insurance.
Telesat’s satellite insurance does not protect it against all satellite-related losses. For example, satellite insurance will not protect
it against business interruption, lost revenues or delay of revenues. Telesat also does not have in-orbit insurance coverage for all of the
satellites in its fleet. Telesat’s existing launch and in-orbit insurance policies 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 satellites that are known at the time the policy is written. To the extent Telesat experiences a launch or in-
orbit failure that is not fully insured, or for which insurance proceeds are delayed or disputed, it may not have sufficient resources to
replace the affected satellite.
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Launch and in-orbit policies on satellites may not continue to be available on commercially reasonable terms or at all. The loss of
a satellite may have a material adverse effect on Telesat’s results of operations, business prospects and financial condition, which may
not be adequately mitigated by insurance coverage.
Telesat competes for market share, customers and orbital slots.
A trend toward consolidation of major FSS providers has resulted in the creation of global competitors which are substantially
larger than Telesat in terms of both the number of satellites they have in orbit as well as in terms of their revenues. Due to their larger
sizes, these operators are able to take advantage of greater economies of scale, may be more attractive to customers, and may have
greater flexibility to restore service to their customers in the event of a partial or total satellite failure. Telesat also faces competition
from regional operators, which may enjoy competitive advantages in their local markets. Telesat’s affiliation with us may also
adversely affect its ability to compete for certain contracts, especially in its consulting services business. In addition, Telesat competes
for local regulatory approval in places where more than one provider may want to operate and for scarce frequency assignments and a
limited supply of orbital locations.
Telesat’s business is also subject to competition from ground based forms of communications technology. For many point-to-
point and other services, the offerings provided by terrestrial companies can be more competitive than the services offered via
satellite. New technology could also render satellite-based services less competitive by satisfying consumer demand in other ways.
Telesat’s failure to compete effectively would result in, among other things, a loss of revenue and a decline in profitability, and a
decrease in the value of its business.
Changes in the Canadian competitive environment could adversely affect Telesat.
A substantial portion of Telesat’s business is expected to continue in the Canadian domestic market. This market is characterized
by increasing competition and rapid technological development among satellite providers. The Canadian regulatory framework has
always required the use of Canadian-licensed satellites for the delivery of direct-to-home (“DTH”) programming in Canada. It is
possible that this framework could change and allow non-Canadian satellite operators to compete for future business from DTH
customers, which constitute some of Telesat’s major customers.
Industry Canada, the Canadian telecommunications authority, has authorized Telesat to operate at a number of orbital locations.
Industry Canada has also awarded a number of licenses to a new Canadian satellite provider, Ciel Satellite Group, including licenses
to spectrum suitable for providing a variety of satellite services to Canadian customers. Increased competition in Canada may
adversely affect Telesat’s access rights to certain Canadian orbital locations, which in turn could adversely affect Telesat’s results of
operations, business prospects and financial condition.
Telesat operates in a highly regulated industry and government regulations may adversely affect its business.
Telesat is subject to the laws of Canada and the United States and the telecommunications regulatory authorities of the Canadian
government, primarily the Canadian Radio-Television and Telecommunications Commission, or CRTC, and Industry Canada, as well
as those of the United States government, primarily the Federal Communications Commission, or FCC, the International
Telecommunications Union, or the ITU, the European Union, Brazil and Isle of Man. It is also subject to the laws and regulations of
other countries to, from or within which it provides services. Regulatory authorities can modify, withdraw or impose charges or
conditions upon, or deny or delay action on applications for, the licenses Telesat needs for its business, including its access rights to
orbital positions. Countries or regulatory authorities may adopt new laws, policies or regulations, change their interpretation of
existing laws, policies or regulations or otherwise take actions in a manner that could adversely affect Telesat’s operations or
revenues.
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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 Telesat satellites. These negotiations have resulted in financial
concessions in the past and there can be no assurance that such concessions may not be required in the future. The failure to reach an
appropriate arrangement with a third party having priority rights at or near one of Telesat’s orbital slots may result in substantial
restrictions on the use and operation of its satellite at that location. For example, the Russian Satellite Communications Company
(“RSCC”) has announced that it has signed contracts for the development of a satellite which it intends to launch and operate at 14°
WL, adjacent to the location of Telesat’s Telstar 12 satellite at 15° WL. RSCC’s ITU rights over certain frequencies at 14° WL have
priority over Telesat’s use of these same frequencies in its operation of Telstar 12. Telesat is currently in frequency coordination
discussions with RSCC. If Telesat fails to reach an appropriate arrangement with RSCC, it may result in restrictions on the use and
operation of Telstar 12 which could materially restrict Telesat’s ability to earn revenue from Telstar 12 and any replacement satellite
or may make a replacement satellite not economically viable.
In addition, while the ITU rules require later-in-time systems to coordinate with it, 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 Telesat’s
satellites.
Failure to successfully coordinate Telesat’s satellites’ frequencies or to resolve other required regulatory approvals could have an
adverse effect on its financial condition, as well as on the value of its business, which would in turn adversely affect us.
Telesat’s ability to replace one of its satellites is subject to additional risk and cannot be assured.
In addition to the risks with respect to Telesat’s ability to renew its licenses to orbital locations, there is also a specific risk with
respect to Telesat being able to replace Telstar 18. Telesat operates Telstar 18 pursuant to agreements with APT Satellite Company
Limited (“APT”) that has a license to use the orbital location controlled by the government of Tonga. Although Telesat’s agreement
with APT provides Telesat with renewal rights with respect to a replacement satellite at this orbital location, there can be no assurance
that renewal rights will be granted. Should Telesat be unsuccessful in obtaining renewal rights for the orbital location because of the
control of the orbital location exercised by Tonga, or should Telesat otherwise fail to enter into agreements with APT with respect to
such replacement satellite, all revenue obtained from Telstar 18 would cease and such loss of revenue could have a material adverse
effect on Telesat’s results of operations and financial condition, which would in turn adversely affect us.
III. Other Risks
Third parties have significant rights with respect to our affiliates.
Third parties have significant rights with respect to, and we do not have control over management of, our affiliates. For example,
Hisdesat enjoys substantial approval rights in regard to XTAR, our X-band joint venture. Also, while we own 64% of the participating
shares of Telesat, we own only 33 1 / 3 % of the voting power. The rights of these third parties and fiduciary duties under applicable
law could result in others acting or failing to act in ways that are not in our best interest. While these entities are or have been
customers of SS/L, due to these third party rights 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.
The loss of executive officers and our inability to retain other key personnel could materially adversely affect our operations.
The departure of any of our executive officers and our inability to retain other key employees, including personnel with security
clearances for classified work and highly skilled engineers and scientists, could have a material adverse effect on our operations.
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MHR may be viewed as our controlling stockholder and may have conflicts of interest with us in the future.
As of December 31, 2010, various funds affiliated with MHR held approximately 38.9% of the outstanding voting common
stock of Loral as well as all issued and outstanding shares of Loral non-voting common stock, which, when taken together, represent
approximately 58.0% of the common equity of Loral as of December 31, 2010. As of March 1, 2011, representatives of MHR occupy
two of the seven seats on our board of directors and a former managing principal of MHR is also on our board of directors. In
addition, one of our other directors was selected by the creditors’ committee in our predecessor’s 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, subject to certain exceptions, in the event that either (i) ownership or control,
directly or indirectly, by Dr. Mark H. Rachesky, President of MHR, of our voting stock falls below certain levels or (ii) there is a
change in the composition of a majority of the members of the Loral board of directors over a consecutive two-year period, we will
lose our veto rights relating to certain actions by Telesat. In addition, after either of these events, PSP will have certain rights to enable
it to exit from its investment in Telesat, including a right to cause 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
Telesat, to cause the sale of Telesat and to drag along the other shareholders in such sale, subject to our right to call PSP’s shares at
fair market value.
Changes in tax rates or policies or changes to our tax liabilities could affect operating results.
We are subject to U.S. federal, state and local income taxation on our worldwide income and foreign taxes on certain income
from sources outside the United States. Significant judgment is required to determine and estimate our tax liabilities, and our future
annual and quarterly tax rates could be affected by numerous factors, including changes in the applicable tax laws, composition of
earnings in countries or states with differing tax rates or our valuation and utilization of deferred tax assets and liabilities. In addition,
we are subject to regular examination of our income tax returns by the Internal Revenue Service and other taxing authorities. Although
we believe our tax estimates are reasonable, we regularly evaluate the adequacy of our provision for income taxes, and there can be no
assurance that any final determination by a taxing authority will not result in additional tax liability which could have a material
adverse effect on our results of operations.
The future use of tax attributes is limited.
As of December 31, 2010, we had federal net operating loss carryforwards, or NOLs of approximately $417 million and state
NOLs, primarily California of approximately $303 million, that are available to offset future taxable income (see Notes 2 and 9 to the
Loral 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
$32.6 million, subject to increase or decrease based on certain factors. If 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 in excess of 50% by shareholders owning five percent or more of
our total equity value, i.e., the total market value of our equity interests, as determined on any applicable testing date. We would be
adversely affected by an additional “ownership change” if at the time of such change, our total equity value multiplied by the federal
applicable long-term tax exempt rate which at December 31, 2010 was 3.67% was less than $32.6 million. As of December 31, 2010,
since our total equity value of $2.3 billion multiplied by the federal applicable long-term tax exempt rate was approximately $85
million an “ownership change” as of that date would have no adverse effect.
There is a thin trading market for our common stock.
Trading activity in our stock, which is listed on the NASDAQ National Market, has generally been light, averaging
approximately 57,000 shares per day for the year ended December 31, 2010. Moreover, over 50% of our common stock is effectively
held by MHR and several other stockholders. If any of our significant stockholders 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, we have filed a shelf registration statement in respect of the common stock and non-voting common
stock they hold in Loral that eliminates such restrictions. Such funds also have other demand and piggyback registration rights in
respect of their Loral common stock and non-voting common stock that would also, if exercised, eliminate such restrictions.
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The market for our stock could be adversely affected by future issuance of significant amounts of our common stock.
As of December 31, 2010, 20,924,874 shares of our voting common stock and 9,505,673 shares of our non-voting common stock
were outstanding. On that date, there were outstanding options to purchase 1,134,915 shares of our common stock, of which 1,072,415
were vested and exercisable and of which 62,500 will become vested and exercisable over the next two years. There were also 70,811
non-vested restricted stock units outstanding as of December 31, 2010. These restricted stock units, which may be settled either in
cash or Loral stock at the Company’s option, vest over the next one and a half years. As of December 31, 2010, 682,663 shares of our
common stock were available for future grants under our stock incentive plan. The number of shares available for grant would be
reduced if SS/L phantom stock appreciation rights are settled in Loral common stock. Moreover, we may further amend our stock
incentive plan in the future to provide for additional increases in the number of shares available for grant thereunder.
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.
We are subject to the Foreign Corrupt Practices Act.
SS/L engages in marketing, procurement of supplies and services, launch activities and satellite sales to customers located
outside of the United States. We are subject to the Foreign Corrupt Practices Act, or the FCPA, which generally prohibits U.S.
companies and their intermediaries from making corrupt payments to foreign officials for the purpose of obtaining or keeping business
or otherwise obtaining favorable treatment, and requires companies to maintain adequate record-keeping and internal accounting
practices to accurately reflect the transactions of the company. The FCPA applies to companies, individual directors, officers,
employees and agents. Under the FCPA, U.S. companies may be held liable for actions taken by strategic or local partners or
representatives. If we or our intermediaries fail to comply with the requirements of the FCPA, governmental authorities in the United
States could seek to impose civil and/or criminal penalties, which could have a material adverse effect on our business, results of
operations, financial conditions and cash flows.
We may incur costs to comply with or address liabilities under environmental regulations.
We are subject to various federal, state and local environmental health and safety laws and regulations governing our properties
and the operation of our business, including those relating to air emissions, wastewater discharges, the handling, storage and disposal
of hazardous substances and wastes, the management of asbestos-containing building materials and non-ionizing radiation equipment,
releases of hazardous and toxic materials and the remediation of contamination at real property. In addition, electronic devices or
components are subject to regulation in various jurisdictions requiring end-of-life management, including recycling, and/or restrictions
on certain materials used in manufactured products. Compliance with such laws may result in significant liabilities and costs,
including property damage or personal injury claims, investigation and remediation costs, penalties, capital expenditures to install or
upgrade pollution control equipment, the temporary suspension of production, or a cessation of operations. Our failure to comply with
such laws and regulations could have a material adverse effect on our business, financial condition or results of operations in the
future. In addition, new or stricter requirements relating to environmental health and safety laws, including restrictions on greenhouse
gas emissions, or materials use could result in us incurring unanticipated capital costs or operating expenses, for example, for fuel or
raw materials. In addition, some environmental laws, such as the U.S. federal Superfund law and similar state statutes, can impose
liability for the entire cost of cleanup of contaminated sites upon any of the current or former site owners or operators or upon parties
who sent, or arranged to send, wastes to these sites, regardless of fault or lawfulness of the original disposal activity.
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Accounting standards periodically change and the application of our accounting policies and methods may require
management to make estimates about matters that are uncertain.
The regulatory bodies that establish accounting standards, including, among others, the Financial Accounting Standards Board,
or the FASB, and the U.S. Securities and Exchange Commission, or the SEC, periodically revise or issue new financial accounting
and reporting standards that govern the preparation of our consolidated financial statements. Given our reliance on estimates and on
the cost-to-cost percentage of completion method of recognizing revenue, changes in accounting standards, especially revenue
recognition, may have a greater effect on us than on many companies. The effect of such revised or new standards on our consolidated
financial statements can be difficult to predict and can materially affect how we record and report our results of operations and
financial condition. In addition, our management must exercise judgment in appropriately applying many of our accounting policies
and methods so they comply with generally accepted accounting principles. In some cases, the accounting policy or method chosen
might be reasonable under the circumstances and yet might result in our reporting materially different amounts than would have been
reported if we had selected a different policy or method. Accounting policies are critical to fairly presenting our results of operations
and financial condition and may require management to make difficult, subjective or complex judgments about matters that are
uncertain.
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 14 to the Loral consolidated financial statements.
In addition, we are involved in a number of disputes which might result in litigation. A decision against us in any of these lawsuits or
disputes 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 16,000 square feet of space for our corporate offices in New York.
Satellite Manufacturing
Headquartered in Palo Alto, California, with additional facilities located in nearby Menlo Park, Mountain View, and Sunnyvale,
SS/L’s campus as of December 31, 2010 encompasses 1.27 million square feet, approximately 564,000 square feet of which are
owned and 711,000 square feet of which are leased, spanning 33 buildings on 72 acres. The obligations under the SS/L credit
agreement are secured by a first mortgage on these owned properties.
The facilities were expanded in 2007 and 2008 to accommodate as many as nine to 13 satellite construction awards per year,
depending on the complexity and timing of the specific satellites, and SS/L can accommodate the integration and testing of 13 to 14
satellites at any given time in its Palo Alto facility. At these facilities SS/L is able to construct the entire satellite — from design, to
manufacturing, assembly, integration, testing, preparation for shipment to launch sites and orbit raising mission control — at one
location located in the heart of the Silicon Valley.
SS/L’s Palo Alto facilities include four major high bays, dedicated to satellite assembly, system integration and testing of
satellite platforms, communication panel assemblies and full satellite assemblies. Testing facilities include a 39-foot thermal vacuum
chamber, a compact antenna test range, a near-field antenna test range, vibration test labs and a new multiplexer lab, allowing for
timely scheduling of satellite testing and flexibility in accommodating backlog.
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SS/L has recently upgraded and expanded its factory in support of increased manufacturing and production, including a new
21,000 square foot repeater products facility and investments in new equipment, tools and proprietary processes. SS/L employs
modern manufacturing technologies, with a composites manufacturing facility to provide advanced materials development, and state
of the art antenna reflectors and lightweight structural components. Avionics and power control units are manufactured and tested on
site in a specialized facility. RF and electronics subassembly and subsystem manufacturing and integration facilities and a solar array
manufacturing facility are also located at the Palo Alto campus. A nearly three-decades-long history of engineering, manufacturing
and testing of solar arrays, solar array drive assemblies and batteries has also led to the development of specialized facilities on SS/L’s
campus.
SS/L’s technologically advanced mission control center, with three separate control rooms, can support three launch campaigns
simultaneously, from launch and orbit raising, through on-orbit testing. Emergency backup generators, as well as backup
communication equipment, are kept at the ready during all campaigns to ensure the successful launch and on-orbit delivery of SS/L
satellites.
SS/L also maintains secured spaces in our buildings in Palo Alto, meeting all clearance requirements for its current classified
government projects.
In addition to SS/L’s facilities, SS/L has established good working relationships with corporations that have suitable additional
facilities to meet its overflow requirements. SS/L has a close working relationship with the David Florida Laboratories in Ottawa,
Canada for use of their thermal vacuum chamber and has a relationship with MacDonald, Dettwiler and Associates Ltd. to allow for
use of their near field test facility for antenna subsystems.
SS/L believes that the facilities for satellite manufacturing are sufficient for current operations. Further, a single campus and
small organization enables SS/L’s leadership team to quickly communicate with employees throughout the organization, enables SS/L
to engage in immediate cross-functional team problem solving when issues do arise, and enables employees to grow their careers in a
variety of disciplines and functions.
Satellite Services
Telesat leases an area in its headquarters building of approximately 112,000 rentable square feet pursuant to a lease which
provides for a fifteen year term (terminable by Telesat at anytime after ten years upon two years notice), commencing February 1,
2009. During 2010, Telesat sold its fifty percent interest, as tenant in common, in its headquarters building.
The Allan Park earth station, located northeast of Toronto, Ontario on 65 acres of land, houses a customer support center and a
technical control center. This facility is also the back-up satellite control center and the main earth station complex.
In addition to these facilities, Telesat leases office space for teleport facilities, satellite control operations and for administrative
and sales offices.
Item 3. Legal Proceedings
We discuss certain legal proceedings pending against the Company in the notes to the Loral 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 14 to the Loral consolidated financial statements for this discussion.
Item 4. (Removed and Reserved)
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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
Loral’s amended and restated certificate of incorporation provides that the total authorized capital stock of the Company is eighty
million (80,000,000) shares consisting of two classes: (i) seventy million (70,000,000) shares of common stock, $0.01 par value per
share (“Common Stock”), divided into two series, of which 50,000,000 shares are voting common stock (“Voting Common Stock”)
and 20,000,000 shares are non-voting common stock (“Non-Voting Common Stock”) and (ii) ten million (10,000,000) shares of
preferred stock, $0.01 par value per share. Each share of Voting Common Stock and each share of Non-Voting Common Stock are
identical and are treated equally in all respects, except that the Non-Voting Common Stock does not have voting rights except as set
forth in Article IV(a)(iv) of the amended and restated certificate of incorporation and as otherwise provided by law. Article IV(a)(iv)
of Loral’s amended and restated certificate of incorporation provides that Article IV(a) of the amended and restated certificate of
incorporation, which provides for, among other things, the equal treatment of the Non-Voting Common Stock with the Voting
Common Stock, may not be amended, altered or repealed without the affirmative vote of holders of a majority of the outstanding
shares of the Non-Voting Common Stock, voting as a separate class. Except as otherwise provided in the amended and restated
certificate of incorporation or bylaws of Loral, each holder of Loral Voting Common Stock is entitled to one vote in respect of each
share of Loral Voting Common Stock held of record on all matters submitted to a vote of stockholders.
Holders of shares of Loral 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. Upon a liquidation, dissolution or winding up of Loral, the assets
of Loral available to stockholders will be distributed equally per share to the holders of Loral Common Stock. The holders of Loral
Common Stock do not have any cumulative voting rights. Loral Common Stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions applicable to Loral Common Stock. All outstanding shares of
Loral Common Stock are fully paid and non-assessable.
Our Voting Common Stock trades on the NASDAQ National Market under the ticker symbol “LORL.” The table below sets
forth the high and low sales prices of Loral Voting Common Stock as reported on the NASDAQ National Market from January 1,
2009 through December 31, 2010.
Year ended December 31, 2010
Quarter ended December 31, 2010
Quarter ended September 30, 2010
Quarter ended June 30, 2010
Quarter ended March 31, 2010
Year ended December 31, 2009
Quarter ended December 31, 2009
Quarter ended September 30, 2009
Quarter ended June 30, 2009
Quarter ended March 31, 2009
High
Low
$
$
$
$
85.16
56.85
45.45
36.55
34.89
29.06
34.83
22.90
51.30
41.53
33.30
26.35
24.74
19.27
19.75
8.90
There is no established trading market for the Company’s Non-Voting Common Stock. See Note 10 to the Loral consolidated
financial statements for a further discussion of the Non-Voting Common Stock issued by Loral in December 2008. All of the shares of
Non-Voting Common Stock were issued pursuant to the exemption from the registration requirements of the Securities Act of 1933, as
amended (the “Securities Act”) provided by Section 4(2) of the Securities Act.
(b) Approximate Number of Holders of Common Stock
At March 1, 2011, there were 298 holders of record of our voting common stock and five holders of record of our non-voting
common stock.
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(c) Dividends
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. To date, Loral has not paid any dividends on its common
stock.
(d) Securities Authorized for Issuance under Equity Compensation Plans
See Note 10 to the Loral consolidated financial statements for information regarding the Company’s stock compensation plan.
Compensation information required by Item 11 will be presented in the Company’s 2011 definitive proxy statement which is
incorporated herein by reference.
(e) Comparison of Cumulative Total Returns
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 December 31, 2005 to December 31, 2010. The graph assumes that $100 was
invested on December 31, 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.
Item 6. Selected Financial Data
The following table sets forth our selected historical financial and operating data for each of the five years in the period ended
December 31, 2010.
Until October 31, 2007, the operations of our satellite services segment were conducted through Loral Skynet Corporation
(“Loral Skynet”). On October 31, 2007, Loral and its Canadian partner, Public Sector Pension Investment Board (“PSP”), through
Telesat Holdco, a newly formed joint venture, completed the acquisition of Telesat from BCE Inc. (“BCE”). In connection with this
acquisition, Loral transferred on that same date substantially all of the assets and related liabilities of Loral Skynet to Telesat.
Therefore, Loral Skynet has been excluded from the selected financial data subsequent to October 31, 2007. We refer to this
acquisition and transfer of assets and liabilities as the Telesat transaction.
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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)
2010
Year Ended December 31,
2008
2009
2007
2006
$
$ 1,158,985
—
1,158,985
80,608
993,400
—
993,400
20,211
$
869,398
—
869,398
(193,977)
$
761,363
121,091
882,454
45,256
$
636,632
160,701
797,333
29,818
93,094
308,622
26,975
(5,571 )
(151,523)
(45,744 )
157,786
(83,457 )
30,117
(20,880 )
401,716
21,404
(197,267)
74,329
9,237
85,625
487,341
(495 )
486,846
210,298
231,702
—
231,702
—
(495,649)
(692,916)
—
(692,916)
(24,067)
(21,430 )
52,899
(23,240 )
29,659
(19,379 )
(7,163 )
2,074
(24,794 )
(22,720 )
—
—
—
—
(25,685 )
—
Statement of operations data:
Revenues:
Satellite Manufacturing
Satellite Services
Total Revenues
Operating income (loss) (1)
Income (loss) before income taxes
and equity in net income
(losses) of affiliates (2)(3)
Income tax benefit (provision) (4)
Income (loss) before equity in net
income (losses) of affiliates
Equity in net income (losses) of
affiliates (5)
Net income (loss)
Net (income) loss attributable to
noncontrolling interest
Net income (loss) attributable to Loral
Preferred dividends
Beneficial conversion feature related to
the issuance of Loral Series A-1
Preferred Stock (6)
Net income (loss) applicable to Loral’s
common shareholders
$
486,846
$
231,702
$
(716,983)
$
(15,405 )
$
(22,720 )
Basic and diluted income (loss) per
share:
Basic income (loss) per share
Diluted income (loss) per share
Cash flow data:
Provided by (used in) operating
activities
(Used in) provided by investing
activities
Provided by (used in) financing
activities
Balance sheet data:
Cash and cash equivalents
Short-term investments
Total assets
Debt, including current portion
Non-current liabilities
Equity
Loral shareholders’ equity
Non-controlling interest
Total equity
$
$
16.18
15.63
$
$
7.79
7.73
$
$
(35.13)
(35.13)
$
$
(0.77 )
(0.77 )
$
$
(1.14 )
(1.14 )
$
41,949
$
154,562
$
(202,210)
$
27,123
$
88,002
(54,057 )
(48,750 )
(47,308 )
61,519
(175,978)
9,704
(55,155 )
52,372
39,510
(1,278 )
2010
2009
December 31,
2008
2007
2006
$
165,801
—
1,754,909
—
414,013
$
168,205
—
1,253,452
—
380,143
$
117,548
—
995,867
55,000
381,836
$
314,694
—
1,702,939
—
289,602
$
186,542
106,588
1,729,911
128,084
321,015
$
$
900,320
629
900,949
$
$
431,991
—
431,991
$
$
209,657
—
209,657
$
$
973,558
—
973,558
$
$
647,002
214,256
861,258
(1)
(2)
(3)
During 2008, we recorded a goodwill impairment charge of $187.9 million. In connection with the Telesat transaction, which
closed on October 31, 2007, we recognized a gain of $104.9 million in 2007 on the contribution of substantially all of the assets
and related liabilities of Loral Skynet to Telesat. See Note 6 to the Loral consolidated financial statements.
In connection with the Telesat transaction during 2007, we recognized a gain on foreign exchange contracts of $89.4 million.
During 2008, we recorded income of $58.3 million related to a gain on litigation recovery from Rainbow DBS and a loss of
$19.5 million related to the award of attorneys’ fees and expenses to the plaintiffs for shareholder litigation concluded during
2008.
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(4)
(5)
(6)
During the fourth quarter of 2010, we determined, based on all available evidence, that a full valuation allowance was no longer
required on our deferred tax assets and, therefore, $335.3 million of the valuation allowance was reversed as an income tax
benefit (see Note 9 to the Loral consolidated financial statements).
Beginning October 31, 2007, our principal affiliate is Telesat. Loral also has investments in XTAR and joint ventures providing
Globalstar service, which are accounted for under the equity method. On December 21, 2007 Loral agreed to sell its interest in
Globalstar do Brasil S.A. which resulted in Loral recording a charge of $11.3 million in 2007.
As of December 23, 2008, in accordance with a court ordered restated certificate of incorporation, the previously issued Loral
Series-1 Preferred stock was cancelled. As the fair value of Loral’s common stock from January 1 to December 23, 2008 was
less than the conversion price ($30.1504), we did not record any beneficial conversion feature during 2008 (see Note 10 to the
Loral consolidated financial statements).
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., a Delaware corporation, together with its subsidiaries is a leading satellite communications
company engaged in satellite manufacturing with ownership interests in satellite-based communications services.
On October 31, 2007, Loral and its Canadian Partner, Public Sector Pension Investment Board (“PSP”), through Telesat
Holdings, Inc. (“Telesat Holdco”), a newly-formed joint venture, completed the acquisition of Telesat Canada (“Telesat”) from BCE
Inc. (“BCE”). In connection with this acquisition, Loral transferred on that same date substantially all of the assets and related
liabilities of Loral Skynet Corporation (“Loral Skynet”) to Telesat. Loral holds a 64% economic interest and 33 1 / 3 % voting interest
in Telesat Holdco. Loral accounts for this investment using the equity method of accounting.
We refer to the acquisition of Telesat and the related transfer of Loral Skynet to Telesat as the Telesat transaction.
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 to 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.
Overview
Businesses
Loral has two segments, satellite manufacturing and satellite services. Loral participates in satellite services operations
principally through its ownership interest in Telesat.
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Satellite Manufacturing
Space Systems/Loral, Inc. (“SS/L”) is a designer, manufacturer and integrator of powerful satellites and satellite systems for
commercial and government customers worldwide. SS/L’s design, engineering and manufacturing capabilities have allowed it to
develop a large portfolio of highly engineered, mission-critical satellites and secure a strong industry presence. This position provides
SS/L with the ability to produce satellites that meet a broad range of customer requirements for broadband internet service to the
home, mobile video and internet service, broadcast feeds for television and radio distribution, phone service, civil and defense
communications, direct-to-home television broadcast, satellite radio, telecommunications backhaul and trunking, weather and
environment monitoring and air traffic control. In addition, SS/L has applied its design and manufacturing expertise to produce
spacecraft subsystems, such as batteries for the International Space Station, and to integrate government and other add-on missions on
commercial satellites, which are referred to as hosted payloads.
As of December 31, 2010, SS/L had $1.6 billion in backlog for 20 satellites for customers including Intelsat Global S.A., SES
S.A., Telesat Holdings Inc., Hispasat, S.A., EchoStar Corporation, Sirius-XM Satellite Radio, TerreStar Corporation, Asia Satellite
Telecommunications Co. Ltd., Hughes Network Systems, LLC, ViaSat, Inc., Eutelsat/ictQatar, DIRECTV, Satélites Mexicanos, S.A.
de C.V. and Asia Broadcast Satellite.
Satellite demand is driven by fleet replacement cycles, increased video, internet and data bandwidth demand and new satellite
applications. SS/L expects its future success to derive from maintaining and expanding its share of the satellite construction contracts
of its existing customers based on its engineering, technical and manufacturing leadership; its value proposition and record of
reliability; the increased demand for new applications requiring high power and capacity satellites such as HDTV, 3-D TV and
broadband; and SS/L’s expansion of governmental contracts based on its record of reliability and experience with fixed-price contract
manufacturing. We also expect SS/L to benefit from the increased revenues from larger and more complex satellites. As such,
increased revenues as well as system and supply chain management improvements should enable SS/L to continue to improve its
profitability.
The costs of satellite manufacturing include costs for material, subcontracts, direct labor and manufacturing overhead. Due to the
long lead times required for certain of our purchased parts, and the desire to obtain volume-related price concessions, SS/L has entered
into various purchase commitments with suppliers in advance of receipt of a satellite order. SS/L’s costs for material and subcontracts
have been relatively stable and are generally provided by suppliers with which SS/L has a long-established history. The number of
available suppliers and the cost of qualifying the component for use in a space environment to SS/L’s unique requirements limit the
flexibility and advantages inherent in multiple sourcing options.
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 four to five 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 is initiating a two-
year infrastructure campaign that will result in capital expenditures over this period of approximately $135 million. Also, over the past
several years SS/L has modified and expanded its manufacturing facilities to accommodate an expanded backlog. SS/L can now
accommodate as many as nine to 13 satellite awards per year, depending on the complexity and timing of the specific satellites, and
can accommodate the integration and test of 13 to 14 satellites at any given time in its Palo Alto facility. The expansion has also
reduced the company’s reliance on outside suppliers for certain RF components and sub-assemblies.
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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
2,700 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 these provisions reduce profitability and may result in losses to SS/L, which may be material. Because the satellite
manufacturing industry is highly competitive, buyers have the advantage over suppliers in negotiating prices, and terms and conditions
resulting in reduced margins and increased assumptions of risk by manufacturers such as SS/L.
Satellite Services
Loral holds a 64% economic interest and a 33 1 / 3 % voting interest in Telesat, the world’s fourth largest satellite operator with
approximately $5.5 billion of backlog as of December 31, 2010.
The satellite services business is capital intensive and the build-out of a satellite fleet requires substantial time and investment.
Once the investment in a satellite is made, the incremental costs to maintain and operate the satellite is relatively low over the life of
the satellite with the exception of in-orbit insurance. Telesat has been able to generate a large contracted revenue backlog by entering
into long-term contracts with some of its customers for all or substantially all of a satellite’s life. Historically, this has resulted in
revenue from the satellite services business being fairly predictable.
Competition in the satellite services market has been intense in recent years due to a number of factors, including transponder
over-capacity in certain geographic regions and increased competition from terrestrial-based communications networks.
At December 31, 2010, Telesat had 12 in-orbit satellites. Telesat currently has three satellites under construction, all by SS/L.
Telesat is committed to continuing to provide the strong customer service and focus on innovation and technical expertise that
has allowed it to successfully build its business to date. Building on backlog and significant contracted growth, Telesat’s focus is on
taking disciplined steps to grow the core business and sell newly launched and existing in-orbit satellite capacity, and, in a disciplined
manner, use the cash flow generated by existing business, contracted expansion satellites and cost savings to strengthen the business.
Telesat believes its existing satellite fleet supports a strong combination of existing backlog and revenue growth. The growth is
expected to come from the Telstar 14R/Estrela do Sul satellite, which Telesat expects to be launched in mid- 2011, the Nimiq 6
satellite, which is anticipated to be launched in the first half of 2012, the Anik G1 satellite, which Telesat anticipates will be launched
in the second half of 2012 and the sale of available capacity on its existing satellites. Telesat believes this fleet of satellites provides a
solid foundation upon which it will seek to grow its revenues and cash flows.
Revenue growth is also expected from the Canadian broadband business on the ViaSat-1 satellite, which Telesat has agreed to
purchase from Loral. The purchase is expected to be completed in March 2011.
Telesat believes that it is well-positioned to serve its customers and the markets in which it participates. Telesat actively pursues
opportunities to develop new satellites, particularly in conjunction with current or prospective customers, who will commit to a
substantial amount of capacity at the time the satellite construction contract is signed. Although Telesat regularly pursues
opportunities to develop new satellites, it does not procure additional or replacement satellites unless it believes there is a
demonstrated need and a sound business plan for such capacity.
Telesat anticipates that it will be able to increase revenue without a proportional increase in operating expenses, allowing for
profit margin expansion. The fixed cost nature of the business, combined with contracted revenue growth and other growth
opportunities, is expected to produce growth in operating income and operating cash flow.
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For 2011, Telesat remains focused on increasing utilization of its existing satellites, constructing and launching the satellites it is
currently procuring, securing additional customer requirements to support the procurement of additional satellites and maintaining cost
and operating discipline.
Telesat’s operating results are subject to fluctuations as a result of exchange rate variations. Approximately 45% of Telesat’s
revenues received in Canada for the year ended December 31, 2010, certain of its expenses and a substantial portion of its
indebtedness and capital expenditures were denominated in U.S. dollars. The most significant impact of variations in the exchange
rate is on the U.S. dollar denominated debt financing. A five percent change in the value of the Canadian dollar against the U.S. dollar
at December 31, 2010 would have increased or decreased Telesat’s net income for the year ended December 31, 2010 by
approximately $151 million. During the period from October 31, 2007 to December 31, 2010, Telesat’s U.S. term loan facility, senior
notes and senior subordinated notes have increased by approximately $133 million due to the stronger U.S. dollar. During that same
time period, however, the liability created by the fair value of the currency basis swap, which synthetically converts $1.054 billion of
the U.S. term loan facility debt into CAD 1.224 billion of debt, decreased by approximately $129 million.
General
Telesat’s board of directors and shareholders have authorized a process to explore an initial public offering or other strategic
alternatives. To minimize the tax impact to the Company, thereby maximizing the benefits to Loral shareholders of any strategic
transaction that takes the form of a sale, Loral will endeavor to structure the sale in the form of a transaction for the Parent Company.
To accommodate such a structure, Loral would first separate SS/L and its other remaining non-Telesat assets. Accordingly, in the
event of any such transaction, Loral would, prior to the transaction, likely contribute its remaining non-Telesat assets to SS/L and then
spin-off or sell its interest in SS/L (or its remaining interest if there has first been an SS/L initial public offering).
SS/L Holdings, Inc. is a newly-formed subsidiary of Loral established for the purpose of facilitating an initial public offering or
spin-off of SS/L. SS/L Holdings, Inc. previously filed a registration statement with the SEC for an initial public offering. The
determination of how Loral will proceed with respect to SS/L, i.e. whether to proceed with an initial public offering, spin-off,
combination of an initial public offering and subsequent spin-off, sale or other strategic transaction or no transaction at all, will depend
on a number of factors, including the outcome of the Telesat process described above and business and market conditions. There can
be no assurance whether or when any transaction involving any or all of Loral, Telesat or SS/L may occur.
We regularly explore and evaluate possible other 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 will require additional funds. There can be no assurance that we will enter into additional strategic transactions or
alliances, nor do we know if we will be able to obtain the necessary financing for these transactions on favorable terms, if at all.
In 2008, Loral agreed to purchase the Canadian coverage portion of the ViaSat-1 satellite that is currently being constructed by
SS/L. The ViaSat-1 satellite is a high capacity Ka-band spot beam satellite for broadband services that is scheduled to be launched in
mid-2011 into the 115 o West longitude orbital location. Loral also entered into an agreement with Barrett Xplore Inc. (“Barrett”),
Canada’s largest rural broadband provider, to deliver high throughput satellite Ka-band capacity for broadband services in Canada.
Under the agreement, Barrett agreed to lease from Loral the Canadian capacity on the ViaSat-1 satellite and associated gateway
services for the expected life of the satellite, projected to commence in 2011 and Loral agreed to construct and operate four gateways
in Canada. Approximately $50 million has been invested by Loral through December 31, 2010. A portion of these costs was funded by
prepayments in 2010 from Barrett of CAD 2.5 million as required under the agreement. On March 1, 2011, Loral entered into
agreements to sell its investment in the Canadian broadband business, including the Canadian coverage portion of the ViaSat-1
satellite, to Telesat for $13 million plus reimbursement of approximately $48 million, representing Loral’s net costs incurred through
the closing date. In addition, if Telesat obtains certain supplemental capacity on the payload, Loral will be entitled to receive, for four
years, one-half of any net revenue actually earned by Telesat on such supplemental capacity. This transaction is expected to close in
March 2011 (see Note 16 to the financial statements).
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In connection with the Telesat transaction, Loral has agreed that, subject to certain exceptions described in Telesat’s shareholders
agreement, for so long as Loral has an interest in Telesat, it will not compete in the business of leasing, selling or otherwise furnishing
fixed satellite service, broadcast satellite service or audio and video broadcast direct to home service using transponder capacity in the
C-band, Ku-band and Ka-band (including in each case extended band) frequencies and the business of providing end-to-end data
solutions on networks comprised of earth terminals, space segment, and, where appropriate, networking hubs.
Consolidated Operating Results
Please refer to Critical Accounting Matters set forth below in this section.
The following discussion of revenues and Adjusted EBITDA (see Note 15 to the financial statements) reflects the results of our
business segments for 2010, 2009 and 2008. The balance of the discussion relates to our consolidated results unless otherwise noted.
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, amortization and stock-based compensation
(excluding stock-based compensation from SS/L phantom stock appreciation rights expected to be settled in cash) and directors’
indemnification expense (“Adjusted EBITDA”) as the measure of a segment’s profit or loss. Adjusted EBITDA is equivalent to the
common definition of EBITDA before: asset impairment charges; gains or losses on litigation not related to our operations; other
expense; and equity in net income (losses) of affiliates.
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, asset impairment charges, gains or losses on litigation not related
to our operations, other expense and equity in net income (losses) of affiliates. 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.
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.
Loral has two segments: Satellite Manufacturing and Satellite Services. Our segment reporting data includes unconsolidated
affiliates that meet the reportable segment criteria. The Satellite Services segment includes 100% of the results reported by Telesat for
the years ended December 31, 2010, 2009 and 2008. Although we analyze Telesat’s revenue and expenses under the Satellite Services
segment, we eliminate its results in our consolidated financial statements, where we report our 64% share of Telesat’s results under the
equity method of accounting.
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The following reconciles Revenues and Adjusted EBITDA on a segment basis to the information as reported in our financial
statements (in millions):
Revenues:
Satellite Manufacturing
Satellite Services
Segment revenues
Eliminations (1)
Affiliate eliminations (2)
Revenues as reported (3)
$
$
2010
Year Ended December 31,
2009
(In millions)
$
$
1,165.1
797.3
1,962.4
(6.1 )
(797.3)
1,159.0
1,008.7
691.6
1,700.3
(15.3 )
(691.6 )
993.4
$
$
2008
881.4
685.2
1,566.6
(12.0 )
(685.2 )
869.4
See explanations below for Notes 1, 2 and 3.
Increases in revenues from period to period are influenced by the size, timing and number of satellite contracts awarded in the
current and preceding years and the length of the construction period for satellite contracts awarded. Revenues are recognized on the
cost-to-cost percentage of completion method over the construction period, which usually ranges between 24 and 36 months. Large
satellites with significant new development can require up to 48 months for completion.
Revenues from Satellite Manufacturing before eliminations increased $156 million for 2010 as compared to 2009, due to
$112 million of higher revenues generated by increased satellite contract awards, improved factory performance (which reduces the
estimated cost to complete and increases the percentage of completion and the revenue recognized) of $59 million and a $5 million
increase in performance incentives earned, net of penalties, partially offset by a revenue decrease of $20 million from prior year
contract scope additions, which generated higher revenues in 2009. Eliminations for 2010 and 2009 consist primarily of revenue
applicable to Loral’s interest in a portion of the payload of the ViaSat-1 satellite which is being constructed by SS/L (see Note 16 to
the financial statements).
Satellite Services segment revenue increased by $106 million for 2010 as compared to 2009 primarily due to the impact of the
change in the U.S. dollar/Canadian dollar exchange rate on Canadian dollar denominated revenues, settlements from two terminated
contracts, an increase in equipment sales due to the completion of a significant project, growth in Telstar 18 service, the full year
effect of Nimiq 5 and increased revenue from Telstar 11N, partially offset by the termination of leasehold interests in Telstar 10, the
removal of Nimiq 3 from service and decreased revenue from services provided to the automotive industry. Satellite Services segment
revenues would have increased by approximately $63 million for 2010 as compared with 2009 if the U.S. dollar/Canadian dollar
exchange rate had been unchanged between the two periods.
Satellite Manufacturing segment revenue increased $127 million for 2009 compared to 2008, primarily as a result of an increase
in the number, size and complexity of satellites ordered. Revenue in 2009 was primarily driven by $3.22 billion of orders placed for
18 satellites in 2007, 2008 and 2009. Revenue in 2008 was primarily driven by $2.96 billion of orders placed for 17 satellites in 2006,
2007 and 2008.
Satellite Services segment revenue increased by $6 million in 2009 from 2008 primarily due to the launches of Nimiq 4 which
began service in late 2008, Telstar 11N which began service in early 2009 and Nimiq 5 which began service in late 2009, substantially
offset by the U.S. dollar/Canadian dollar exchange rate changes on Canadian dollar denominated revenues, the cancellation of
Telesat’s lease on Telstar 10 in July 2009, the removal from service of Nimiq 4iR and Nimiq 3 in the first half of 2009 and the
scheduled turndown of certain transponders on Nimiq 2. Satellite Services segment revenue would have increased by approximately
$54 million for the year ended December 31, 2009 as compared with the year ended December 31, 2008 if the U.S. dollar/Canadian
dollar exchange rate had remained unchanged between the two periods.
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Adjusted EBITDA:
2010
Satellite Manufacturing
Satellite Services
Corporate expenses
Segment Adjusted EBITDA before eliminations
Eliminations (1)
Affiliate eliminations (2)
Adjusted EBITDA
See explanations below for Notes 1 and 2.
$
$
Year Ended December 31,
2009
(In millions)
$
$
143.1
606.7
(17.9 )
731.9
90.6
488.1
(21.4 )
557.3
(1.5 )
(606.7)
123.7
$
(1.7 )
(488.1 )
67.5
$
2008
45.1
436.5
(14.9 )
466.7
(1.6 )
(427.2 )
37.9
Satellite Manufacturing segment Adjusted EBITDA increased $53 million for 2010 compared with 2009. The increase consists
of $55 million from improved factory performance, $35 million from the increased sales volume, $9 million from performance
incentives earned, net of penalties and a $4 million decrease in selling, general and administrative expenses (other than depreciation
and amortization), partially offset by a decrease of $20 million from prior year contract scope additions, a $27 million loss resulting
from a contract award in the third quarter of 2010 and a $3 million increase in stock-based compensation from SS/L phantom stock
appreciation rights that are expected to be paid in cash.
Satellite Services segment Adjusted EBITDA increased by $119 million for 2010 as compared to 2009 primarily due to the
revenue increase described above, expense reductions as a result of efficiencies gained from restructuring, reductions in third party
satellite capacity, elimination of expenses associated with decreased revenue from services provided to the automotive industry and
restructuring charges of $3 million in 2009, partially offset by the impact of the U.S. dollar/Canadian dollar exchange rate on
Canadian dollar denominated expenses. Satellite Services segment Adjusted EBITDA would have increased by approximately
$87 million for 2010 as compared with 2009 if the U.S. dollar/Canadian dollar exchange rate had been unchanged between the two
periods.
Corporate expenses decreased for 2010 compared to 2009 primarily due to a $4 million reduction in deferred compensation
expense because the maximum award under the deferred compensation plan was reached in 2009, and a $2 million decrease in legal
fees, partially offset by a $2 million increase in stock-based compensation from SS/L phantom stock appreciation rights that are
expected to be paid in cash.
Satellite Manufacturing segment Adjusted EBITDA increased $46 million for the year ended December 31, 2009 compared with
the year ended December 31, 2008 primarily due to an improvement in margins of $46 million resulting primarily from scope
increases and improved performance on certain satellite construction contracts and higher sales volume, a reduction in research and
development expense of $12 million as a result of completion of a significant project that was being performed in 2008, a decrease of
$4 million in losses on foreign exchange forward contracts and a $3 million reduction in new business acquisition costs, partially
offset by a $12 million increase in pension costs, a $2 million increase in deferred compensation expense and a $2 million increase in
the allowance for billed receivables.
Satellite Services segment Adjusted EBITDA increased by $52 million for the year ended December 31, 2009 as compared to the
year ended December 31, 2008 primarily due to the revenue increase described above, expense reductions in 2009 and the impact of
U.S. dollar/Canadian dollar exchange rate changes on Canadian dollar denominated expenses, partially offset by a $9 million gain on
recovery from a customer bankruptcy recorded in 2008. Satellite Services segment Adjusted EBITDA would have increased by
approximately $85 million for the year ended December 31, 2009 as compared with the year ended December 31, 2008 if the U.S.
dollar / Canadian dollar exchange rate had been unchanged between the two periods.
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Corporate expenses increased by $6 million for the year ended December 31, 2009 as compared to the year ended December 31,
2008, primarily due to a $7 million increase in charges accrued for deferred compensation arrangements entered into in 2005 resulting
from an increase in the fair value of our common stock and a $2 million increase in pension and other benefits costs, partially offset by
a $3 million decrease in litigation and other professional services expenses.
Reconciliation of Adjusted EBITDA to Net Income (Loss):
Adjusted EBITDA
Depreciation, amortization and stock-based compensation (4)
Directors’ indemnification expense (5)
Impairment of goodwill (6)
Operating income (loss)
Interest and investment income
Interest expense
Gain on litigation, net
Impairment of available for sale securities
Other expense
Income tax benefit (provision) (7)
Equity in net income (losses) of affiliates
Net income (loss)
$
$
123.7
(36.3 )
(6.8 )
—
80.6
13.5
(3.1 )
5.0
—
(2.9 )
308.6
85.6
487.3
2010
Year Ended December 31,
2009
(In millions)
$
$
2008
37.9
(44.0 )
—
(187.9 )
(194.0 )
11.9
(2.3 )
38.8
(5.8)
(0.1 )
(45.7 )
(495.7 )
(692.9 )
67.5
(47.3 )
—
—
20.2
8.3
(1.4 )
—
—
(0.1 )
(5.6 )
210.3
231.7
$
$
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Represents the elimination of intercompany sales and intercompany Adjusted EBITDA, primarily for satellites under
construction by SS/L for Loral and its wholly owned subsidiaries.
Represents the elimination of amounts attributed to Telesat whose results are reported in our consolidated statements of
operations as equity in net income (losses) of affiliates.
Includes revenues from affiliates of $137.2 million, $92.1 million and $84.0 million for the years ended December 31, 2010,
2009 and 2008, respectively.
Includes non-cash stock-based compensation of $2.5 million, $7.5 million and $7.6 million for the years ended December 31,
2010, 2009 and 2008, respectively (see Note 10 to the financial statements).
Represents indemnification expense, net of insurance recovery, in connection with defense costs incurred by MHR-affiliated
directors in the Delaware shareholder derivative case (see Note 14 to the financial statements).
During the fourth quarter of 2008, we determined that the implied fair value of SS/L goodwill had dropped below its carrying
value, and we recorded this impairment charge.
During the fourth quarter of 2010, we determined, based on all available evidence, that a full valuation allowance was no longer
required on our deferred tax assets and, therefore, $335.3 million of the valuation allowance was reversed as an income tax
benefit (see Note 9 to the financial statements).
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Table of Contents
2010 Compared with 2009 and 2009 Compared with 2008
The following compares our consolidated results for 2010, 2009 and 2008 as presented in our financial statements:
Revenue from Satellite Manufacturing
Year Ended
December 31,
2009
(In millions)
$
1,008
(15 )
2010
1,165
(6 )
2008
$
881
(12 )
1,159
$
993
$
869
% Increase
(Decrease)
2010
vs.
2009
2009
vs.
2008
16 %
(60 %)
17 %
14 %
25 %
14 %
Revenue from Satellite Manufacturing
Eliminations
Revenue from Satellite Manufacturing
as reported
$
$
Revenues from Satellite Manufacturing before eliminations increased for 2010 as compared to 2009 due to $112 million of
higher revenues generated by increased satellite contract awards, improved factory performance (which reduces the estimated cost to
complete and increases the percentage of completion and the revenue recognized) of $59 million and a $5 million increase in
performance incentives earned, net of penalties, partially offset by a revenue decrease of $20 million from prior year contract scope
additions, which generated higher revenues in 2009. Eliminations for 2010 and 2009 consist primarily of revenue applicable to Loral’s
interest in a portion of the payload of the ViaSat-1 satellite which is being constructed by SS/L (see Note 16 to the financial
statements). As a result, revenues from Satellite Manufacturing as reported increased $166 million for 2010 as compared to 2009.
Revenue from Satellite Manufacturing before eliminations increased $127 million for 2009 compared to 2008, primarily as a
result of an increase in the number, size and complexity of satellites ordered. Revenue in 2009 was primarily driven by $3.22 billion
of orders placed for 18 satellites in 2007, 2008 and 2009. Revenue in 2008 was primarily driven by $2.96 billion of orders placed for
17 satellites in 2006, 2007 and 2008. Eliminations for 2009 and 2008 consist primarily of revenue applicable to Loral’s interest in a
portion of the payload of the ViaSat-1 satellite which is being constructed by SS/L (see Note 16 to the financial statements). As a
result, revenue from Satellite Manufacturing as reported increased $124 million for 2009 as compared to 2008.
Cost of Satellite Manufacturing
2010
$
987
Year Ended
December 31,
2009
(In millions)
$
880
% Increase
(Decrease)
2010
vs.
2009
2009
vs.
2008
2008
$
788
12 %
12 %
85 %
89 %
91 %
Cost of Satellite Manufacturing
Cost of Satellite Manufacturing as a %
of Satellite Manufacturing revenues
Cost of Satellite Manufacturing increased by $107 million for 2010 as compared to 2009 as a result of a $92 million increase
from the higher sales volume and the $27 million loss from a contract award in the third quarter of 2010, partially offset by a
$7 million decrease in amortization and a $2 million decrease in stock-based compensation.
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Cost of Satellite Manufacturing increased $92 million for the year ended December 31, 2009 as compared to the year ended
December 31, 2008. Margins improved by $43 million primarily from scope increases, improved performance on certain satellite
construction contracts and higher sales volume, partially offsetting $114 million of increased costs from higher sales volume and a
$12 million increase in pension costs. Depreciation, amortization and stock-based compensation increased by $5 million for the year
ended December 31, 2009 as compared to the year ended December 31, 2008 primarily due to increases of $2 million in stock-based
compensation, $2 million in amortization of fair value adjustments and $1 million in depreciation.
Selling, General and Administrative Expenses
2010
Year Ended
December 31,
2009
(In millions)
2008
% Increase
(Decrease)
2010
vs.
2009
2009
vs.
2008
Selling, general and administrative
expenses
% of revenues
85
7 %
93
9%
97
11%
(9 %)
(4 %)
Selling, general and administrative expenses decreased by $8 million for 2010 as compared to 2009, primarily due to a
$5 million reduction in deferred compensation expense because the maximum award under the deferred compensation plan was
reached in 2009, a $3 million decrease in research and development expenses, a $3 million increase in the allowance for billed
receivables in the third quarter of 2009 and a $2 million decrease in legal fees, partially offset by a $4 million increase in new business
acquisition expenses and a $3 million increase in stock-based compensation.
Selling, general and administrative expenses were $93 million and $97 million for the years ended December 31, 2009 and 2008,
respectively. Selling, general and administrative expenses decreased by $4 million for the year ended December 31, 2009 as compared
to the year ended December 31, 2008 due primarily to a reduction in research and development expenses of $12 million, a decrease of
$3 million in new business acquisition costs, a $2 million decrease in litigation costs and a $1 million decrease in professional services
expenses, partially offset by a $9 million increase in deferred compensation expense, a $2 million increase in pension and other
benefits costs and a $2 million increase in the allowance for billed receivables. The deferred compensation expense increase in 2009
was due to an increase in the fair value of our common stock during 2009.
Gain on Recovery from Customer Bankruptcy
During 2008, we recorded a gain of $9 million related to distributions from a bankruptcy claim against a former customer of
Loral Skynet. The receivables underlying the claim had been previously written-off or not recognized due to the customer’s
bankruptcy.
Directors’ Indemnification Expense
Directors’ indemnification expense for the year ended December 31, 2010 represents our indemnification of legal expenses
incurred by MHR-affiliated directors in defense of claims asserted against them in their capacity as directors of Loral, net of directors
and officers insurance recoveries (see Note 14 to the financial statements).
Impairment of Goodwill
During 2008, we determined that the implied fair value of SS/L goodwill, which was established in connection with our adoption
of fresh-start accounting, had decreased below its carrying value. We recorded a charge to expense in the fourth quarter of 2008 of
$187.9 million to reflect this impairment.
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Table of Contents
Interest and Investment Income
Interest and investment income
2010
$
14
Year Ended
December 31,
2009
(In millions)
$
8
2008
$
12
Interest and investment income increased by $6 million for 2010 as compared to 2009, primarily due to increased interest income
on long-term orbital receivables as a result of satellite launches.
Interest and investment income decreased $4 million for the year ended December 31, 2009 as compared to the year ended
December 31, 2008. This decrease includes $5 million due primarily to reduced returns on investments. In addition, average
investment balances declined by $40 million in 2009 to $120 million. Other interest income increased by $1 million as a result of a
$2 million increase in interest and investment income from non-qualified pension plan assets and increased interest income of
$1 million from orbital incentives due to additional satellite launches, partially offset by a $2 million decrease from accelerated
amortization of fair value adjustments resulting from the early payment of orbital incentives in 2008.
Interest Expense
Interest cost before capitalized interest
Capitalized interest
Interest expense
2010
$
$
3
—
3
Year Ended
December 31,
2009
(In millions)
$
$
2008
$
$
3
(1 )
2
1
—
1
Interest expense for 2010 and 2009 consists primarily of fees and amortization of issuance costs related to the SS/L credit
agreement and the interest related to the ChinaSat transponders. Interest expense for 2009 includes a $1 million reversal of interest
expense previously recorded due to the favorable resolution of a contingent liability.
Interest expense for the year ended December 31, 2008 related primarily to interest on vendor financing which was no longer
outstanding in 2009 and 2010.
Gain on Litigation, Net
During 2010, we recorded income of $5.0 million from directors and officers insurance recoveries related to plaintiffs fees for
shareholders litigation arising from the issuance of our Series-1 Preferred Stock which was concluded during 2008 (see Note 14 to the
financial statements).
During 2008, we recorded income of $58 million related to a gain on litigation recovery from Rainbow DBS and expense of
$19.5 million related to the award of attorneys’ fees and expenses to the plaintiffs for shareholder litigation arising from the issuance
of our Series-1 Preferred Stock which was concluded during 2008 (see Note 14 to the financial statements).
Impairment of Available for Sale Securities
During 2008, we recorded impairment charges of $5.8 million to reflect other-than-temporary declines in the value of our
investment in Globalstar Inc. common stock (see Note 6 to the financial statements).
Other Expense
Other expense for the year ended December 31, 2010, includes expenses related to the evaluation of strategic alternatives for
SS/L and preparation and filing of registration statements and amendments related to a potential initial public offering of SS/L,
partially offset by the reversal of a liability related to the sale of certain assets in a prior year.
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Income Tax Provision
During the fourth quarter of 2010, we determined, based on all available evidence, that it was more likely than not that we would
realize the benefit from a significant portion of our deferred tax assets in the future, and therefore, a full valuation allowance was no
longer required. We based this determination on cumulative profits generated in recent periods, as well as our current expectation that
future operations will generate sufficient taxable income to realize the tax benefit from the deferred tax assets. Accordingly, we
reversed $335.3 million of the valuation allowance as a deferred income tax benefit. For 2010, this benefit was partially offset by a
current federal and state income tax provision of $16.6 million, which included a provision of $11.5 million to increase our liability
for uncertain tax positions, and a deferred tax provision of $10.1 million for the decrease to our deferred tax asset for federal AMT
credits, resulting in a net income tax benefit of $308.6 million on pre-tax income of $93.1 million. As of December 31, 2010, we
continued to maintain a valuation allowance of $11.2 million against the deferred tax assets for capital loss carryovers and certain state
tax attributes due to the limited carryforward periods and the character of such attributes. We will continue to maintain the valuation
allowance until sufficient positive evidence exists to support its full or partial reversal.
During 2009 and 2008, we continued to maintain a 100% valuation allowance against our net deferred tax assets, with the
exception of the deferred tax asset related to AMT credit carryforwards. For periods prior to January 1, 2009, any reduction to the
balance of the valuation allowance as of October 1, 2005 first reduced goodwill, then other intangible assets with any excess treated as
an increase to paid-in-capital. During 2008, goodwill was reduced by $38.6 million, for the reversal of an excess valuation allowance.
Effective January 1, 2009, all reversals of the valuation allowance balance as of October 1, 2005 were required to be recorded as a
reduction to the income tax provision.
For 2009, we recorded a current tax provision of $5.8 million, which included a provision of $2.3 million to increase our liability
for uncertain tax positions, and a deferred tax benefit of $0.2 million, resulting in a total provision of $5.6 million on pre-tax income
of $27.0 million. For 2008, we recorded a current tax provision of $16.3 million, which included a provision of $41.6 million to
increase our liability for uncertain tax positions and a current tax benefit of $25.4 million derived from tax strategies, and a deferred
tax provision of $29.4 million, resulting in a total provision of $45.7 million on a pre-tax loss of $151.5 million.
The deferred income tax provision for 2008 of $29.4 million related primarily to (i) a provision of $38.6 million recorded as a
result of having utilized deferred tax benefits from Old Loral and tax strategies to reduce our tax liability (where the excess valuation
allowance was recorded as a reduction to goodwill) offset by (ii) a benefit of $9.2 million for the increase to our deferred tax asset for
federal and state AMT credits.
See Critical Accounting Matters — Taxation below for discussion of our accounting method for income taxes.
Equity in Net Income (Losses) of Affiliates
Telesat
XTAR
Other
2010
$
$
92.8
(7.0 )
(0.2 )
85.6
$
Year Ended
December 31,
2009
(In millions)
$
213.2
(2.7 )
(0.2 )
210.3
2008
$
$
(479.6 )
(16.1 )
—
(495.7 )
Loral’s equity in net income (loss) of Telesat is based on our proportionate share of Telesat’s results in accordance with U.S.
GAAP and in U.S. dollars. The amortization of fair value adjustments applicable to the Loral Skynet assets and liabilities acquired by
Telesat in 2007 have been proportionately eliminated in determining our share of the net income (loss) of Telesat. Our equity in net
income (loss) of Telesat also reflects the elimination of our profit, to the extent of our beneficial interest, on satellites we are
constructing for Telesat.
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Summary financial information for Telesat in accordance with U.S. GAAP and in Canadian dollars (“CAD”) and U.S. dollars
(“$”) for the years ended December 31, 2010 and 2009 and 2008 and as of December 31, 2010 and 2009 follows (in millions):
Statement of Operations Data:
Revenues
Operating expenses
Gain on disposition of long-lived
assets
Impairment of long-lived and
intangible assets
Depreciation, amortization and stock-
based compensation
Operating income (loss)
Interest expense
Foreign exchange gains (losses)
(Losses) gains on financial
instruments
Other income (expense)
Income tax (provision) benefit
Net income (loss)
Average exchange rate for translating
Canadian dollars to U.S. dollars
2010
Year Ended December 31
2009
(In Canadian dollars)
2008
2010
Year Ended December 31
2009
(In U.S. dollars)
2008
821.4
(196.5 )
788.7
(232.0 )
731.1
(275.3)
797.3
(190.7)
691.6
(203.4 )
685.2
(258.0 )
3.9
—
(256.8 )
371.9
(241.6 )
164.0
(79.2 )
0.6
(42.4 )
173.3
33.4
—
—
(485.4 )
(262.5 )
327.6
(260.0 )
500.9
(169.9 )
(0.9 )
(2.5 )
395.2
(241.1)
(270.7)
(246.5)
(698.0)
271.8
(3.9 )
149.2
(798.1)
3.7
—
(249.3)
361.0
(234.5)
159.2
(76.9 )
0.6
(41.2 )
168.2
29.3
—
—
(454.9 )
(230.2 )
287.3
(228.0 )
439.2
(149.0 )
(0.7 )
(2.2 )
346.6
(226.0 )
(253.7 )
(231.1 )
(654.2 )
254.7
(3.6 )
139.9
(748.0 )
Balance Sheet Data:
Current assets
Total assets
Current liabilities
Long-term debt, including current portion
Total liabilities
Redeemable preferred stock
Shareholders’ equity
Period end exchange rate for translating Canadian
dollars to U.S. dollars
1.0302
1.1405
1.0670
As of December 31,
2010
2009
(In Canadian dollars)
As of December 31,
2010
2009
(In U.S. dollars)
290.8
5,298.8
293.9
2,923.0
4,137.1
141.4
1,020.4
251.4
5,260.4
206.3
3,110.4
4,257.0
141.4
862.0
291.4
5,309.4
294.5
2,928.9
4,145.3
141.7
1,022.4
238.7
4,994.7
195.9
2,953.3
4,041.9
134.3
818.5
0.9980
1.0532
Gain on disposition of long-lived assets in 2009 results from the transfer of Telesat’s leasehold interests in the Telstar 10 satellite
and related contracts to APT Satellite for a total consideration of approximately $69 million. Impairment of long-lived and intangible
assets consists primarily of an impairment charge in 2008 to reduce certain orbital slot assets to fair value.
Telesat’s operating results are subject to fluctuations as a result of exchange rate variations to the extent that transactions are
made in currencies other than Canadian dollars. Telesat’s main currency exposures as of December 31, 2010, lie in its U.S. dollar
denominated cash and cash equivalents, accounts receivable, accounts payable and debt financing. The most significant impact of
variations in the exchange rate is on the U.S. dollar denominated debt financing. We estimated that, after considering the impact of
hedges, a five percent change in the value of the Canadian dollar against the U.S. dollar at December 31, 2010 would have increased
or decreased Telesat’s net income for the year 2010 by approximately $151 million. During the period from October 31, 2007 to
December 31, 2010, Telesat’s U.S. Term Loan Facility, Senior Notes and Senior Subordinated Notes have increased by approximately
$133 million due to the stronger U.S. dollar. However during that same time period, the liability created by the fair value of the
currency basis swap, which synthetically converts $1.054 billion of the U.S. Term Loan Facility debt into CAD 1.224 billion of debt,
decreased by approximately $129 million.
The equity losses in XTAR, L.L.C. (“XTAR”), our 56% owned joint venture, represent our share of XTAR losses incurred in
connection with its operations.
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Backlog
Backlog as of December 31, 2010 and 2009 was as follows (in millions):
Satellite Manufacturing
Satellite Services
Total backlog before eliminations
Satellite Manufacturing eliminations
Satellite Services eliminations
Total backlog
2010
2009
1,625
5,477
7,102
(4 )
(5,477 )
1,621
$
$
1,632
5,230
6,862
(9 )
(5,230 )
1,623
$
$
It is expected that approximately 64% of satellite manufacturing backlog as of December 31, 2010 will be recognized as revenue
during 2011.
It is expected that approximately 11% of satellite services backlog will be recognized as revenue during 2011.
As of December 31, 2010, Telesat had received approximately $378 million of customer prepayments, none of which is related
to satellites under construction.
Critical Accounting Matters
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.
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 and performance
incentives that will be received as the satellite performs on orbit) and the potential for component obsolescence in connection with
long-term procurements. Estimated amounts for performance incentives and penalties are included in contract value when and to the
extent that it is probable such amounts will be paid or received. Performance incentives and penalties relate primarily to on-orbit
performance of the satellite and early or late delivery of the satellite, although a limited number of contracts include performance
incentives and penalties related to mass, payload performance and other items.
Satellite construction contracts often include provisions for performance incentives pursuant to which a portion of the contract
value (typically about 10%) is at risk, over the life of the satellite (typically 15 years), contingent upon the in-orbit performance of the
satellite in accordance with contractual specifications. These performance incentives are structured in two forms: (i) under warranty
payback, the customer pays the entire amount of the performance incentives during the period of satellite construction and (ii) under
orbital receivables, the customer makes payments of performance incentives at regular intervals (often monthly) over the in-orbit life
of the satellite.
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Performance incentives, whether warranty payback or orbital receivables, are included in revenues during the construction period
of the satellite. The amount of performance incentives recorded as revenues is net of (i) a factor based on past experience to reflect the
risk that a portion of the performance incentives will be lost due to non-performance and (ii) in the case of orbital receivables, a
discount for the time value of money because the amounts will be collected over the operating life of the satellite.
Estimates for performance incentives and penalties are assessed continually during the term of the contract and revisions are
reflected when the conditions become known. Changes in estimates are typically the result of schedule changes that affect
performance incentives and penalties, changes in contract scope, changes in new business forecasts that can affect the level of
overhead allocated to a given contract and changes in estimates on contracts as a result of the complex nature of the satellites we
manufacture. 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.
Billed Receivables and Long-Term Receivables
We are required to estimate the collectability of our long-term receivables and billed receivables which are included in contracts
in process on our consolidated balance sheet. A considerable amount of judgment is required in assessing the collectability of these
receivables, including the current creditworthiness of each customer and related aging of the past due balances. Charges for bad debts
recorded to the statements of operations on billed receivables for the years ended December 31, 2010, 2009 and 2008, were nil,
$2.8 million and $0.7 million, respectively. At December 31, 2010, 2009 and 2008, billed receivables were net of allowances for
doubtful accounts of $0.2 million, $3.7 million and $0.9 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.
Performance incentives, whether warranty payback or orbital receivables, are recorded as receivables on our balance sheet as we
record the revenues on the satellite during the construction period, which is typically two to three years. Performance incentives
structured as warranty payback are included in contracts in process, and orbital receivables, which are collected over the in-orbit life
of the satellite, are included in long-term receivables.
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 included in the consolidated statements of operations were
$4.3 million, $1.0 million and nil for the years ended December 31, 2010, 2009 and 2008, respectively.
Fair Value Measurements
U.S. GAAP defines fair value as the price that would be received for an asset or the exit price that would be paid to transfer a
liability in the principal or most advantageous market in an orderly transaction between market participants. U.S. GAAP also
establishes a fair value hierarchy that gives the highest priority to observable inputs and the lowest priority to unobservable inputs.
The three levels of the fair value hierarchy are described below:
Level 1: Inputs represent a fair value that is derived from unadjusted quoted prices for identical assets or liabilities traded in
active markets at the measurement date.
Level 2: Inputs represent a fair value that is derived from quoted prices for similar instruments in active markets, quoted prices
for identical or similar instruments in markets that are not active, model-based valuation techniques for which all significant
assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets
or liabilities, and pricing inputs, other than quoted prices in active markets included in Level 1, which are either directly or indirectly
observable as of the reporting date.
Level 3: Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants
would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option
pricing models, discounted cash flow models, and similar techniques.
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These provisions are applicable to all of our assets and liabilities that are measured and recorded at fair value.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents our assets and liabilities measured at fair value on a recurring basis at December 31, 2010:
Assets
Cash equivalents: Money market funds
Available-for-sale securities: Communications industry
Derivatives: Foreign exchange contracts
Non-qualified pension plan assets
Liabilities
Derivatives: Foreign exchange contracts
Level 1
Level 2
(In thousands)
Level 3
$
$
$
$
$
162,487
1,427
—
2,039
—
$
$
$
$
$
—
—
4,548
—
15,007
$
$
$
$
$
—
—
—
13
—
The Company does not have any non-financial assets or non-financial liabilities that are recognized or disclosed at fair value on a
recurring basis as of December 31, 2010.
Assets and Liabilities Measured at Fair Value on a Non-recurring Basis
We review the carrying values of our equity method investments when events and circumstances warrant and consider all
available evidence in evaluating when declines in fair value are other than temporary. The fair values of our investments are
determined based on valuation techniques using the best information available, and may include quoted market prices, market
comparables and discounted cash flow projections. An impairment charge would be recorded when the carrying amount of the
investment exceeds its current fair value and is determined to be other than temporary. We had no equity-method investments
measured at fair value at December 31, 2010.
Taxation
Loral is subject to U.S. federal, state and local income taxation on its worldwide income and foreign taxes on certain income
from sources outside the United States. Our foreign subsidiaries are subject to taxation in local jurisdictions. Telesat is subject to tax in
Canada and other jurisdictions and Loral will provide in operating earnings any additional U.S. current or deferred tax required on
distributions received or deemed distributions from Telesat.
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 anticipated 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.
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The tax effects of an uncertain tax position (“UTP”) taken or expected to be taken in income tax returns are recognized only if it
is “more likely-than-not” to be sustained on examination by the taxing authorities, based on its technical merits as of the reporting
date. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a
greater than fifty percent likelihood of being realized upon ultimate settlement. We recognize estimated accrued interest and penalties
related to UTPs in income tax expense.
We recognize the benefit of a UTP in the period when it is effectively settled. Previously recognized tax positions are
derecognized in the first period in which it is no longer more likely than not that the tax position would be sustained upon
examination. Evaluating the technical merits of a tax position and determining the benefit to be recognized involves a significant level
of judgment in the assumptions underlying such evaluation.
Pension and other employee benefits
We maintain qualified pension and supplemental retirement plans. 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 are
also considered. The discount rate determined on this basis was 5.5% as of December 31, 2010, a decrease of 50 basis points from
December 31, 2009.
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. Both investment types may include alternative investments which are
permitted to be up to 15% of total plan assets. 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. We also engage non-Russell related investment managers through Russell, in its role as trustee, to invest
pension plan assets. The targeted long-term allocation of our pension plan assets is 60% in equity investments and 40% in fixed
income investments. The expected long-term rate of return on plan assets determined on this basis was 8.0% for 2010, 8.0% for 2009
and 8.5% for 2008. For 2011, we will use an expected long-term rate of return of 8.0%.
These pension and other employee postretirement benefit costs are expected to increase to approximately $19.6 million in 2011
from $17.7 million in 2010, primarily due to the lower discount rate. 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 $2.2
million and $1.3 million, respectively, in 2010.
The benefit obligations for pensions and other employee benefits exceeded the fair value of plan assets by $249.6 million at
December 31, 2010. We are required to recognize the funded status of a benefit plan on our balance sheet. Market conditions and
interest rates significantly affect future assets and liabilities of Loral’s pension and other employee benefits plans.
Stock-Based Compensation
Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense
over the requisite service period. In addition, share-based payment transactions with nonemployees are measured at the fair value of
the equity instrument issued. We use the Black-Scholes-Merton option-pricing model and other models as applicable to estimate the
fair value of these stock-based awards. These models require us to make significant judgments regarding the assumptions used within
the models, 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. Changes in these assumptions could have a material impact on the amount of
stock-based compensation we recognize.
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The Company estimates expected forfeitures of stock-based awards at the grant date and recognizes compensation cost only for
those awards expected to vest. The forfeiture assumption is ultimately adjusted to the actual forfeiture rate. Therefore, changes in the
forfeiture assumptions may impact the timing of the total amount of expense recognized over the vesting period. Estimated forfeitures
are reassessed in each reporting period and may change based on new facts and circumstances. We emerged from bankruptcy on
November 21, 2005, and as a result, we did not have sufficient stock price history upon which to base our volatility assumption for
measuring our stock-based awards. In determining the volatility used in our models, 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-based award using the midpoint between
the vesting and expiration dates. Our risk-free rate of return assumption for awards was based on term-matching, nominal, monthly
U.S. Treasury constant maturity rates as of the date of grant. We assumed no dividends during the expected term.
The SS/L phantom stock appreciation rights program has been designed to incentivize and reward our employees based on the
increase in a synthetically determined value of SS/L’s equity. As SS/L’s common stock has not historically been publicly traded and
thus does not have a readily ascertainable market value, its equity value under the program is derived from a formula that calculates
equity value based on a multiple of Adjusted EBITDA plus cash on hand less debt at the end of the relevant year. Each phantom stock
appreciation right provides the recipient with the right to receive an amount equal to the increase in our notional stock price over the
base price at the date of grant multiplied by the number of phantom stock appreciation rights vested on the applicable vesting date.
The baseline price at each grant date is updated accordingly.
The phantom stock appreciation rights have fixed exercise dates. As such, the phantom stock appreciation rights are
automatically exercised and the value (if any) is paid out on each vesting date. The phantom stock appreciation rights may be settled
in Loral stock or cash at our option. The number of shares of Loral stock to be issued on the vesting date is determined by dividing the
SAR value by the price per share of Loral stock on the vesting date. Accordingly, the SS/L Phantom SARs are accounted for as
liability awards and the value of the awards is adjusted quarterly for changes in the value of the award resulting from increases or
decreases in actual or forecasted Adjusted EBITDA for the relevant year. Compensation expense is recognized ratably over the
requisite vesting period.
Goodwill and Other Intangible Assets
Goodwill represented 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 of October 1, 2005, the date we adopted fresh-start accounting. Our 2008
goodwill impairment test resulted in the recording of an impairment charge in 2008 for the entire goodwill balance of $187.9 million.
The Company’s estimate of the fair value of SS/L employed both a comparable public company analysis, which considered the
valuation multiples of companies deemed comparable, in whole or in part, to the Company and a discounted cash flow analysis that
calculated a present value of the projected future cash flows of SS/L. The Company considered both quantitative and qualitative
factors in assessing the reasonableness of the underlying assumptions used in the valuation process. Testing goodwill for impairment
requires significant subjective judgments by management.
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, in management’s opinion, 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.
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Accounting Standards Issued and Not Yet Implemented
For discussion of accounting standards issued and not yet implemented, see Note 2 to the financial statements.
Liquidity and Capital Resources
Loral
As described above, the Company’s principal assets are 100% of the capital stock of SS/L and a 64% economic interest in
Telesat. In addition, the Company has a 56% economic interest in XTAR. SS/L’s operations are consolidated in the Company’s
financial statements, while the operations of Telesat and XTAR are not consolidated but are presented using the equity method of
accounting.
The Parent Company has no debt. SS/L amended and restated its revolving credit facility on December 20, 2010, increasing the
facility amount to $150 million, extending the maturity to January 24, 2014 and removing the Parent Company guarantee. At
December 31, 2010, there were no outstanding borrowings and $5 million of letters of credit was outstanding. Telesat has third party
debt with financial institutions, and XTAR has debt to its LLC member, Hisdesat, Loral’s joint venture partner in XTAR. The Parent
Company has not provided a guarantee for the debt of Telesat or XTAR.
Cash is maintained at the Parent Company, SS/L, Telesat and XTAR to support the operating needs of each respective entity.
The ability of SS/L and Telesat to pay dividends and management fees in cash to the Parent Company is governed by applicable
covenants relating to the debt at each of those entities and in the case of Telesat and XTAR by their respective shareholder
agreements.
The Parent Company’s cash flow is fairly predictable. SS/L’s cash flow, however, is subject to substantial timing fluctuation of
receipts and expenditures and is difficult to forecast on a quarter to quarter basis. A typical satellite production contract takes two to
three years to complete. SS/L’s cash receipts are tied to the achievement of contract milestones which are negotiated for each contract
and the timing of milestone receipts does not necessarily match the timing of cash expenditures. Revenues and profits under these
long-term contracts are recognized using the cost-to-cost percentage of completion method, so the timing of revenue recognition and
cash receipts do not match, creating fluctuations in certain balance sheet accounts including contracts-in-process, long-term
receivables and customer advances. In addition, the timing of satellite awards is difficult to predict, contributing to the unevenness of
revenues and cash flow.
Cash and Available Credit
At December 31, 2010, the Company had $166 million of cash and cash equivalents, $6 million of restricted cash and no debt.
These amounts are substantially unchanged from our positions at December 31, 2009 despite spending approximately $147 million to
fund an increase in contract assets and capital expenditures. Adjusted EBITDA for the Company was approximately $124 million for
2010. During 2010, SS/L did not borrow any funds under its revolving credit agreement.
As discussed above, the SS/L Credit Agreement was amended and restated on December 20, 2010 to increase the facility from
$100 million to $150 million, extend the maturity to January 24, 2014 and eliminate the Parent Company guarantee. A $50 million
letter of credit sub-limit was maintained. As of December 31, 2010, SS/L had borrowing availability of approximately $145 million
under the facility after giving effect to approximately $5 million of outstanding letters of credit. SS/L anticipates that over the next
12 months it will be in compliance with all the covenants of the SS/L Credit Agreement and have full availability of the facility. The
amended and restated SS/L Credit Agreement allows for a spin-off of SS/L from Loral or an initial public offering of SS/L.
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Cash Management
We have a cash management investment program that seeks a competitive return while maintaining a conservative risk profile.
Our cash management investment policy establishes what we believe to be conservative guidelines relating to the investment of
surplus cash. The policy allows us to invest in commercial paper, money market funds and other similar short term investments but
does not permit us to engage in speculative or leveraged transactions, nor does it permit us to hold or issue financial instruments for
trading purposes. The cash management investment policy was designed to preserve capital and safeguard principal, to meet all of our
liquidity requirements and to provide a competitive rate of return for similar risk categories of investment. The 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. We operate the cash management investment program under the guidelines of our investment policy and continuously
monitor the investments to avoid risks.
We currently invest our cash in several liquid Prime AAA money market funds. The dispersion across funds reduces the
exposure of a default at one fund.
Orbital Receivables
As of December 31, 2010, SS/L had orbital receivables of approximately $312 million, net of fresh-start fair value adjustments
of $18 million. Of the gross orbital receivables as of December 31, 2010, approximately $196 million are related to satellites launched
and $134 million are related to satellites that are under construction. This represents an increase in gross orbital receivables of
approximately $66 million from December 31, 2009.
We anticipate that this orbital receivable asset will continue to grow, deferring the receipt of cash. We will generate positive cash
flow from orbital receivables once principal and interest payments received for the in-orbit satellites become greater than the amount
being deferred for satellites under construction. The timing of when we will have positive cash flow from orbital receivables is
dependent on a number of factors including the number of new satellite awards with the requirement for orbital incentive payments,
the timing of the completion of contracts under construction, interest rates associated with orbital incentive payments, the performance
of on-orbit satellites and the number of satellites in operation as compared to the number of satellites under construction.
Liquidity
During 2010, the Parent Company’s unrestricted cash position decreased approximately $14 million to $27 million. Cash was
used to fund capital expenditures for the Canadian broadband business as well as operating costs. The Parent Company received cash
from the settlement of insurance claims and also from the exercise of stock options.
The details of the Delaware shareholder derivative case relating to the Company’s sale in 2007 of $300 million of preferred stock
to certain funds affiliated with MHR are disclosed in Note 14 to the financial statements. The Parent Company purchased directors’
and officers’ liability insurance coverage that provides the Company with up to $40 million of coverage of which the insurers had
advanced approximately $9.8 million as of December 31, 2009. The Company sought recovery for the additional costs it incurred.
From a cash flow perspective, the Parent Company paid $14.4 million in May 2010 to the directors affiliated with MHR for
indemnification of their defense costs and expenses. The Parent Company received $1.2 million in July 2010 from insurers in
settlement of approximately $1.6 million in defense costs and expenses that had previously been denied by the insurers. In
December 2010, the Parent Company received $3.1 million of a $12.5 million insurance settlement with the remaining $9.4 million
received in January 2011. As a result of a February court ruling, and assuming no further appeals or that the Parent Company wins any
further appeals, the Parent Company is entitled to receive an additional $6.0 million from its insurers.
The Parent Company also received approximately $12 million net from the exercise of stock options during 2010. Through
March 8, 2011, the Parent Company used approximately $16 million in connection with required tax payments for the cashless
exercises of stock options. In January 2011, the Parent Company also received a $50 million dividend from SS/L representing a return
of cash that was invested in 2008 by the Parent Company. At the Parent Company, we expect that our cash and cash equivalents will
be sufficient to fund projected expenditures for the next 12 months.
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On March 1, 2011, Loral entered into agreements to sell its investment in the Canadian broadband business, including the
Canadian coverage portion of the ViaSat-1 satellite, to Telesat for $13 million plus reimbursement of approximately $48 million,
representing Loral’s net costs incurred through the closing date. In addition, if Telesat obtains certain supplemental capacity on the
payload, Loral will be entitled to receive for four years one-half of any net revenue actually earned by Telesat on such supplemental
capacity. This transaction is expected to close in March 2011 (see Note 16 to the financial statements). During 2010, the Parent
Company funded approximately $19 million of costs associated with the ViaSat-1 satellite and related ground infrastructure. The
Parent Company received CAD 2.5 million of prepayments in 2010 from the ViaSat-1 lessee.
In addition to our cash on hand, we believe that, given the substantial value of our assets, which include our 64% economic
interest in Telesat and our 56% equity interest in XTAR, we have the ability, if appropriate, to access the financial markets for debt or
equity at the Parent Company. Given the continuously changing financial environment, however, there can be no assurance that the
Parent Company would be able to obtain such financing on acceptable terms.
During 2010, SS/L increased its unrestricted cash position approximately $12 million to $139 million despite its investment in
orbital receivables, a reduction in its customer advances and its capital expenditures. SS/L generated $143 million in Adjusted
EBITDA for 2010.
SS/L’s cash uses for 2011, in addition to the dividend mentioned above, are projected to include capital expenditures and
continued growth in its orbital receivables balance. With regard to capital expenditures, SS/L is initiating a two-year infrastructure
campaign that will include the building of a second thermal vacuum chamber, completing certain building and systems modifications
and purchasing additional test and satellite handling equipment to meet its contractual obligations more efficiently. Capital
expenditures are estimated to be approximately $135 million over the two-year period before returning to a more customary level of
annual expenditures of $30 million to $40 million. The orbital receivable asset will continue to grow in 2011, though at a lower rate
than in 2010, as there was a decrease in satellite construction awards in 2010 requiring orbital receivables. The uncertainty as to the
timing and nature of new construction contract awards, milestone receipts and cash flow related to contract assets can change our cash
requirements. SS/L believes that, absent unforeseen circumstances, with its cash on hand and cash flow from operations, it has
sufficient liquidity to fulfill its obligations for the next 12 months. The borrowing capacity under the revolving credit facility also
enhances SS/L’s liquidity position.
Risks to Cash Flow
Economic and credit market conditions could adversely affect the ability of customers to make payments to us, including orbital
receivable payments under satellite construction contracts with SS/L. Though most of our customers are substantial corporations for
which creditworthiness is generally high, there are certain customers which are either highly leveraged or are in the developmental
stage and are not fully funded. There can be no assurance that these customers will not delay contract payments to, or seek financial
relief from, us if such customers have financial difficulties. If customers fall behind or default on their payment obligations, our
liquidity will be adversely affected.
There can be no assurance that SS/L’s customers will not default on their obligations to SS/L in the future and that such defaults
will not materially and adversely affect SS/L and Loral. In the event of an uncured payment default by a customer during the pre-
launch construction phase of the satellite, SS/L’s construction contracts generally provide SS/L with significant rights even if its
customers (or their successors) have paid significant amounts under the contract. These rights typically include the right to stop work
on the satellite and the right to terminate the contract for default. In the latter case, SS/L would generally have the right to retain, and
sell to other customers, the satellite or satellite components that are under construction. The exercise of such rights, however, could be
impeded by the assertion by customers of defenses and counterclaims, including claims of breach of performance obligations on the
part of SS/L, and our recovery could be reduced by the lack of a ready resale market for the affected satellites or their components. In
either case, our liquidity could be adversely affected pending resolution of such customer disputes.
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In the event of an uncured payment default by a customer after satellite delivery and launch when title has passed to the
customer, SS/L’s remedies are more limited. Typically, amounts due post-launch and delivery are final milestone payments and, in
certain cases, orbital incentive payments. To recover such amounts, SS/L generally would have to commence litigation to enforce its
rights. We believe, however, that, as customers generally rely on SS/L to provide orbital anomaly and troubleshooting support for the
life of the satellite, which support is generally perceived to be critical to maximize the life and performance of the satellite, it is likely
that customers (or their successors) will cure any payment defaults and fulfill their payment obligations or make other satisfactory
arrangements to obtain SS/L’s support, and our liquidity would not be adversely affected.
SS/L’s contracts contain detailed and complex technical specifications to which the satellite must be built. SS/L’s contracts also
impose a variety of other contractual obligations on SS/L, including the requirement to deliver the satellite by an agreed upon date,
subject to negotiated allowances. If SS/L is unable to meet its contract obligations, including significant deviations from technical
specifications or delivering the satellite beyond the agreed upon date in a contract, the customer would have the right to terminate the
contract for contractor default. If a contract is terminated for contractor default, SS/L would be required to refund the payments made
to SS/L to the date of termination, which could be significant. In such circumstances, SS/L would, however, keep the satellite under
construction and be able to recoup some of its losses through the resale of the satellite or its components to another customer. It has
been SS/L’s experience that, because the satellite is generally critical to the execution of a customer’s operations and business plan,
customers will usually accept a satellite with minor deviations from specifications or renegotiate a revised delivery date with SS/L as
opposed to terminating the contract for contractor default and losing the satellite. Nonetheless, the obligation to return all funds paid to
SS/L in the later stages of a contract, due to termination for contractor default, would have a material adverse effect on our liquidity.
Many of SS/L’s customer contracts include performance incentives, structured as warranty payback or orbital receivables. If a
satellite sold under a contract with performance incentives experiences an anomaly that leads to a degradation in performance as
defined in each particular contract, then in the case of warranty payback, SS/L would be obligated to return to the customer a portion
of the performance incentive payments received and, in the case of orbital receivables, SS/L would no longer be entitled to a portion
of the future orbital receivable payments owed. The amount SS/L would either need to return to the customer in case of warranty
payback, or would no longer be entitled to receive from the customer in the case of orbital receivables, would depend on various
factors including the specific contractual specifications, the satellite performance and life remaining, among other items. Our liquidity
could be adversely affected by failure to achieve contractual performance incentives.
On October 19, 2010, TerreStar Networks Inc. (“TerreStar”), an SS/L customer, filed for bankruptcy under Chapter 11 of the
Bankruptcy Code. As of December 31, 2010, SS/L had $19 million of past due receivables from TerreStar related to an in-orbit SS/L
built satellite and other related ground system deliverables and $16 million of past due receivables from TerreStar related to a second
satellite under construction. SS/L had previously exercised its contractual right to stop work on the satellite under construction as a
result of TerreStar’s payment default. The in-orbit satellite long-term orbital receivable balance, net of fair value adjustment, reflected
on the balance sheet at December 31, 2010 is $15 million. The long term orbital receivable balance reflected on the balance sheet for
the satellite under construction is $13 million. In addition, there are approximately $3 million of costs that have been committed to and
will be incurred in the future, substantially relating to the ground system deliverables. In February 2011, TerreStar withdrew its
proposed plan of reorganization and has indicated that it will explore an alternative plan of reorganization or a sale of its assets. Prior
to withdrawing its plan, TerreStar had indicated that it intended to assume its contract for the satellite under construction. In March
2011, TerreStar filed a motion to authorize it to reject its contacts for the in-orbit satellite and related ground system deliverables.
SS/L intends to file an objection to TerreStar’s motion and believes, based on discussions with TerreStar, that TerreStar intends to
negotiate with SS/L terms for the assumption of these contracts. SS/L believes and will assert in its objection that the satellite in orbit
and related ground system deliverables are critical to the execution of TerreStar’s operation and business plan. In addition, under its
contracts with TerreStar, SS/L is obligated to provide orbital anomaly and troubleshooting support for the life of the in-orbit
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satellite and related ground system deliverables, and, if TerreStar were to reject these contracts, SS/L would not provide this support.
SS/L believes that a prudent satellite operator would not risk losing SS/L’s support services because no other service provider has the
data or capability to provide these services which are necessary for the continued successful operation of a satellite over its lifetime.
SS/L believes, therefore, although no assurance can be given, that, notwithstanding TerreStar’s motion to reject the contracts for the
in-orbit satellite and related ground system deliverables, because of their importance to TerreStar and the importance of SS/L’s
ongoing technical support, any plan of reorganization for or sale of assets by TerreStar that does not provide for assumption of these
contracts would not be feasible. Accordingly, SS/L believes that TerreStar (or its successor in reorganization) will likely assume its
contracts for the in-orbit satellite and related ground system deliverables, and it is not probable that SS/L will incur a material loss
with respect to the past due receivables or amounts scheduled to be paid in the future under those contracts. Notwithstanding these
considerations, if TerreStar, nevertheless, were to reject its contracts for the in-orbit satellite and related ground system deliverables,
and assuming that SS/L received no recovery on its claim as a creditor with respect to these contracts, SS/L believes that it would
incur a loss of approximately $27 million, SS/L’s cash flow in the short term would be reduced by $20 million and SS/L’s cash flow
over the approximate 15-year life of the satellite would be reduced by an additional $18 million of long-term orbital receivables plus
interest.
SS/L booked seven satellite awards in both 2008 and 2009. SS/L booked six satellite awards in 2010, resulting in backlog of
$1.6 billion at December 31, 2010. SS/L has high fixed costs relating primarily to labor and overhead. Based on SS/L’s current cost
structure which has been sized to accommodate six to eight satellite contract awards per year, SS/L estimates that it covers its fixed
costs, including depreciation and amortization, with an average of four to five satellite awards a year depending on the size, power,
pricing and complexity of the satellite. If SS/L’s satellite awards fall below four to five awards per year, SS/L would be required to
phase in a reduction of costs to accommodate this lower level of activity. The timing of any reduced demand for satellites, if it were to
occur, is difficult to predict. It is, therefore, difficult to anticipate the need to reduce costs to match any such slowdown in business,
especially when SS/L has significant backlog business to perform. A delay in matching the timing of a reduction in business with a
reduction in expenditures could adversely affect our liquidity. We believe that SS/L’s current backlog, existing liquidity and
availability under the Credit Agreement are sufficient to finance SS/L, even if SS/L receives fewer than four awards over the next
12 months. If SS/L were to experience a shortage of orders below the four awards per year for multiple years, SS/L could require
additional financing, the amount and timing of which would depend on the magnitude of the order shortfall coupled with the timing of
a reduction in costs. There can be no assurance that SS/L could obtain such financing on favorable terms, if at all.
Telesat
Cash and Available Credit
As of December 31, 2010, Telesat had CAD 220 million of cash and short-term investments as well as approximately CAD
153 million of borrowing availability under its Revolving Facility. Telesat believes that cash and short-term investments as of
December 31, 2010, cash flow from operations, including amounts provided by operating activities, cash flow from customer
prepayments and drawings on the available lines of credit under the Credit Facility (as defined below) will be adequate to meet its
expected cash requirement for the next 12 months for activities in the normal course of business, including interest and required
principal payments on debt as well as planned capital expenditures.
Liquidity
A large portion of Telesat’s annual cash receipts are reasonably predictable because they are primarily derived from an existing
backlog of long-term customer contracts and high contract renewal rates. Telesat believes its cash flow from operations will be
sufficient to provide for its capital requirements and to fund its interest and debt payment obligations for the next 12 months. Cash
required for the construction of the Telstar 14R/Estrela do Sul 2, Nimiq 6 and the Anik G1 satellites plus the acquisition of the
Canadian payload on ViaSat-1 will be funded from some or all of the following: cash and short-term investments, cash flow from
operations, proceeds from the sale of assets, cash flow from customer prepayments or through borrowings on available lines of credit
under the Credit Facility.
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Debt
Telesat has entered into agreements with a syndicate of banks to provide Telesat with a series of term loan facilities denominated
in Canadian dollars and U.S. dollars, and a revolving facility (collectively, the “Senior Secured Credit Facilities”) as outlined below.
In addition, Telesat has issued two tranches of notes.
Maturity
Currency
December 31, December 31,
2010
2009
(In CAD millions)
Senior Secured Credit Facilities:
Revolving facility
Canadian term loan facility
U.S. term loan facility
U.S. term loan II facility
Senior notes
Senior subordinated notes
Less: deferred financing costs and
repayment options
Current portion
Long term portion
October 31, 2012
October 31, 2012
October 31, 2014
October 31, 2014
November 1, 2015
November 1, 2017
CAD or USD equivalent
CAD
USD
USD
USD
USD
CAD
CAD
CAD
—
170
1,699
146
691
217
2,923
(54 )
2,869
(97 )
2,772
—
185
1,811
155
730
229
3,110
(65 )
3,045
(23 )
3,022
The Senior Secured Credit Facilities are secured by substantially all of Telesat’s assets. Each tranche of the Senior Secured
Credit Facilities is subject to mandatory principal repayment requirements. Borrowings under the Senior Secured Credit Facilities bear
interest at a base interest rate plus margins of 275 — 300 basis points. The required repayments on the Canadian term loan facility will
be CAD 90 million for the year ended December 31, 2011. For the U.S. term loan facilities, required repayments in 2011 are 1 / 4 of 1%
of the initial aggregate principal amount which is approximately $5 million per quarter. Telesat is required to comply with certain
covenants which are usual and customary for highly leveraged transactions, including financial reporting, maintenance of certain
financial covenant ratios for leverage and interest coverage, a requirement to maintain minimum levels of satellite insurance,
restrictions on capital expenditures, a restriction on fundamental business changes or the creation of subsidiaries, restrictions on
investments, restrictions on dividend payments, restrictions on the incurrence of additional debt, restrictions on asset dispositions and
restrictions on transactions with affiliates.
The Senior notes bear interest at an annual rate of 11.0% and are due November 1, 2015. The Senior notes include covenants or
terms that restrict Telesat’s ability to, among other things, (i) incur additional indebtedness, (ii) incur liens, (iii) pay dividends or make
certain other restricted payments, investments or acquisitions, (iv) enter into certain transactions with affiliates, (v) modify or cancel
the Company’s satellite insurance, (vi) effect mergers with another entity and (vii) redeem the Senior notes prior to May 1, 2012, in
each case subject to exceptions provided in the Senior notes indenture.
The Senior subordinated notes bear interest at a rate of 12.5% and are due November 1, 2017. The Senior subordinated notes
include covenants or terms that restrict Telesat’s ability to, among other things, (i) incur additional indebtedness, (ii) incur liens,
(iii) pay dividends or make certain other restricted payments, investments or acquisitions, (iv) enter into certain transactions with
affiliates, (v) modify or cancel the Company’s satellite insurance, (vi) effect mergers with another entity and (vii) redeem the Senior
subordinated notes prior to May 1, 2013, in each case subject to exceptions provided in the Senior subordinated notes indenture.
Interest Expense
An estimate of the interest expense on the Facilities is based upon assumptions of LIBOR and Bankers Acceptance rates and the
applicable margin for the Senior Secured Credit Facilities. Telesat’s estimated interest expense for 2011 is approximately CAD
242 million.
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Derivatives
Telesat has used interest rate and currency derivatives to hedge its exposure to changes in interest rates and changes in foreign
exchange rates.
Telesat uses forward contracts to hedge foreign currency risk on anticipated transactions, mainly related to the construction of
satellites and interest payments. At December 31, 2010, Telesat had CAD 188.3 million of outstanding foreign exchange contracts
which require the Company to pay Canadian dollars to receive $185.0 million for future capital expenditures and interest payments. At
December 31, 2010, the fair value of these derivative contract liabilities was a liability of CAD 2.6 million, and at December 31, 2009,
there was a CAD 0.4 million liability.
Telesat has also entered into a cross currency basis swap to hedge the foreign currency risk on a portion of its U.S. dollar
denominated debt. Telesat uses mostly natural hedges to manage the foreign exchange risk on operating cash flows. At December 31,
2010, the Company had a cross currency basis swap of CAD 1,187.5 million which requires the Company to pay Canadian dollars to
receive $1,022.4 million. At December 31, 2010, the fair value of this derivative contract was a liability of CAD 192.5 million. Most
of this non-cash loss will remain unrealized until the contract is settled. This contract is due on October 31, 2014. At December 31,
2009, there was a liability of CAD 137.1 million.
Interest rate risk
Telesat is exposed to interest rate risk on its cash and cash equivalents and its long term debt which is primarily variable rate
financing. Changes in the interest rates could impact the amount of interest Telesat is required to pay. Telesat uses interest rate swaps
to hedge the interest rate risk related to variable rate debt financing. At December 31, 2010, the fair value of these derivative contract
liabilities was CAD 49.4 million, and at December 31, 2009, there was a liability of CAD 47.8 million. These contracts are due
between January 31, 2011 and October 31, 2014.
Capital Expenditures
Telesat has entered into contracts with SS/L for the construction of Telstar 14R/Estrela do Sul 2 (targeted to be launched mid-
2011) Nimiq 6, a direct broadcast satellite to be used by Telesat’s customer, Bell TV, and Anik G1. Telesat will also acquire the
Canadian payload on ViaSat-1. These expenditures will be funded from some or all of the following: cash and short-term investments,
cash flow from operations, proceeds from the sale of assets, cash flow from customer prepayments or through borrowings on available
lines of credit under the Credit Facility.
XTAR
In January 2009, XTAR reached an agreement with Arianespace, S.A. to settle its revenue-based fee that was to be paid over
time. To enable XTAR to be able to make these settlement payments, XTAR issued a capital call to its LLC members for $8 million in
2009. The capital call required Loral to increase its investment in XTAR by approximately $4.5 million, representing its 56% share of
$8 million. This settlement benefited XTAR by providing a significant reduction to amounts that it would have been required to pay in
the future and satisfied XTAR’s obligations to Arianespace.
In March 2011, Loral and Hisdesat agreed that each shareholder intends to make a capital contribution to XTAR in proportion to
its equity interest in XTAR, which will use the proceeds to repay the convertible loan of $10.8 million and related accrued interest to
Hisdesat.
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Contractual Obligations and Other Commercial Commitments
The following tables aggregate our contractual obligations and other commercial commitments as of December 31, 2010 (in
thousands).
Contractual Obligations:
Payments Due by Period
Operating leases (1)
Unconditional purchase obligations (2)
Other long-term obligations (3)
Revolving credit agreement (4)
Total contractual cash obligations (5)
Other Commercial Commitments:
Total
Less than
1 Year
$
$
46,504
454,140
29,884
—
530,528
$
$
11,435
292,105
19,906
—
323,446
1-3 Years
15,838
162,035
1,044
—
178,917
$
$
More than
4-5 Years
10,606
—
1,126
—
11,732
$
$
5 Years
$
$
8,625
—
7,808
—
16,433
Standby letters of credit
Total
Amounts
Committed
4,911
$
Amount of Commitment Expiration Per Period
Less than
1 Year
$
4,911
1-3 Years
—
$
4-5 Years
—
$
$
5 Years
—
More than
(1)
(2)
(3)
(4)
(5)
Represents future minimum payments under operating leases with initial or remaining terms of one year or more.
SS/L has entered into various purchase commitments with suppliers due to the long lead times required to produce purchased
parts.
Represents our commitment in connection with an agreement entered into between Loral and ViaSat for the purchase by Loral of
a portion of the ViaSat-1 satellite which is being constructed by SS/L for ViaSat as well as commitments for related gateway
infrastructure and equipment. In March 2011, Telesat agreed to assume and Loral agreed to assign its commitments related to
this project to Telesat in March 2011 (see Note 16 to the financial statements).
On December 20, 2010, SS/L amended and restated its revolving credit agreement with several banks and other financial
institutions. The credit agreement provides for a $150 million senior secured revolving credit facility. The credit agreement
matures on January 24, 2014 (see Note 8 to the financial statements). No amounts were outstanding under the credit agreement at
December 31, 2010.
Does not include our liabilities for uncertain tax positions of $122.8 million. Because the timing of future cash outflows
associated with our liabilities for uncertain tax positions is highly uncertain, we are unable to make reasonably reliable estimates
of the period of cash settlement with the respective taxing authorities (see Note 9 to the financial statements). Does not include
obligations for pensions and other postretirement benefits, for which we expect to make employer contributions of $39.1 million
in 2011. We also expect to make significant employer contributions to our plans in future years.
Net Cash Provided by (Used in) Operating Activities
Net cash provided by operating activities was $42 million for the year ended December 31, 2010.
The major driver of cash provided by operating activities was net income adjusted for non-cash items of $108 million which was
partially offset by cash used in program related assets (contracts-in-process, inventories and customer advances) of $73 million. Cash
flow from operating activities was reduced by $44 million in 2010 due to an increase in contracts-in-process caused by advance
spending on programs that customers are obligated to pay us for in the future. Customer advances reduced cash flow from operating
activities by $43 million due to the timing of awards and progress on new satellite programs.
Other factors affecting cash from operating activities in 2010 were: accounts payable, accrued expenses and other current
liabilities increased cash by $20 million; other current assets and other assets decreased cash by $9 million; and pension and other post
retirement liabilities reduced cash by $9 million.
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Net cash provided by operating activities for 2009 was $155 million. This was primarily due to net cash provided from program
related assets (contracts-in-process, inventories, long term receivables and customer advances) of $84 million and net income adjusted
for non-cash items of $67 million. Changes in program related assets resulted mainly from progress on new and existing satellite
programs.
Net cash used in operating activities for 2008 was $202 million. This was primarily due to an increase in contracts in process of
$216 million and a decrease in customer advances of $20 million, primarily resulting from progress on new satellite programs, a
decrease in taxes payable of $55 million, primarily due to tax payments, net of refunds, of $30 million, a decrease in pension and post
retirement liabilities of $19 million and a decrease in accrued expenses and other current liabilities of $22 million which includes a
Telesat post-closing final adjustment payment to PSP of $9 million, partially offset by an increase in accounts payable of $24 million,
an increase in long term liabilities of $33 million, primarily due to a $41 million liability for uncertain tax positions and a net loss after
adjustment for non-cash items of $69 million.
Net Cash (Used in) Provided By Investing Activities
Net cash used in investing activities for 2010 was $54 million, which included capital expenditures of $35 million for satellite
manufacturing and $19 million for the Canadian broadband business.
Net cash used in investing activities for 2009 was $49 million, primarily resulting from capital expenditures of $44 million and
an additional investment of $4.5 million in XTAR, representing our 56% share of an $8 million capital call.
Net cash used in investing activities for 2008 was $47 million, primarily resulting from capital expenditures of $65 million,
partially offset by a decrease in restricted cash of $19 million as a result of the release of restrictions on $12 million of cash relating to
the Skynet Noteholder Litigation and the release of restrictions on $7 million of cash due to the replacement of SS/L’s former Letter of
Credit Facility.
Net Cash Provided by (Used in) Financing Activities
Net cash provided by financing activities for 2010 was $10 million, which included $12 million from the exercise of stock
options, net of withholding taxes, partially offset by $2 million of issuance costs related to the amendment and extension of SS/L’s
revolving credit facility.
Net cash used in financing activities for 2009 was $55 million, primarily resulting from the repayment of borrowings under the
SS/L Credit Agreement.
Net cash provided by financing activities for 2008 was $52 million, primarily resulting from the proceeds, net of expenses, from
borrowings under the SS/L Credit Agreement.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, as defined by the rules and regulations of the SEC, that have or are
reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources. As a result, we are not materially exposed to any financing, liquidity,
market or credit risk that could arise if we had engaged in these arrangements.
Other
Operating cash flows for 2010 included contributions of approximately $25 million to the qualified pension plan and
approximately $3 million for other employee post-retirement benefit plans. During 2009, we contributed approximately $23 million to
the qualified pension plan and funded approximately $3 million for other employee post-retirement benefit plans. During 2008, we
contributed approximately $28 million to the qualified pension plan and funded approximately $4 million for other employee post-
retirement benefit plans. During 2011, based on current estimates, we expect to contribute approximately $34 million to the qualified
pension plan and expect to fund approximately $5 million for other employee post-retirement benefit plans.
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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 Note 6 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):
Revenues
Elimination of Loral’s proportionate share of profits relating to affiliate
$
transactions
Profits relating to affiliate transactions not eliminated
Commitments and Contingencies
2010
Year Ended December 31,
2009
(In millions)
$
92.1
$
137.2
(14.7 )
8.3
(10.1 )
5.7
2008
84.0
(5.0 )
2.8
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 14 to the financial statements.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Foreign Currency
Loral
In the normal course of business, we are subject to the risks associated with fluctuations in foreign currency exchange rates. To
limit this foreign exchange rate exposure, the Company seeks to denominate its contracts in U.S. dollars. If we are unable to enter into
a contract in U.S. dollars, we review our foreign exchange exposure and, where appropriate, derivatives are used to minimize the risk
of foreign exchange rate fluctuations to operating results and cash flows. We do not use derivative instruments for trading or
speculative purposes.
As of December 31, 2010, 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, 2010 exchange rates) that were unhedged:
Future revenues — Japanese yen
Future expenditures — Japanese yen
Future revenues — euros
Future expenditures — euros
Derivatives
Foreign Currency
U.S. $
¥
¥
€
€
(In millions)
201.0 $
4,253.8 $
12.6 $
7.5 $
2.5
52.2
16.7
9.9
In June 2010 and July 2008, SS/L was awarded satellite contracts denominated in euros and entered into a series of foreign
exchange forward contracts with maturities through 2013 and 2011, respectively, to hedge associated foreign currency exchange risk
because our costs are denominated principally in U.S. dollars. These foreign exchange forward contracts have been designated as cash
flow hedges of future euro denominated receivables.
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The maturity of foreign currency exchange contracts held as of December 31, 2010 is consistent with the contractual or expected
timing of the transactions being hedged, principally receipt of customer payments under long-term contracts. These foreign exchange
contracts mature as follows:
Maturity
2011
2012
2013
Euro
Amount
€
€
111.4
27.0
27.0
165.4
To Sell
At
Contract
Rate
(In millions)
$
142.3
32.6
32.9
207.8
$
At
Market
Rate
$
$
147.3
35.5
35.5
218.3
As a result of the use of derivative instruments, the Company is exposed to the risk that counterparties to derivative contracts will
fail to meet their contractual obligations. To mitigate the counterparty credit risk, the Company has a policy of entering into contracts
only with carefully selected major financial institutions based upon their credit ratings and other factors.
The aggregate fair value of derivative instruments in an asset position was $4.5 million as of December 31, 2010. This amount
represents the maximum exposure to loss at December 31, 2010 as a result of the potential failure of the counterparties to perform as
contracted.
Telesat
Telesat’s operating results are subject to fluctuations as a result of exchange rate variations to the extent that transactions are
made in currencies other than Canadian dollars. Approximately 45% of Telesat’s revenues for the year ended December 31, 2010,
certain of its expenses and a substantial portion of its indebtedness and capital expenditures were denominated in U.S. dollars. The
most significant impact of variations in the exchange rate is on the U.S. dollar denominated debt financing. A five percent change in
the value of the Canadian dollar against the U.S. dollar at December 31, 2010 would have increased or decreased Telesat’s net income
for the year ended December 31, 2010 by approximately $151 million. During the period from October 31, 2007 to December 31,
2010, Telesat’s U.S. Term Loan Facility, Senior Notes and Senior Subordinated Notes have increased by approximately $133 million
due to the stronger U.S. dollar. During that same time period, however, the liability created by the fair value of the currency basis
swap, which synthetically converts $1.054 billion of the U.S. Term Loan Facility debt into CAD 1.224 billion of debt, decreased by
approximately $129 million.
Interest
The Company had no borrowings outstanding under the SS/L Credit Agreement at December 31, 2010. Borrowings under this
facility are limited to Eurodollar Loans for periods ending in one, two, three or six months or daily loans for which the interest rate is
adjusted daily based upon changes in the Prime Rate, Federal Funds Rate or one month Eurodollar Rate. Because of the nature of the
borrowing under a revolving credit facility, the borrowing rate adjusts to changes in interest rates over time. For a $150 million credit
facility, if it were fully borrowed, a one percent change in interest rates would effect the Company’s interest expense by $1.5 million
for the year. The Company had no other long-term debt or other exposure to changes in interest rates with respect thereto.
As of December 31, 2010, the Company held 984,173 shares of Globalstar Inc. common stock and $2.1 million of non-qualified
pension plan assets that were mainly invested in equity and bond funds. During the year, our excess cash was invested in money
market securities; we did not hold any other marketable securities.
Item 8. Financial Statements and Supplementary Data
See Index to Financial Statements and Financial Statement Schedules on page F-1.
65
Table of Contents
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
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 Exchange Act) as of December 31, 2010, 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 Exchange 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 limitation, controls and
procedures designed to ensure that the information required to be disclosed by an issuer in the reports that it files or submits under the
Exchange 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, 2010.
Our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2010 has
been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in its attestation report which is
included below.
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Changes in Internal Controls Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended December 31, 2010 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 may 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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Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Loral Space & Communications Inc.
New York, New York
We have audited the internal control over financial reporting of Loral Space & Communications Inc. and subsidiaries (the
“Company”) as of December 31, 2010, 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, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to
express an opinion on 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, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of
internal control based on that risk, and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
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, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2010, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
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 schedule as of and for the year ended December 31, 2010, of the Company
and our report dated March 15, 2011 expressed an unqualified opinion on those consolidated financial statements and financial
statement schedule.
/s/ DELOITTE & TOUCHE LLP
New York, New York
March 15, 2011
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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, 2011.
Name
Michael B. Targoff
Avi Katz
Richard P. Mastoloni
Harvey B. Rein
John Capogrossi
Age
66
52
46
57
57
Position
Chief Executive Officer since March 1, 2006, President since
January 2008 and Vice Chairman of the Board of Directors since
November 2005. Prior to that, founder of Michael B. Targoff &
Co.
Senior Vice President, General Counsel and Secretary since
January 2008. Vice President, General Counsel and Secretary from
November 2005 to January 2008.
Senior Vice President of Finance and Treasurer since
January 2008. Vice President and Treasurer from November 2005
to January 2008.
Senior Vice President and Chief Financial Officer since
January 2008. Vice President and Controller from November 2005
to January 2008.
Vice President and Controller since January 2008. Executive
Director, Financial Planning and Analysis, from October 2006 to
January 2008. Assistant Controller from November 2005 to
October 2006.
Messrs. Katz, Mastoloni and Rein were executive officers of Old Loral and certain of its subsidiaries which filed voluntary
petitions for reorganization under Chapter 11 of the Bankruptcy Code in July 2003. In addition, Messrs. Katz, Mastoloni and Rein
served as executive officers of Globalstar, L.P. and certain of its subsidiaries, Loral/Qualcomm Satellite Services, L.P. (“LQSS”), the
managing general partner of Globalstar, L.P., Loral/Qualcomm Partnership, L.P. (“LQP”), the general partner of LQSS, and certain
subsidiaries of Old Loral that served as general partners of LQP, all of which filed voluntary petitions for reorganization under
Chapter 11 of the Bankruptcy Code in February 2002.
The remaining information required under Item 10 will be presented in the Company’s 2011 definitive proxy statement which is
incorporated herein by reference.
Item 11. Executive Compensation
Information required under Item 11 will be presented in the Company’s 2011 definitive proxy statement which is incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information required under Item 12 will be presented in the Company’s 2011 definitive proxy statement which is incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions
Information required under Item 13 will be presented in the Company’s 2011 definitive proxy statement which is incorporated
herein by reference.
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Table of Contents
Item 14. Principal Accountant Fees and Services
Information required under Item 14 will be presented in the Company’s 2011 definitive proxy statement which is incorporated
herein by reference.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) 1. Financial Statements
Index to Financial Statements and Financial Statement Schedule
Loral Space & Communications Inc. and Subsidiaries:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2010 and 2009
Consolidated Statements of Operations for the years ended December 31, 2010, 2009 and 2008
Consolidated Statements of Equity for the years ended December 31, 2010, 2009 and 2008
Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008
Notes to Consolidated Financial Statements
(a) 2. Financial Statement Schedule
Schedule II
Separate Financial Statements of Subsidiaries not consolidated Pursuant to Rule 3-09 of Regulation S-X
Telesat Holdings Inc. and Subsidiaries:
Report of Independent Registered Chartered Accountants
Consolidated Statements of Earnings (Loss) for the years ended December 31, 2010, 2009 and 2008
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2010, 2009 and 2008
Consolidated Statements of Shareholders’ Equity for the year ended December 31, 2010 with comparative figures
for the periods ended December 31, 2009, December 31, 2008
Consolidated Balance Sheets as of December 31, 2010 and 2009
Consolidated Statements of Cash Flow for the years ended December 31, 2010, 2009 and 2008
Notes to the 2010 Consolidated Financial Statements
70
F-2
F-3
F-4
F-5
F-6
F-7
F-56
F-57
F-58
F-59
F-60
F-61
F-62
F-63
Table of Contents
Exhibit
Number
Description
INDEX TO EXHIBITS
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
3.1
3.2
3.3
10.1
10.2
10.3
10.4
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(5)
Share Purchase Agreement among 4363213 Canada Inc., BCE Inc. and Telesat dated December 16, 2006(5)
Letter Agreement among Loral Space & Communications Inc., Public Sector Pension Investment Board and BCE
Inc. dated December 16, 2006(5)
Asset Transfer Agreement, dated as of August 7, 2007, by and among 4363205 Canada Inc., Loral Skynet
Corporation and Loral Space & Communications Inc.(7)
Amendment No. 1 to Asset Transfer Agreement, dated as of September 24, 2007, by and among 4363205 Canada
Inc., Loral Skynet Corporation and Loral Space & Communications Inc.(8)
Asset Purchase Agreement, dated as of August 7, 2007, by and among Loral Skynet Corporation, Skynet Satellite
Corporation and Loral Space & Communications Inc.(7)
Restated Certificate of Incorporation of Loral Space & Communications Inc. dated May 19, 2009(17)
Amended and Restated Bylaws of Loral Space & Communications Inc. dated December 23, 2008(13)
Amendment No. 1 to Bylaws of Loral Space & Communications dated January 12, 2010(21)
Amended and Restated Credit Agreement, dated as of December 20, 2010, by and among Space Systems/Loral,
Inc., as borrower, the several banks and other financial institutions or entities from time to time party thereto,
Credit Suisse Securities (USA) LLC, as documentation agent, ING Bank N.V., as syndication agent, J.P. Morgan
Securities LLC and Credit Suisse Securities (USA) LLC, as joint lead arrangers and joint bookrunners, and
JPMorgan Chase Bank, N.A., as administrative agent(25)
Ancillary Agreement, dated as of August 7, 2007, by and among Loral Space & Communications Inc., Loral
Skynet Corporation, Public Sector Pension Investment Board, 4363205 Canada Inc. and 4363230 Canada Inc.(7)
Adjustment Agreement, dated as of October 29, 2007, between Telesat Interco Inc. (formerly 4363213 Canada
Inc.), BCE Inc. and Telesat(9)
Omnibus Agreement, dated as of October 30, 2007, by and among Loral Space & Communications Inc., Loral
Skynet Corporation, Public Sector Pension Investment Board, Red Isle Private Investments Inc. and Telesat
Holdings Inc. (formerly 4363205 Canada Inc.)(9)
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Table of Contents
Exhibit
Number
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
Description
Shareholders Agreement, dated as of October 31, 2007, between Public Sector Pension Investment Board, Red Isle
Private Investments Inc., Loral Space & Communications Inc., Loral Space & Communications Holdings
Corporation, Loral Holdings Corporation, Loral Skynet Corporation, John P. Cashman, Colin D. Watson, Telesat
Holdings Inc. (formerly 4363205 Canada Inc.), Telesat Interco Inc. (formerly 4363213 Canada Inc.), Telesat and
MHR Fund Management LLC(9)
Consulting Services Agreement, dated as of October 31, 2007, by and between Loral Space & Communications
Inc. and Telesat(9)
Indemnity Agreement, dated as of October 31, 2007, by and among Loral Space & Communications Inc., Telesat,
Telesat Holdings Inc., Telesat Interco Inc. and Henry Gerard (Hank) Intven(9)
Acknowledgement and Indemnity Agreement, dated as of October 31, 2007, between Loral Space &
Communications Inc., Telesat, Telesat Holdings Inc. (formerly 4363205 Canada Inc.), Telesat Interco Inc.
(formerly 4363213 Canada Inc.) and McCarthy Tétrault LLP(9)
Amended and Restated Registration Rights Agreement dated December 23, 2008 by and among Loral Space &
Communications Inc. and the Persons Listed on the Signature Pages Thereof(13)
Letter Agreement, dated as of June 30, 2009, by and among Loral Space & Communications Inc, MHR Capital
Partners Master Account LP, MHR Capital Partners (100) LP, MHR Institutional Partners LP, MHRA LP, MHRM
LP, MHR Institutional Partners II LP, MHR Institutional Partners IIA LP and MHR Institutional Partners III
LP.(18)
Letter Agreement dated April 30, 2010 relating to indemnification among the Special Committee of the Board of
Directors of Loral Space & Communications Inc. and Mark Rachesky, Hal Goldstein, Sai Devahaktuni, MHR
Fund Management LLC and certain entities affiliated with MHR Fund Management LLC (23)
Settlement Agreement dated December 15, 2010 between XL Specialty Insurance Company, Arch Insurance
Company, U.S. Specialty Insurance Company, Loral Space & Communications Inc., Mark H. Rachesky, Hal
Goldstein and Sai S. Devabhaktuni, and (for purposes of paragraphs 6 and 7 and 9 through 20 only) MHR Fund
Management LLC and certain of its affiliated entities(24)
Partnership Interest Purchase Agreement dated December 21, 2007 by and among GSSI, LLC, Globalstar, Inc.,
Loral/DASA Globalstar, LP, Globalstar do Brasil, SA., Loral/DASA do Brasil Holdings Ltda., Loral Holdings
LLC, Global DASA LLC, LGP (Bermuda) Ltd., Mercedes-Benz do Brasil Ltda. (f/k/a DaimlerChrysler do Brasil
Ltda.) and Loral Space & Communications Inc.(10)
Beam Sharing Agreement, dated as of January 11, 2008, by and between Loral Space & Communications Inc. and
ViaSat Inc.(11)
Satellite Capacity and Gateway Service Agreement dated as of December 31, 2009 between Loral Space &
Communications Inc. and Barrett Xplore Inc.(20)
Gateway Facilities Assignment and Assumption Agreement dated as of March 1, 2011 by and between Telesat
Canada, Loral Space & Communications Inc. and Loral Canadian Gateway Corporation(26)
Space Segment Assignment and Assumption Agreement dated as of March 1, 2011 by and between Telesat IOM
Limited and Loral Space & Communications Inc.(26)
Barrett Assignment Agreement dated as of March 1, 2011 by and between Telesat IOM Limited and Loral Space &
Communications Inc.(26)
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Table of Contents
Exhibit
Number
10.19
10.20
Description
Employment Agreement between Loral Space & Communications Inc. and Michael B. Targoff dated as of
March 28, 2006 and amended and restated as of December 17, 2008(15) ‡
Form of Officers’ and Directors’ Indemnification Agreement between Loral Space & Communications Inc. and
Loral Executives(3) ‡
10.21
Loral Space Management Incentive Bonus Program (Adopted as of December 17, 2008)(13) ‡
10.22
Loral Space & Communications Inc. 2005 Stock Incentive Plan (Amended and Restated as of April 3, 2009)(16) ‡
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
Form of Amended and Restated Non-Qualified Stock Option Agreement under Loral Space & Communications
Inc. 2005 Stock Incentive Plan for Senior Management dated as of December 21, 2005 and amended and restated
as of November 10, 2008(15) ‡
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(4) ‡
Restricted Stock Unit Agreement dated March 5, 2009 between Loral Space & Communications Inc. and Michael
B. Targoff(14) ‡
Restricted Stock Unit Agreement dated March 5, 2010 between Loral Space & Communications Inc. and Michael
B. Targoff(22) ‡
Restricted Stock Unit Agreement dated March 5, 2011 between Loral Space & Communications Inc. and Michael
B. Targoff † ‡
Option Agreement dated October 27, 2009, between Loral Space & Communications Inc. and
Michael B. Targoff(19) ‡
Form of Restricted Stock Unit Agreement dated October 27, 2009 between Loral Space & Communications Inc.
and Loral executives(19) ‡
Form of Phantom Stock Appreciation Rights Agreement relating to Space Systems/Loral, Inc. dated October 27,
2009 between Loral Space & Communications Inc. and Loral and SS/L executives(19) ‡
10.31
Form of Director 2006 Restricted Stock Agreement(6) ‡
10.32
Form of Director 2007 Restricted Stock Agreement(6) ‡
10.33
Form of Director 2008 Restricted Stock Agreement(15) ‡
10.34
Form of Director 2009 Restricted Stock Unit Agreement(22) ‡
10.35
Form of Director 2010 Restricted Stock Unit Agreement† ‡
10.36
Form of Employee Restricted Stock Agreement(6) ‡
10.37
Amended and Restated Space Systems/Loral, Inc. Supplemental Executive Retirement Plan (Amended and
Restated as of December 17, 2008)(13) ‡
10.38
Loral Savings Supplemental Executive Retirement Plan (Amended and Restated as of December 17, 2008)(13) ‡
10.39
Loral Space & Communications Inc. Severance Policy for Corporate Officers (Amended and Restated as of
December 17, 2008)(13) ‡
14.1
Code of Conduct, Revised as of November 1, 2010†
73
Table of Contents
Exhibit
Number
Description
21.1
23.1
23.2
31.1
31.2
32.1
32.2
99.1
99.2
99.3
99.4
List of Subsidiaries of the Registrant†
Consent of Deloitte & Touche LLP†
Consent of Deloitte & Touche LLP†
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†
Certification of Chief Financial Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-
Oxley Act of 2002†
Credit Agreement, dated as of October 31, 2007, among Telesat Interco Inc. (formerly 4363213 Canada Inc.),
Telesat Holdings Inc. (formerly 4363205 Canada Inc.), 4363230 Canada Inc., Telesat LLC, certain subsidiaries of
Telesat Holdings Inc., as guarantors, the lenders party thereto from time to time, Morgan Stanley Senior Funding,
Inc., as administrative agent, and Morgan Stanley & Co. Incorporated, as collateral agent for the lenders, UBS
Securities LLC, as syndication agent, JPMorgan Chase Bank, N.A., The Bank of Nova Scotia, as issuing bank, and
Citibank, N.A., Canadian Branch or any of its lending affiliates, as co-documentation agents, and Morgan Stanley
& Co. Incorporated, UBS Securities LLC and J.P. Morgan Securities Inc., as joint lead arrangers and joint book
running managers(9)
Articles of Incorporation of Telesat Holdings Inc. (formerly 4363205 Canada Inc.)(9)
By-Law No. 1 of Telesat Holdings Inc. (formerly 4363205 Canada Inc.)(9)
Letter Agreement dated March 28, 2008 among Loral Space & Communications Inc., Loral Skynet Corporation,
Public Sector Pension Investment Board, Red Isle Private Investment Inc. and Telesat Holdings Inc.(12)
(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 November 23, 2005.
(4) Incorporated by reference from the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005 filed
on March 28, 2006.
(5) Incorporated by reference from the Company’s Current Report on Form 8-K filed on December 21, 2006.
(6) Incorporated by reference from the Company’s Current Report on Form 8-K filed on May 29, 2007.
(7) Incorporated by reference from the Company’s Current Report on Form 8-K filed on August 9, 2007.
(8) Incorporated by reference from the Company’s Current Report on Form 8-K filed on September 27, 2007.
(9) Incorporated by reference from the Company’s Current Report on Form 8-K filed on November 2, 2007.
(10) Incorporated by reference from the Company’s Current Report on Form 8-K filed December 21, 2007.
(11) Incorporated by reference from the Company’s Current Report on Form 8-K filed on January 16, 2008.
(12) Incorporated by reference from the Company’s Current Report on Form 8-K filed on March 31, 2008.
(13) Incorporated by reference from the Company’s Current Report on Form 8-K filed on December 23, 2008.
(14) Incorporated by reference from the Company’s Current Report on Form 8-K filed on March 10, 2009.
(15) Incorporated by reference from the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed
on March 16, 2009.
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Table of Contents
(16) Incorporated by reference from the Company’s Current Quarterly Report on Form 10-Q for the quarter ended March 31, 2009
filed on May 11, 2009.
(17) Incorporated by reference from the Company’s Current Report on Form 8-K filed on May 20, 2009.
(18) Incorporated by reference from the Company’s Current Report on Form 8-K filed on June 30, 2009.
(19) Incorporated by reference from the Company’s Current Quarterly Report on Form 10-Q for the quarter ended September 30,
2009 filed on November 9, 2009.
(20) Incorporated by reference from the Company’s Current Report on Form 8-K filed on January 7, 2010.
(21) Incorporated by reference from the Company’s Current Report on Form 8-K filed on January 15, 2010.
(22) Incorporated by reference from the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 filed
on March 15, 2010.
(23) Incorporated by reference from the Company’s Current Quarterly Report on Form 10-Q for the quarter ended March 31, 2010
filed on May 10, 2010.
(24) Incorporated by reference from the Company’s Current Report on Form 8-K filed on December 17, 2010.
(25) Incorporated by reference from the Company’s Current Report on Form 8-K filed on December 22, 2010.
(26) Incorporated by reference from the Company’s Current Report on Form 8-K filed on March 3, 2011.
†
‡
Filed herewith.
Management compensation plan.
75
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
Vice Chairman of the Board,
Chief Executive Officer and President
Dated: March 15, 2011
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
/s/ MICHAEL B. TARGOFF
Michael B. Targoff
/s/ MARK H. RACHESKY, M.D.
Mark H. Rachesky, M.D.
/s/ SAI S. DEVABHAKTUNI
Sai S. Devabhaktuni
/s/ HAL GOLDSTEIN
Hal Goldstein
/s/ JOHN D. HARKEY, JR.
John D. Harkey, Jr.
/s/ ARTHUR L. SIMON
Arthur L. Simon
/s/ JOHN P. STENBIT
John P. Stenbit
/s/ HARVEY B. REIN
Harvey B. Rein
/s/ JOHN CAPOGROSSI
John Capogrossi
Title
Vice Chairman of the Board,
Chief Executive Officer and President
Director, Non-Executive
Chairman of the Board
Director
Director
Director
Director
Director
Senior Vice President and CFO
(Principal Financial Officer)
Vice President and Controller
(Principal Accounting Officer)
76
Date
March 15, 2011
March 15, 2011
March 15, 2011
March 15, 2011
March 15, 2011
March 15, 2011
March 15, 2011
March 15, 2011
March 15, 2011
Table of Contents
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, 2010 and 2009
Consolidated Statements of Operations for the years ended December 31, 2010, 2009 and 2008
Consolidated Statements of Equity for the years ended December 31, 2010, 2009 and 2008
Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008
Notes to Consolidated Financial Statements
Schedule II
Separate Financial Statements of Subsidiaries not consolidated Pursuant to Rule 3-09 of Regulation S-X
Telesat Holdings Inc. and Subsidiaries:
Report of Independent Registered Chartered Accountants
Consolidated Statements of Earnings (Loss) for the years ended December 31, 2010, 2009 and 2008
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2010, 2009 and 2008
Consolidated Statements of Shareholders’ Equity for the year ended December 31, 2010 with comparative figures
for the periods ended December 31, 2009, December 31, 2008
Consolidated Balance Sheets as of December 31, 2010 and 2009
Consolidated Statements of Cash Flow for the years ended December 31, 2010, 2009 and 2008
Notes to the 2010 Consolidated Financial Statements
F-2
F-3
F-4
F-5
F-6
F-7
F-56
F-57
F-58
F-59
F-60
F-61
F-62
F-63
F-1
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Loral Space & Communications Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of Loral Space & Communications Inc. and subsidiaries (the
“Company”) as of December 31, 2010 and 2009, and the related consolidated statements of operations, equity, and cash flows for each
of the three years in the period ended December 31, 2010. Our audits also included the financial statement schedule listed in the Index
at Item 15(a)2. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our
responsibility is to express an opinion on the consolidated financial statements and financial statement schedule 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, such consolidated financial statements present fairly, in all material respects, the financial position of the
Company as of December 31, 2010 and 2009, and the results of its operations and its cash flows for each of the three years in the
period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America. Also,
in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a
whole, presents 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
Company’s internal control over financial reporting as of December 31, 2010, 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, 2011 expressed an unqualified opinion on the Company’s internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
New York, New York
March 15, 2011
F-2
Table of Contents
Current assets:
Cash and cash equivalents
Contracts-in-process
Inventories
Deferred tax assets
Other current assets
Total current assets
Property, plant and equipment, net
Long-term receivables
Investments in affiliates
Intangible assets, net
Long-term deferred tax assets
Other assets
Total assets
Current liabilities:
LORAL SPACE & COMMUNICATIONS INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
ASSETS
LIABILITIES AND EQUITY
Accounts payable
Accrued employment costs
Customer advances and billings in excess of costs and profits
Other current liabilities
Total current liabilities
Pension and other postretirement liabilities
Long-term liabilities
Total liabilities
Commitments and contingencies
Equity:
Loral shareholders’ equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued and
outstanding
Common Stock:
Voting common stock, $.01 par value; 50,000,000 shares authorized, 20,924,874 and
20,390,752 shares issued and outstanding
Non-voting common stock, $0.1 par value; 20,000,000 shares authorized, 9,505,673
issued and outstanding
Paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total shareholders’ equity attributable to Loral
Noncontrolling interest
Total equity
Total liabilities and equity
See notes to consolidated financial statements.
F-3
December 31,
2010
2009
$
165,801
186,896
71,233
66,220
28,927
519,077
235,905
319,426
362,556
11,110
294,019
12,816
$ 1,754,909
$
168,205
190,809
83,671
4,068
20,275
467,028
207,996
248,097
282,033
20,300
8,647
19,351
$ 1,253,452
$
$
95,952
52,017
261,603
30,375
439,947
244,817
169,196
853,960
86,809
44,341
291,021
19,147
441,318
226,190
153,953
821,461
—
—
209
204
95
1,028,263
(32,374 )
(95,873 )
900,320
629
900,949
$ 1,754,909
95
1,013,790
(519,220)
(62,878 )
431,991
—
431,991
$ 1,253,452
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Revenues
Cost of revenues
Selling, general and administrative expenses
Directors’ indemnification expense
Gain on recovery from customer bankruptcy
Impairment of goodwill
Operating income (loss)
Interest and investment income
Interest expense
Gain on litigation, net
Impairment of available for sale securities
Other expense
Income (loss) before income taxes and equity in net income (losses) of
affiliates
Income tax benefit (provision)
Income (loss) before equity in net income (losses) of affiliates
Equity in net income (losses) of affiliates
Net income (loss)
Net income attributable to noncontrolling interest
Net income (loss) attributable to Loral
Preferred dividends
Net income (loss) attributable to Loral common shareholders
Net income (loss) per share attributable to Loral common shareholders:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
$
$
2010
$ 1,158,985
986,697
84,823
6,857
—
—
80,608
13,550
(3,143)
5,000
—
(2,921)
Year Ended December 31,
2009
993,400
880,486
92,703
—
—
—
20,211
8,307
(1,422 )
—
—
(121 )
93,094
308,622
401,716
85,625
487,341
(495 )
486,846
—
486,846
16.18
15.63
30,085
30,887
$
$
$
26,975
(5,571 )
21,404
210,298
231,702
—
231,702
—
231,702
7.79
7.73
29,761
29,981
$
$
$
$
$
$
2008
869,398
787,758
97,015
—
(9,338 )
187,940
(193,977)
11,857
(2,268 )
38,823
(5,823 )
(135 )
(151,523)
(45,744 )
(197,267)
(495,649)
(692,916)
—
(692,916)
(24,067 )
(716,983)
(35.13 )
(35.13 )
20,407
20,407
See notes to consolidated financial statements.
F-4
Balance,
January 1,
2008
Net loss
Other
comprehensive
loss
Comprehensive
loss
Issuance of Series
-1 preferred
stock as
payment for
dividend
Shares
surrendered to
fund
withholding
taxes
Stock based
compensation
Series-1 preferred
dividends
Cancellation and
conversion of
Series-1
preferred stock
to non-voting
common stock
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands)
Series A-1
Convertible
Preferred Stock
Series B-1
Convertible
Preferred Stock
Shares
Issued
Shares
Amount Issued
Amount
Common Stock
Voting
Non-Voting
Shares
Issued Amount Issued Amount Capital
Shares
Paid-In Accumulated
Deficit
Accumulated
Other
Comprehensive
Income
(Loss)
Noncontrolling Total
Interest
Equity
142
$
41,873
901
$
265,777 20,293 $
203 —
— $ 663,127 $
(33,939) $
(692,916)
36,517
— $ 973,558
(83,247 )
(776,163)
24,249
(338 )
7,621
4,797
(24,067 )
(46,730 )
— 209,657
(16,148 )
215,554
1,404
(1,559)
6,935
3
822
78
23,427
(18 )
12
(338 )
7,621
618 —
4,179
—
(145 )
(43,313 )
(979 )
(293,383 )
9,506 $
95 336,601
Preferred stock
dividends
Balance,
December 31,
2008
Net income
Other
—
— —
— 20,287
203 9,506
95 1,007,011
(24,067)
(750,922)
231,702
comprehensive
loss
Comprehensive
income
Exercise of stock
options
Shares
surrendered to
fund
withholding
taxes
Stock based
compensation
74
1
1,403
(43 )
73
0
(1,559 )
6,935
Balance,
December 31,
2009
Net income
Other
—
— —
— 20,391
204 9,506
95 1,013,790
(519,220)
486,846
(62,878 )
$
— 431,991
495
comprehensive
loss
Comprehensive
income
Exercise of stock
options
Shares
surrendered to
fund
withholding
taxes
Tax benefit
associated
with exercise
of stock
options
Stock based
compensation
Contribution by
noncontrolling
interest
547
5
13,990
(13 )
—
(2,477 )
412
2,548
(32,995 )
454,346
13,995
(2,477)
412
2,548
134
134
Balance,
December 31,
2010
—
— —
— 20,925 $
209 9,506 $
95 $ 1,028,263 $
(32,374) $
(95,873 ) $
629 $ 900,949
See notes to consolidated financial statements.
F-5
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Non-cash items
Changes in operating assets and liabilities:
Contracts-in-process
Inventories
Long-term receivables
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
Net cash provided by (used in) operating activities
Investing activities:
Capital expenditures
Decrease in restricted cash in escrow
Investments in and advances to affiliates
Other
Net cash used in investing activities
Financing activities:
(Repayments) borrowings under SS/L revolving credit facility
Debt issuance costs
Proceeds from the exercise of stock options
Excess tax benefit associated with exercise of stock options
Other
Net cash provided by (used in) financing activities
(Decrease) increase in cash and cash equivalents
Cash and cash equivalents — beginning of year
Cash and cash equivalents — end of year
Year Ended December 31,
2009
2010
2008
$
487,341
$
231,702
$
(692,916)
(379,507)
(164,785)
762,210
(43,845 )
14,409
(5,964)
(8,527)
9,453
10,976
(43,229 )
4,076
(9,069)
5,835
41,949
(54,057 )
—
—
—
(54,057 )
—
(2,226)
13,995
412
(2,477)
9,704
(2,404)
168,205
165,801
$
(7,913 )
17,482
(5,565 )
2,806
(5,628 )
(9,611 )
80,350
21,426
(4,158 )
(1,544 )
154,562
(43,557 )
10
(5,480 )
277
(48,750 )
(55,000 )
—
1,404
—
(1,559 )
(55,155 )
50,657
117,548
168,205
(216,354)
(12,787 )
13,947
3,393
23,681
(22,455 )
(19,710 )
(55,034 )
(19,010 )
32,825
(202,210)
(64,559 )
18,637
(1,048 )
(338 )
(47,308 )
55,000
(2,628 )
—
—
—
52,372
(197,146)
314,694
117,548
$
$
See notes to consolidated financial statements.
F-6
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Principal Business
Loral Space & Communications Inc., together with its subsidiaries (“Loral”, the “Company”, “we”, “our” and “us”), is a leading
satellite communications company engaged in satellite manufacturing with ownership interests in satellite-based communications
services.
Loral has two segments (see Note 15):
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:
Loral participates in satellite services operations principally through its ownership interest in Telesat Holdings Inc.
(“Telesat Holdco”), which owns Telesat Canada (“Telesat”), a global FSS provider. Telesat owns and leases a satellite fleet that
operates 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 and provide reliable, high-bandwidth services anywhere in their coverage areas,
serving as the backbone for many forms of telecommunications.
Loral holds a 64% economic interest and a 33 1 / 3 % voting interest in Telesat Holdco (see Note 6). We use the equity
method of accounting for our investment in Telesat Holdco.
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”) pursuant to the terms of the fourth amended joint plan of reorganization, as modified (“the Plan of
Reorganization”).
2. Basis of Presentation
The consolidated financial statements include the results of Loral and its subsidiaries and have been prepared in accordance with
accounting principles generally accepted in the United States of America (“U.S. GAAP”). All intercompany transactions have been
eliminated.
As noted above, we emerged from bankruptcy on November 21, 2005, and we adopted fresh-start accounting as of October 1,
2005 and determined the fair value of our assets and liabilities. Upon emergence, our reorganization equity value was allocated to our
assets and liabilities, which were stated at fair value in accordance with the purchase method of accounting for business combinations.
In addition, our accumulated deficit was eliminated, and our new equity was recorded in accordance with distributions pursuant to the
Plan of Reorganization.
Investments in Telesat and XTAR, L.L.C. (“XTAR”) are accounted for using the equity method of accounting. 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. 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 funding obligations exist. The
Company monitors its equity method investments for factors indicating other-than-temporary impairment. An impairment loss would
be recognized when there has been a loss in value of the affiliate that is other than temporary.
F-7
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 performance
incentives) and the potential for component obsolescence in connection with long-term procurements. Significant estimates also
include the allowances for doubtful accounts and long-term receivables, estimated useful lives of our plant and equipment and finite
lived intangible assets, the fair value of indefinite lived intangible assets and goodwill, the fair value of stock based compensation, the
realization of deferred tax assets, uncertain tax positions, the fair value of and gains or losses on derivative instruments and our
pension liabilities.
Cash and Cash Equivalents, Restricted Cash and Available for Sale Securities
As of December 31, 2010, the Company had $165.8 million of cash and cash equivalents, and $5.6 million of restricted cash
($0.6 million included in other current assets and $5.0 million included in other assets on our consolidated balance sheet). Cash and
cash equivalents include liquid investments, primarily money market funds, with maturities of less than 90 days at the time of
purchase and no redemption limitations. Management determines the appropriate classification of its investments at the time of
purchase and at each balance sheet date. Investments in publicly traded common stock 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 (loss).
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 and long-term receivables. 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 are highly leveraged, as well as those in the development stage which are partially funded. Management believes that
its credit evaluation, approval and monitoring processes combined with contractual billing arrangements and our title interest in
satellites under construction provide for management of potential credit risks with regard to our current customer base. However,
swings in the global financial markets that include illiquidity, market volatility, changes in interest rates and currency exchange
fluctuations can be difficult to predict and negatively affect certain customers’ ability to make payments when due.
Billed Receivables and Long-Term Receivables
Financing receivables consist of billed and unbilled receivables which are included in contracts-in-process and unbilled orbital
receivables and notes receivable from Telesat for consulting services which are included in long-term receivables.
We estimate the collectibility of our billed, unbilled and long-term receivables by assessing the current credit worthiness of each
customer and related aging of past due balances. A billed receivable is considered past due when it remains unpaid beyond its stated
billing terms which can range from 30-60 days. 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. An
allowance for doubtful accounts is established on a case-by-case basis based on the information available to us and is re-evaluated
periodically.
F-8
Table of Contents
Inventories
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Inventories are valued at the lower of cost or fair value and consist principally of parts and subassemblies used in the
manufacture of satellites which have not been specifically identified to contracts-in-process. Cost is determined using the first-in-first-
out (FIFO) or average cost method.
Fair Value Measurements
U.S. GAAP defines fair value as the price that would be received for an asset or the exit price that would be paid to transfer a
liability in the principal or most advantageous market in an orderly transaction between market participants. U.S. GAAP also
establishes a fair value hierarchy that gives the highest priority to observable inputs and the lowest priority to unobservable inputs.
The three levels of the fair value hierarchy are described below:
Level 1: Inputs represent a fair value that is derived from unadjusted quoted prices for identical assets or liabilities traded in
active markets at the measurement date.
Level 2: Inputs represent a fair value that is derived from quoted prices for similar instruments in active markets, quoted prices
for identical or similar instruments in markets that are not active, model-based valuation techniques for which all significant
assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets
or liabilities, and pricing inputs, other than quoted prices in active markets included in Level 1, which are either directly or indirectly
observable as of the reporting date.
Level 3: Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants
would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option
pricing models, discounted cash flow models, and similar techniques.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents our assets and liabilities measured at fair value on a recurring basis:
December 31, 2010
Level 1
Level 2
(In thousands)
December 31, 2009
Level 3
Level 1
Level 2
(In thousands)
Level 3
Assets
Cash equivalents
Money market funds
Available-for-sale securities
Communications industry
Derivatives
Foreign exchange contracts
Non-qualified pension plan assets
Liabilities
Derivatives
Foreign exchange contracts
$
$
$
$
$ 162,487
$
$
$
$
—
—
4,548
—
$
$
$
$
—
$ 166,760
—
—
13
$
$
$
856
—
2,791
$
$
$
$
—
—
3,873
—
$
$
$
$
—
—
—
81
1,427
—
2,039
—
$ 15,007
$
—
$
—
$
—
$
—
The Company does not have any non-financial assets or non-financial liabilities that are recognized or disclosed at fair value on a
recurring basis as of December 31, 2010.
Assets and Liabilities Measured at Fair Value on a Non-recurring Basis
We review the carrying values of our equity method investments when events and circumstances warrant and consider all
available evidence in evaluating when declines in fair value are other than temporary. The fair values of our investments are
determined based on valuation techniques using the best information available and may include quoted market prices, market
comparables and discounted cash flow projections. An impairment charge would be recorded when the carrying amount of the
investment exceeds its current fair value and is determined to be other than temporary. We had no equity-method investments required
to be measured at fair value at December 31, 2010.
F-9
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Property, Plant and Equipment
Property, plant and equipment are generally stated at cost less accumulated depreciation and amortization. As of October 1,
2005, we adopted fresh-start accounting and our property, plant and equipment owned as of that date were recorded at their fair
values. Depreciation is provided primarily on accelerated methods 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, 2010:
Land improvements
Buildings and building improvements
Leasehold improvements
Equipment, furniture and fixtures
Years
20
10 to 45
2 to 17
5 to 10
Costs incurred in connection with the construction and deployment of Loral’s portion of the ViaSat-1 satellite and related
equipment are capitalized. Such costs include direct contract costs, allocated indirect costs, launch costs, launch and in-orbit insurance
costs and costs for gateway services equipment.
Intangible Assets
Intangible assets consist primarily of internally developed software and technology and trade names all of which were recorded
at fair value in connection with the adoption of fresh-start accounting. 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.
Valuation of Long-Lived Assets
Long-lived assets of the Company, including intangible assets, are reviewed for impairment whenever events or changes in
circumstances indicate that the net carrying amount of the asset may not be recoverable. In connection with such review, the Company
also re-evaluates the periods of depreciation and amortization for these assets. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount
of the assets exceeds their fair value.
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 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
and performance incentives, including 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 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.
F-10
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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.
Research and Development
Research and development costs, which are expensed as incurred, were $19.9 million, $23.0 million and $34.6 million for 2010,
2009 and 2008, respectively, and are included in selling, general and administrative expenses in our consolidated statements of
operations.
Derivative Instruments
Derivative instruments are recorded at fair value. Changes in the fair value of derivatives that have been designated as cash flow
hedging instruments are included in the “Unrealized gains on cash flow hedges” as a component of other comprehensive income
(loss) in the accompanying consolidated statements of equity to the extent of the effectiveness of such hedging instruments and
reclassified to income in the same period or periods in which the hedge transaction impacts income. Any ineffective portion of the
change in fair value of the designated hedging instruments is included in the consolidated statements of operations. Changes in fair
value of derivatives that are not designated as hedging instruments are included in the consolidated statements of operations (see
Note 13).
Stock-Based Compensation
Stock-based compensation expense is measured at the grant date based on the fair value of the award, and the cost is recognized
as expense ratably over the award’s vesting period. We use the Black-Scholes-Merton option-pricing model and other models as
applicable to estimate the fair value of these awards. These models require us to make significant judgments regarding the
assumptions used within the models, the most significant of which are the stock price volatility assumption, the expected life of the
award, the risk-free rate of return and dividends during the expected term.
The Company estimates expected forfeitures of stock-based awards at the grant date and recognizes compensation cost only for
those awards expected to vest. The forfeiture assumption is ultimately adjusted to the actual forfeiture rate. Therefore, changes in the
forfeiture assumptions may affect the timing of the total amount of expense recognized over the vesting period. Estimated forfeitures
are reassessed in each reporting period and may change based on new facts and circumstances. We emerged from bankruptcy on
November 21, 2005, and as a result, we did not have sufficient stock price history upon which to base our volatility assumption for
measuring our stock-based awards. In determining the volatility used in our models, 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-based award using the midpoint between
the vesting and expiration dates. Our risk-free rate of return assumption for awards was based on term-matching, nominal, monthly
U.S. Treasury constant maturity rates as of the date of grant. We assumed no dividends during the expected term.
F-11
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
SS/L phantom stock appreciation rights that are expected to be settled in cash or that contain an obligation to issue a variable
number of shares based on the financial performance of SS/L are classified as liabilities in our consolidated balance sheets.
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 10). We
accreted the liability through charges to expense over the vesting period. The value of the deferred compensation may increase or
decrease 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. No deferred compensation was charged
or credited to expense in 2010 because the maximum award under the deferred compensation plan was reached in 2009 and
maintained throughout 2010. Deferred compensation charged (credited) to expense, net of estimated forfeitures, was $6.6 million and
$(4.6) million for the years ended December 31, 2009 and 2008, respectively. As of December 31, 2010, long-term liabilities in our
consolidated balance sheet included deferred compensation liabilities of $6.4 million.
Income Taxes
Loral Space & Communications Inc. and its subsidiaries are subject to U.S. federal, state and local income taxation on their
worldwide income and foreign taxation on certain income from sources outside the United States. Telesat is subject to tax in Canada
and other jurisdictions, and Loral will provide in operating earnings any additional U.S. current or deferred tax required on
distributions received or deemed distributions from Telesat. 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
anticipated 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. For periods
prior to January 1, 2009 any reduction to the balance of the valuation allowance as of October 1, 2005 first reduced goodwill, then
other intangible assets with any excess treated as an increase to paid-in-capital. Effective January 1, 2009, all reversals of the valuation
allowance balance as of October 1, 2005 are recorded as a reduction to the income tax provision (see Note 9).
The tax effects of an uncertain tax position (“UTP”) taken or expected to be taken in income tax returns are recognized only if it
is “more likely-than-not” to be sustained on examination by the taxing authorities, based on its technical merits as of the reporting
date. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a
greater than fifty percent likelihood of being realized upon ultimate settlement. The Company recognizes estimated accrued interest
and penalties related to UTPs in income tax expense.
The Company recognizes the benefit of a UTP in the period when it is effectively settled. Previously recognized tax positions are
derecognized in the first period in which it is no longer more likely than not that the tax position would be sustained upon
examination.
F-12
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):
Non-cash operating items:
Equity in net (income) losses of affiliates
Deferred taxes
Depreciation and amortization
Stock based compensation
Provisions for inventory obsolescence
Warranty expense (reversals) accruals
Provisions for bad debts on billed receivables
Loss on disposition of fixed assets
Impairment of goodwill
Impairment of available for sale securities
Amortization of prior service credit and actuarial gains
Amortization of fair value adjustments related to orbital incentives
Gain on disposition of available for sale securities
Unrealized (gain) loss on nonqualified pension plan assets
Non-cash net interest
(Gain) loss on foreign currency transactions and contracts
Net non-cash operating items
Non-cash investing activities:
Available for sale securities received in connection with the sale of
Globalstar do Brazil
Capital expenditures incurred not yet paid
Investment in affiliate not yet paid
Non-cash financing activities:
Issuance of restricted stock
Contributions by noncontrolling interest
Issuance of Loral Series-1 Preferred Stock as payment for dividend
Accrued dividends on Loral Series-1 Preferred Stock
Issuance of non-voting common stock and cancellation of Loral Series-1
Preferred Stock
Supplemental information:
Interest paid
Tax payments (refunds)
Recent Accounting Pronouncements
Year Ended December 31,
2009
2010
2008
(85,625 )
(325,223)
33,732
2,548
4,297
(1,437)
—
84
—
—
(1,029)
(1,639)
—
(295 )
(1,230)
(3,690)
(379,507)
—
2,782
—
—
134
—
—
$
$
$
$
$
$
$
$
$
(210,298)
(192 )
39,796
7,514
1,042
(65 )
2,759
—
—
—
412
(664 )
—
(831 )
(1,582 )
(2,676 )
(164,785)
—
3,091
—
1,591
—
—
—
$
$
$
$
$
$
$
$
$
495,649
29,385
36,367
7,621
—
431
700
63
187,940
5,823
(3,200 )
(3,088 )
(162 )
1,391
(149 )
3,439
762,210
6,000
1,706
1,048
—
—
24,248
4,797
—
$
—
$
336,696
1,991
573
$
$
2,164
(17,972 )
$
$
2,380
29,835
$
$
$
$
$
$
$
$
$
$
$
$
In December 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities, that amends Accounting
Standards Codification (“ASC”) Topic 810, Consolidations (“ASC 810”). The amendments to ASC Topic 810 are the result of FASB
Statement No. 167, Amendments to FASB Interpretation No. 46(R) that was issued in June 2009. ASU No. 2009-17 modifies the
approach for determining the primary beneficiary of a variable interest entity (“VIE”). Under the modified approach, an enterprise is
required to make a qualitative assessment whether it has (1) the power to direct the activities of the VIE that most significantly impact
the entity’s economic performance and (2) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that
could potentially be significant to the VIE. If an enterprise has both of these characteristics, the enterprise is considered the primary
beneficiary and must consolidate the VIE. The modified approach for determining the primary beneficiary of a VIE was adopted by
the Company on January 1, 2010 and did not have a material impact on our consolidated financial statements.
F-13
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In October 2009, the FASB issued ASU No. 2009-13, Revenue Recognition (Topic 605) — Multiple-Deliverable Revenue
Arrangements that amends ASC Subtopic 605-25, Multiple-Element Arrangements (“ASC 605-25”) to separate consideration in
multiple-deliverable arrangements and significantly expand disclosure requirements. ASU No. 2009-13 establishes a hierarchy for
determining the selling price of a deliverable, eliminates the residual method of allocation and requires that arrangement consideration
be allocated at the inception of the arrangement to all deliverables using the relative selling price method. The amended guidance,
effective for the Company on January 1, 2011, is not expected to have a material impact on our consolidated financial statements.
In January 2010, the FASB issued new guidance to enhance disclosure requirements related to fair value measurements by
requiring certain new disclosures and clarifying certain existing disclosures. This new guidance requires disclosure of the amounts of
significant transfers in and out of Level 1 and Level 2 recurring fair value measurements and the reasons for the transfers. In addition,
the new guidance requires additional information related to activities in the reconciliation of Level 3 fair value measurements. The
new guidance also expands the disclosures related to the disaggregation of assets and liabilities and information about inputs and
valuation techniques. The new guidance related to Level 1 and Level 2 fair value measurements was effective for us on January 1,
2010 and the new guidance related to Level 3 fair value measurements is effective for us on January 1, 2011. Effective January 1,
2010, the Company adopted the new guidance relating to Level 1 and Level 2 fair value measurements. The Company’s adoption of
the new guidance had no impact on its fair value disclosures, and the adoption of the guidance related to Level 3 fair value
measurements is not expected to have a significant impact on its fair value disclosures.
In July 2010, the FASB issued ASU No. 2010-20, Disclosures about the Credit Quality of Financing Receivables and the
Allowance for Credit Losses, which amends ASC Topic 310, Receivables (“ASC 310”) by requiring more robust and disaggregated
disclosures about the credit quality of an entity’s financing receivables, including trade receivables, and its allowance for credit losses.
The objective of enhancing these disclosures is to improve financial statement users’ understanding of (1) the nature of an entity’s
credit risk associated with its financing receivables and (2) the entity’s assessment of that risk in estimating its allowance for credit
losses as well as changes in the allowance and the reasons for those changes. The Company has included the required disclosures in its
financial statements.
3. Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss, net of tax, are as follows (in thousands):
Proportionate
Share of Telesat Accumulated
Foreign Currency
Translation
Adjustments
$
Unrealized Gains
(Losses) on
Investments
Balance at January 01, 2008
Period Change
Balance at December 31, 2008
Period Change
Balance at December 31, 2009
Period Change
Balance at December 31, 2010
$
Derivatives
— $
18,182
18,182
(11,900)
6,282
(13,035)
(6,753 ) $
498 $
(498 )
—
—
—
—
— $
Other
Other
Postretirement Comprehensive Comprehensive
Income (Loss)
Loss
Benefits
36,517
(83,247)
(46,730)
(16,148)
(62,878)
(32,995)
(95,873)
35,577 $
(100,606)
(65,029)
233
(64,796)
(17,251)
(82,047) $
— $
—
—
(5,139)
(5,139)
(3,049)
(8,188) $
442 $
(325 )
117
658
775
340
1,115 $
F-14
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The activity in other comprehensive loss and related income tax effects were as follows (in thousands):
Foreign currency translation adjustments:
Cumulative translation
Derivatives:
Unrealized (loss) gain on foreign currency hedges, net of tax benefit of
$6,368 and $1,132 in 2010 and 2008, respectively
Less: reclassification adjustment for gains included in net income, net of
tax benefit of $2,441 in 2010 and tax provision of $1,132 in 2008
Unrealized gain (loss) on derivatives, net
Unrealized gain on investments:
Unrealized gain (loss) on available-for-sale securities, net of tax provision
of $230 in 2010 and tax benefit of $2,339 in 2008
Less: reclassification adjustment for losses included in net income, net of
tax provision of $2,338 in 2008
Unrealized gain (loss) on investments, net
Postretirement benefits:
Year Ended December 31,
2009
2010
2008
$
—
$
—
$
(498 )
(9,422)
(94 )
20,965
(3,613)
(13,035 )
(11,806 )
(11,900 )
(2,783 )
18,182
340
—
340
658
—
658
(3,685 )
3,360
(325 )
Net actuarial losses and prior service credits, net of tax benefit of $11,254
in 2010 and tax provision of $37 for 2008
(16,637 )
(179 )
(97,360 )
Amortization of actuarial gains and prior service credits, net of tax benefit
of $415 in 2010
Postretirement benefits
Proportionate share of Telesat other comprehensive income:
Proportionate share of Telesat Holdco other comprehensive income, net of
(614 )
(17,251 )
412
233
(3,246 )
(100,606)
tax benefit of $2,052 in 2010
(3,049)
(5,139 )
(4,065 )
Less: reclassification of our proportionate share of Telesat Holdco other
comprehensive income
Proportionate share of Telesat Holdco other comprehensive income, net
Other comprehensive loss
—
(3,049)
(32,995 )
$
—
(5,139 )
(16,148 )
$
4,065
—
(83,247 )
$
4. Contracts-in-Process, Long-Term Receivables and Inventories
Contracts-in-Process
Contracts-in-Process consists of (in thousands):
U.S. government contracts:
Amounts billed
Unbilled receivables
Commercial contracts:
Amounts billed
Unbilled receivables
December 31,
2010
2009
$
$
265
1,634
1,899
125,328
59,669
184,997
186,896
$
$
520
1,566
2,086
123,514
65,209
188,723
190,809
As of December 31, 2010 and 2009, billed receivables were reduced by an allowance for doubtful accounts of $0.2 million and
$3.7 million, respectively.
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.
F-15
Table of Contents
Long-Term Receivables
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Billed receivables relating to long-term contracts are expected to be collected within one year. We classify deferred billings and
the orbital receivable 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 using the effective interest method over the life of the related orbital
stream.
Receivable balances related to satellite orbital incentive payments, deferred billings and the Telesat consulting services fee (see
Note 16) as of December 31, 2010 are scheduled to be received as follows (in thousands):
2011
2012
2013
2014
2015
Thereafter
Less, current portion included in contracts-in-process
Long-term receivables
Financing Receivables
$
Long-Term
Receivables
13,435
31,980
17,335
17,429
17,652
235,030
332,861
(13,435 )
319,426
$
The following summarizes the age of financing receivables that have a contractual maturity of over one year as of December 31,
2010 (in thousands):
Financing
Receivables
Subject To
Aging
More
90 Days or Than 90
Days
Less
Total
Unlaunched Launched
Current
Satellite Manufacturing:
Orbitals Receivables
Long term orbitals
Short term unbilled
Short term billed
Deferred Receivables
Consulting Services:
Telesat receivables
Contracts-in-Process:
$ 298,977 $
11,009
2,426
312,412
2,893
133,688 $ 165,289 $
165,289 $ 165,289 $
—
—
133,688
—
11,009
2,426
178,724
—
11,009
2,426
178,724
2,893
11,009
659
176,957
2,893
17,556
332,861
—
133,688
—
178,724
17,556
199,173
17,556
197,406
Unbilled receivables
Total
50,294
$ 383,155 $
50,294
—
—
—
183,982 $ 178,724 $
199,173 $ 197,406 $
— $
—
—
—
—
—
—
1,767
1,767
—
—
—
—
1,767
—
—
— $ 1,767
Billed receivables of $123.2 million (not including billed orbital receivables of $2.4 million) have been excluded from the table
above as they have contractual maturities of less than one year.
Long term unbilled receivables include $133.7 million of satellite orbital incentives related to satellites under construction. These
receivables are not included in financing receivables subject to aging in the table above since the timing of their collection is not
determinable until the applicable satellite is launched. Contracts-in-process include $50.3 million of unbilled receivables that represent
accumulated incurred costs and earned profits net of losses on contracts in process that have been recorded as sales but have not yet
been billed to customers. These receivables are not included in financing receivables subject to aging in the table above since the
timing of their collection is not determinable until the contractual obligation to bill the customer is fulfilled.
F-16
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We assign internal credit ratings for all our customers with financing receivables. The credit worthiness of each customer is
based upon public information and/or information obtained directly from our customers. We utilize credit ratings where available from
the major credit rating agencies in our analysis. We have therefore assigned our rating categories to be comparable to those used by
the major credit rating agencies. Credit risk profile by internally assigned ratings, consisted of the following at December 31, 2010:
Rating Categories
A/BBB
BB/B
B/CCC
Other
Total financing receivables
Inventories
Inventories are comprised of the following (in thousands):
Inventories-gross
Impaired inventory
Inventories included in other assets
$
Financing
Receivables
37,303
226,254
80,222
39,376
383,155
$
December 31, December 31,
2010
2009
$
$
104,029 $
(31,370 )
72,659
(1,426)
71,233 $
119,528
(28,297)
91,231
(7,560 )
83,671
The Company recorded inventory obsolescence charges of $4.3 million, $1.0 million and nil for the years ended December 31,
2010, 2009 and 2008, respectively. The charge recorded in 2010 related primarily to long-term inventories.
5. Property, Plant and Equipment
Property, plant and equipment consists of (in thousands):
Land and land improvements
Buildings
Leasehold improvements
Equipment, furniture and fixtures
Satellite capacity under construction (see Note 16)
Other construction in progress
Accumulated depreciation and amortization
December 31,
2010
27,036
68,899
14,007
185,801
40,495
20,187
356,425
(120,520)
235,905
$
$
2009
26,852
68,698
11,133
156,669
27,412
17,243
308,007
(100,011)
207,996
$
$
Depreciation and amortization expense for property, plant and equipment was $25.8 million, $25.2 million and $23.8 million for
the years ended December 31, 2010, 2009 and 2008, respectively.
F-17
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
6. Investments in Affiliates
Investments in affiliates consist of (in thousands):
Telesat Holdings Inc.
XTAR, LLC
Other
Equity in net income (losses) of affiliates consists of (in thousands):
2010
Telesat Holdings Inc.
XTAR, LLC
Other
$
$
December 31,
2010
295,797
65,293
1,466
362,556
$
$
2009
208,101
72,284
1,648
282,033
$
$
Year Ended December 31,
2009
213,241
(2,743 )
(200 )
210,298
92,798
(6,991)
(182 )
85,625
$
$
$
$
2008
(479,579)
(16,070 )
—
(495,649)
The consolidated statements of operations reflect the effects of the following amounts related to transactions with or investments
in affiliates (in thousands):
Revenues
Elimination of Loral’s proportionate share of profits relating to affiliate
$
Year Ended December 31,
2009
2008
$
92,144
$
83,974
2010
137,244
transactions
Profits relating to affiliate transactions not eliminated
(14,734 )
8,294
(10,071 )
5,671
(4,969 )
2,808
Telesat
We hold equity interests in Telesat Holdco representing 64% of the economic interests and 33 1 / 3 % of the voting interests. Our
Canadian partner, Public Sector Pension Investment Board (“PSP”), holds 36% of the economic interests and 66 2 / 3 % of the voting
interests in Telesat Holdco (except with respect to the election of directors as to which it holds a 30% voting interest).
The following table presents summary financial data for Telesat in accordance with U.S. GAAP, as of December 31, 2010 and
2009 and for the years ended December 31, 2010, 2009 and 2008 (in thousands):
Statement of Operations Data:
Revenues
Operating expenses
Gain on disposition of long-lived assets
Impairment of long-lived and intangible assets
Depreciation, amortization and stock-based compensation
Operating income (loss)
Interest expense
Foreign exchange gains (losses)
(Losses) gains on financial instruments
Other income (expense)
Income tax (expense) benefit
Net income (loss)
F-18
Year Ended December 31,
2009
2010
2008
$
797,283
(190,632)
3,714
—
(249,318)
361,047
(234,556)
159,191
(76,937 )
619
(41,177 )
168,187
$
691,566
(203,417)
29,311
—
(230,176)
287,284
(227,986)
439,160
(148,954)
(764 )
(2,185 )
346,555
$
685,187
(258,010)
—
(454,896 )
(225,949)
(253,668)
(231,062)
(654,200)
254,700
(3,602 )
139,872
(747,960)
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Balance Sheet Data:
Current assets
Total assets
Current liabilities
Long-term debt, including current portion
Total liabilities
Redeemable preferred stock
Shareholders’ equity
Year Ended December 31,
2010
2009
$
291,367
5,309,441
294,485
2,928,916
4,145,336
141,718
1,022,387
$
238,698
4,994,684
195,890
2,953,281
4,041,932
134,291
818,461
Gain on disposition of long-lived assets in 2009 results from the transfer of Telesat’s leasehold interests in the Telstar 10 satellite
and related contracts to APT Satellite for a total consideration of approximately $69 million. Impairment of long-lived and intangible
assets consists primarily of an impairment charge in 2008 to reduce certain orbital slot assets to fair value.
We use the equity method of accounting for our majority economic interest in Telesat because we own 33 1 / 3 % of the voting
stock and do not exercise control by other means to satisfy the U.S. GAAP requirement for treatment as a consolidated subsidiary.
Loral’s equity in net income or loss of Telesat is based on our proportionate share of Telesat’s results in accordance with U.S. GAAP
and in U.S. dollars. Our proportionate share of Telesat’s net income or loss is based on our 64% economic interest as our holdings
consist of common stock and non-voting participating preferred shares that have all the rights of common stock with respect to
dividends, return of capital and surplus distributions, but have no voting rights. The ability of Telesat to pay dividends and consulting
fees in cash to Loral is governed by applicable covenants relating to Telesat’s debt and shareholder agreements. Telesat is permitted to
pay cash dividends of $75 million plus 50% of cumulative consolidated net income to its shareholders and consulting fees to Loral
only when Telesat’s ratio of consolidated total debt to consolidated EBITDA is less than 5.0 to 1.0. Through December 31, 2010,
Loral has received no cash payments from Telesat for dividends or consulting fees.
The contribution of Loral Skynet, a wholly owned subsidiary of Loral prior to its contribution, to Telesat in 2007 was recorded
by Loral at the historical book value of our retained interest combined with the gain recognized on the contribution. However, the
contribution was recorded by Telesat at fair value. Accordingly, the amortization of fair value adjustments applicable to the Loral
Skynet assets and liabilities has been proportionately eliminated in determining our share of the income or losses of Telesat. Our
equity in the net income or loss of Telesat also reflects the elimination of our profit, to the extent of our economic interest, on satellites
we are constructing for them.
XTAR
We own 56% of 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 of accounting because we do not control certain of its significant operating
decisions.
XTAR owns and operates an X-band satellite, XTAR-EUR, located at 29° E.L., which 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. XTAR also leases 7.2 72MHz X-band transponders on the Spainsat satellite located 30°
W.L., owned by Hisdesat. These transponders, designated as XTAR-LANT, provide capacity to XTAR for additional X-band services
and greater coverage and flexibility.
In January 2005, Hisdesat provided XTAR with a convertible loan in the principal amount of $10.8 million due February 2011,
for which Hisdesat received enhanced governance rights in XTAR. At December 31, 2010, the accrued interest on the convertible loan
was $6.5 million. Effective February 2011, the due date of this loan was extended to June 2011. If Hisdesat were to convert the loan
into XTAR equity, our equity interest in XTAR would be reduced to 51%. In March 2011, Loral and Hisdesat agreed that each
shareholder intends to make a capital contribution to XTAR in proportion to its equity interest in XTAR, which will use the proceeds
to repay the convertible loan and related accrued interest to Hisdesat.
F-19
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
XTAR’s lease obligation to Hisdesat for the XTAR-LANT transponders was $24 million in 2010, with increases thereafter to a
maximum of $28 million per year through the end of the useful life of the satellite which is estimated to be in 2022. Under this lease
agreement, Hisdesat may also be entitled under certain circumstances to a share of the revenues generated on the XTAR-LANT
transponders. Interest on XTAR’s outstanding lease obligations to Hisdesat is paid through the issuance of a class of non-voting
membership interests in XTAR, which enjoy priority rights with respect to dividends and distributions over the ordinary membership
interests currently held by us and Hisdesat. In March 2009, XTAR entered into an agreement with Hisdesat pursuant to which the past
due balance on XTAR-LANT transponders of $32.3 million as of December 31, 2008, together with a deferral of $6.7 million in
payments due in 2009, will be payable to Hisdesat over 12 years through annual payments of $5 million (the “Catch Up Payments”).
XTAR has a right to prepay, at any time, all unpaid Catch Up Payments discounted at 9%. Cumulative amounts paid to Hisdesat for
Catch-Up Payments through December 31, 2010 were $9.2 million. XTAR has also agreed that XTAR’s excess cash balance (as
defined) will be applied towards making limited payments on future lease obligations, as well as payments of other amounts owed to
Hisdesat, Telesat and Loral for services provided by them to XTAR (see Note 16). The ability of XTAR to pay dividends and
management fees in cash to Loral is governed by XTAR’s shareholder agreements.
XTAR-EUR was launched on Arianespace, S.A.’s (“Arianespace”) Ariane ECA launch vehicle in 2005. The price for this launch
had two components — the first, consisting of a $15.8 million 10% interest paid-in-kind loan provided by Arianespace, was repaid in
full by XTAR on July 6, 2007. The second component of the launch price consisted of a revenue-based fee to be paid to Arianespace
over XTAR-EUR’s 15 year in-orbit operations. This fee, also referred to as an incentive fee, equaled 3.5% of XTAR’s annual
operating revenues, subject to a maximum threshold. On February 29, 2008, XTAR paid Arianespace $1.5 million representing the
incentive fee through December 31, 2007. On January 27, 2009, Arianespace agreed to eliminate the remaining incentive fee in
exchange for $8.0 million payable in three installments. As of December 31, 2009, XTAR had paid all three installments and has no
further obligations under the launch services agreement with Arianespace. As a result, XTAR’s net loss for the year ended
December 31, 2009 included a gain of $11.7 million related to the extinguishment of this liability.
To enable XTAR to make these settlement payments to Arianespace, XTAR issued a capital call to its LLC members. The
capital call required Loral to increase its investment in XTAR by approximately $4.5 million in the first quarter of 2009, representing
Loral’s 56% share of the $8 million capital call.
The following table presents summary financial data for XTAR as of December 31, 2010 and 2009 and for each of the three
years in the period ended December 31, 2010 (in thousands):
Statement of Operations Data:
Revenues
Operating expenses
Depreciation and amortization
Operating loss
Gain on settlement of Arianespace incentive cap
Net loss
Balance Sheet Data:
Current assets
Total assets
Current liabilities
Total liabilities
Members’ equity
Year Ended December 31,
2009
2010
2008
$
37,907
(35,724 )
(9,618)
(7,435)
—
(12,435 )
$
$
$
32,038
(34,594 )
(9,618 )
(12,174 )
11,668
(4,849 )
20,405
(34,500 )
(9,650 )
(23,751 )
—
(28,597 )
December 31,
2010
2009
$
9,290
96,383
61,839
69,616
26,767
10,372
107,084
45,672
67,882
39,202
F-20
Table of Contents
Other
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of December 31, 2010, the Company held various indirect ownership interests in two foreign companies that currently serve
as exclusive service providers for Globalstar service in Mexico and Russia. The Company accounts for these ownership interests using
the equity method of accounting. Loral has written-off its investments in these companies, 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.
As of December 31, 2010, we owned 984,173 shares of Globalstar Inc. common stock, which are accounted for as available-for-
sale securities, with a fair value of $1.4 million. During 2008, management determined that there had been an other-than-temporary
impairment in the fair value of the Globalstar Inc. stock obtained in the sale of Globalstar do Brasil S.A. Accordingly, impairment
charges of $5.8 million were included in our consolidated statements of operations for the year ended December 31, 2008.
7. Goodwill and Intangible Assets
Goodwill
Goodwill represented 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 of October 1, 2005, the date we adopted fresh-start accounting. Our 2008
goodwill impairment test resulted in the recording of an impairment charge for the entire goodwill balance attributable to SS/L of
$187.9 million as a result of the decline of Loral’s stock price and the decline in comparable company values. The Company’s
estimate of the fair value of SS/L employed both a comparable public company analysis, which considered the valuation multiples of
companies deemed comparable, in whole or in part, to the Company and a discounted cash flow analysis that calculated a present
value of the projected future cash flows of SS/L. The Company considered both quantitative and qualitative factors in assessing the
reasonableness of the underlying assumptions used in the valuation process. Testing goodwill for impairment requires significant
subjective judgments by management.
Intangible Assets
Intangible Assets were established in connection with our adoption of fresh-start accounting and consist of (in thousands):
Weighted Average
Remaining
Amortization
Period
(Years)
December 31, 2010
December 31, 2009
Gross
Amount
Accumulated
Amortization
Gross
Amount
Accumulated
Amortization
2
15
$
$
59,027 $
9,200
68,227 $
(54,702 ) $
(2,415)
(57,117 ) $
59,027 $
9,200
68,227 $
(45,972)
(1,955 )
(47,927)
Internally developed software and
technology
Trade names
Total
Total amortization expense for intangible assets was $9.2 million, $11.3 million and $11.3 million for the years ended
December 31, 2010, 2009 and 2008, respectively. Annual amortization expense for intangible assets for the five years ended
December 31, 2015 is estimated to be as follows (in thousands):
2011
2012
2013
2014
2015
$
2,931
2,314
460
460
460
F-21
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following summarizes fair value adjustments made in connection with our adoption of fresh start accounting related to
contracts-in-process, long-term receivables, customer advances and billings in excess of costs and profits and long-term liabilities (in
thousands):
Gross fair value adjustments
Accumulated amortization
December 31,
2010
$
$
(36,896 )
19,299
(17,597 )
$
$
2009
(36,896 )
16,446
(20,450 )
Net amortization of these fair value adjustments was a credit to expense of $2.9 million in 2010, a charge to expense of
$2.6 million in 2009 and a credit to expense of $1.8 million in 2008.
8. Debt Obligations
SS/L Credit Agreement
On December 20, 2010, SS/L entered into an amended and restated credit agreement (the “Credit Agreement”) with several
banks and other financial institutions. The Credit Agreement provides for a $150 million senior secured revolving credit facility (the
“Revolving Facility”). The Revolving Facility includes a $50 million letter of credit sublimit and a $10 million swingline
commitment. The Credit Agreement matures on January 24, 2014 (the “Maturity Date”). The prior $100 million credit agreement was
entered into on October 16, 2008 and had a maturity date of October 16, 2011.
The following summarizes information related to the Credit Agreement and prior credit agreement (in thousands, except
percentages):
Letters of credit outstanding
Borrowings
Interest rate on revolver borrowings
Interest expense (including commitment and letter of credit fees)
Amortization of issuance costs
December 31,
2010
2009
$
4,911
—
—
4,921
—
—
Year Ended December 31,
2010
2009
818
1,570
$
1,168
878
$
$
The Credit Agreement contains customary conditions precedent to each borrowing, including absence of defaults and accuracy
of representations and warranties. The Revolving Facility is available to finance the working capital needs and general corporate
purposes of SS/L.
The obligations under the Credit Agreement are secured by (i) a first mortgage on substantially all real property owned by SS/L
and (ii) a first priority security interest in substantially all tangible and intangible assets of SS/L and certain of its subsidiaries. There is
no Loral guarantee of the facility.
SS/L may elect to borrow under the Revolving Facility on either a daily basis or for periods ending in one, two, three or six
months. Daily borrowings bear interest at an annual rate equal to 2.75% plus the greater of (1) the Prime Rate then in effect, (2) the
Federal Funds Rate then in effect plus 0.5% and (3) the one month Eurodollar Rate then in effect plus 1.0%. Borrowings for periods
ending in one, two, three or six months will bear interest at an annual rate equal to 3.75% plus the appropriate Eurodollar Rate.
Interest on a daily loan is paid quarterly and interest on a Eurodollar loan is paid either on the last day of the interest period or
quarterly, whichever is shorter. In addition, the Credit Agreement requires the Company to pay certain customary fees, costs and
expenses of the lenders.
F-22
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Credit Agreement contains certain covenants which, among other things, limit the incurrence of additional indebtedness,
capital expenditures, investments, restricted payments including dividends, asset sales, mergers and consolidations, liens, changes to
the line of business and other matters customarily restricted in such agreements. The material financial covenants, ratios or tests
contained in the Credit Agreement are:
•
SS/L must not permit its consolidated leverage ratio as of (i) the last day of any period of four consecutive fiscal quarters or
(ii) the date of incurrence of certain indebtedness to exceed 3.00 to 1.00.
•
SS/L must maintain a minimum consolidated interest coverage ratio of at least 3.50 to 1.00 (or 3.00 to 1.00 if SS/L elects to
provide a dividend to its shareholders of preferred stock which entitles holders thereof to receive cash distributions based
on orbital incentives received by SS/L) as of the last day of any fiscal quarter for the period of four consecutive fiscal
quarters ending on such day.
The Credit Agreement restricts the payments SS/L may make to Loral. SS/L is permitted to make payments to Loral to fund tax
liabilities and to make annual payments to Loral of up to $1.5 million as a management fee and up to $15 million for corporate
overhead, subject to restrictions. Additionally, SS/L is permitted to make dividend payments related to its cumulative consolidated net
income beginning October 1, 2010, subject to restrictions. Notwithstanding the dividend related to the cumulative consolidated net
income amount, though offsetting the amount available for such dividends, SS/L is permitted to pay dividends of up to $20 million in
the aggregate in any fiscal year and $60 million during the term of the Credit Agreement. The Credit Agreement also provides that
SS/L may make a one-time payment to Loral on or before January 14, 2011 of up to $66 million. In January 2011, SS/L made a one-
time dividend payment of $50 million to Loral.
SS/L may prepay outstanding principal in whole or in part, together with accrued interest, without premium or penalty. The
Credit Agreement requires SS/L to prepay outstanding principal and accrued interest upon certain events, including certain asset sales.
If an event of default shall occur and be continuing, the commitments of all lenders under the Credit Agreement may be terminated
and the principal amount outstanding, together with all accrued and unpaid interest, may be declared immediately due and payable.
Under the Credit Agreement, events of default include, among other things, non-payment of amounts due under the Credit Agreement,
default in payment of certain other indebtedness, breach of certain covenants, bankruptcy, violations under ERISA, violations under
certain United States export control laws and regulations, a change of control of SS/L and if certain liens on the collateral securing the
obligations under the Credit Agreement fail to be perfected. All outstanding principal is payable in full upon the Maturity Date.
Debt issuance costs for the Credit Agreement of approximately $2.2 million are being amortized on a straight line basis over the
life of the Revolving Facility.
9. Income Taxes
The benefit (provision) for income taxes on the income (loss) before income taxes and equity in net income (losses) of affiliates
consists of the following (in thousands):
Current:
U.S. Federal
State and local
Total current
Deferred:
U.S. Federal
State and local
Total deferred
Total income tax benefit (provision)
Year Ended December 31,
2009
2010
2008
$
$
(4,575)
(12,026 )
(16,601 )
277,916
47,307
325,223
308,622
$
$
(2,597 )
(3,166 )
(5,763 )
669
(477 )
192
(5,571 )
$
$
21,213
(37,572 )
(16,359 )
(29,574 )
189
(29,385 )
(45,744 )
F-23
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Our current tax benefit (provision) includes an (increase) to our liability for UTPs for (in thousands):
Decrease (increase) to unrecognized tax benefits
Interest expense
Penalties
Total
Year Ended December 31,
2009
2010
2008
$
$
(5,517)
(5,391)
(633 )
(11,541 )
$
$
2,817
(4,426 )
(701 )
(2,310 )
$
$
(25,962 )
(6,169 )
(9,427 )
(41,558 )
For 2010, the deferred income tax benefit of $325.2 million related primarily to (i) a benefit of $335.3 million from the reversal
of a significant portion of our valuation allowance during the fourth quarter after having determined that based on all available
evidence, it is more likely then not that we will realize the benefit from a significant portion of our deferred tax assets in the future
offset by (ii) a provision of $10.1 million for the decrease to our deferred tax asset for federal AMT credits.
For 2009, the deferred income benefit of $0.2 million is detailed above.
For 2008, the deferred income tax provision of $29.4 million related primarily to (i) a provision of $38.6 million recorded as a
result of having utilized deferred tax benefits from Old Loral and tax strategies to reduce our tax liability (where the excess valuation
allowance was recorded as a reduction to goodwill) offset by (ii) a benefit of $9.2 million for the increase to our deferred tax asset for
federal and state AMT credits.
The benefit for income taxes presented above excludes the following items for 2010: (i) a deferred tax benefit of $22.3 million
related to the current year adjustments in other comprehensive income (loss) (see Note 3) and (ii) a current state tax benefit of
$0.4 million related to the excess tax benefits from stock option exercises recorded to paid-in-capital. The Company uses the with-
and-without approach of determining when excess tax benefits from equity compensation have been realized. There were no items
excluded for 2009 and 2008.
The benefit (provision) for income taxes differs from the amount computed by applying the statutory U.S. Federal income tax
rate on income (loss) before income taxes and equity in net income (losses) of affiliates because of the effect of the following items (in
thousands):
Tax benefit (provision) at U.S. Statutory Rate of 35%
Permanent adjustments which change statutory amounts:
State and local income taxes, net of federal income tax
Equity in net income (losses) of affiliates
Impairment of goodwill
Losses in litigation
Provision for unrecognized tax benefits
Nondeductible expenses
Change in valuation allowance
Other, net
Total income tax benefit (provision)
Year Ended December 31,
2009
2010
2008
$
(32,583 )
$
(9,441 )
$
53,033
(31,898 )
(29,969 )
—
(583 )
2,542
(987 )
402,809
(709 )
308,622
$
(16,703 )
(73,604 )
—
(526 )
(1,356 )
(2,076 )
96,617
1,518
(5,571 )
(1,496 )
173,477
(65,779 )
(6,815 )
5,811
(1,501 )
(202,510)
36
(45,744 )
$
$
F-24
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes the activity related to our unrecognized tax benefits (in thousands):
Balance at January 1
Increases related to prior year tax positions
Decreases related to prior year tax positions
Decrease as a result of statute expirations
Decrease as a result of tax settlements
Increases related to current year tax positions
Balance at December 31
$
$
$
Year Ended December 31,
2009
108,592
8,855
(1,969 )
(3,178 )
(4,887 )
12,711
120,124
2010
120,124
339
(1,933)
(1,886)
(5,207)
20,774
132,211
$
$
$
2008
59,903
5,312
(1,225 )
(1,832 )
—
46,434
108,592
With few exceptions, the Company is no longer subject to U.S. federal, state or local income tax examinations by tax authorities
for years prior to 2006. Earlier years related to certain foreign jurisdictions remain subject to examination. Various state and foreign
income tax returns are currently under examination. However, to the extent allowed by law, the tax authorities may have the right to
examine prior periods where net operating losses were generated and carried forward, and make adjustments up to the amount of the
net operating loss carryforward. While we intend to contest any future tax assessments for uncertain tax positions, no assurance can be
provided that we would ultimately prevail. During the next twelve months, the statute of limitations for assessment of additional tax
will expire with regard to several of our state income tax returns filed for 2005 and 2006 and federal and state income tax returns filed
for 2007 and we anticipate settling certain tax positions, potentially resulting in a $2.9 million reduction to our unrecognized tax
benefits.
Our liability for UTPs increased from $111.3 million at December 31, 2009 to $122.8 million at December 31, 2010 and is
included in long-term liabilities in the consolidated balance sheets. At December 31, 2010, we have accrued $24.2 million and
$22.8 million for the payment of tax-related interest and penalties, respectively. If our positions are sustained by the taxing authorities,
approximately $106.5 million of the tax benefits will reduce the Company’s income tax provision. Other than as described above,
there were no significant changes to our unrecognized tax benefits during the twelve months ended December 31, 2010, and we do not
anticipate any other significant increases or decreases to our unrecognized tax benefits during the next twelve months.
In connection with the Telesat transaction, Loral provided a contractual indemnification to Telesat for Loral Skynet tax
liabilities, offset by tax deposits, relating to periods preceding 2007. The unrecognized tax benefits related to the Loral Skynet
subsidiaries were transferred to Telesat subject to the contractual tax indemnification provided by Loral. Loral’s net indemnified
liability at December 31, 2010 is not material. (see Note 16)
At December 31, 2010, we had federal NOL carryforwards of $416.6 million, state NOL carryforwards, primarily California of
$302.7 million, and federal research credits of $6.7 million which expire from 2011 to 2029, as well as federal and state AMT credit
carryforwards of approximately $13.8 million that may be carried forward indefinitely.
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 NOLs and tax credits generated prior to the ownership change, are
subject to an annual limitation of approximately $32.6 million, subject to increase or decrease based on certain factors. Our annual
limitation was increased significantly each year through 2010, the last year allowed for the recognition of additional benefits from 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.
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. We continue to maintain our
valuation allowance until sufficient positive evidence exists to support full or partial reversal. During the fourth quarter of 2010, we
determined, based on available evidence, that it was more likely than not that we would realize the benefit from a significant portion
of the deferred tax assets in the future and no longer required a full valuation allowance. We based this conclusion on cumulative
profits generated in recent periods, as well as our current expectation that future operations will generate sufficient taxable income to
realize the tax benefit from certain deferred tax assets. Accordingly, we reversed $335.3 million of the valuation allowance as a
deferred income tax benefit. Also, during 2010, our valuation allowance was reduced by $67.5 million recorded as a benefit to
continuing operations.
F-25
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
During 2009, our valuation allowance decreased by $73.7 million. The net change consisted primarily of (i) a decrease of
$96.6 million recorded as a benefit to continuing operations, (ii) an increase of $7.0 million charged to accumulated other
comprehensive income (loss) and (iii) an increase of $15.9 million offset by a corresponding increase to the deferred tax asset.
During 2008, our valuation allowance increased by $246.5 million. The net change consisted primarily of (i) an increase of
$202.5 million charged to continuing operations, (ii) a decrease of $38.6 million relating to the reversal of an excess valuation
allowance recorded as a reduction to goodwill, (iii) an increase of $35.6 million charged to accumulated other comprehensive income
(loss) and (iv) an increase of $47.0 million offset by a corresponding increase to the deferred tax asset.
The significant components of the net deferred income tax assets 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
Investments in and advances to affiliates
Other, net
Federal benefit of uncertain tax positions
Pension costs
Total deferred tax assets before valuation allowance
Less valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Property, plant and equipment
Intangible assets
Total deferred tax liabilities
Net deferred tax assets
Classification on consolidated balance sheet:
Current deferred tax assets
Long-term deferred tax assets
Total deferred tax assets
10. Equity
Common Stock
December 31,
2010
2009
25,504
24,666
151,497
26,996
6,575
24,686
34,227
5,468
29,249
70,268
399,136
(11,228 )
387,908
(23,189 )
(4,480 )
(27,669 )
360,239
66,220
294,019
360,239
$
$
$
$
28,912
17,932
180,874
29,339
10,646
21,475
67,883
5,378
22,488
67,421
452,348
(414,038)
38,310
(16,819 )
(8,776 )
(25,595 )
12,715
4,068
8,647
12,715
$
$
$
$
In accordance with the Plan of Reorganization, Loral issued 20 million shares of voting common stock, par value $0.01 per share
(the “Voting Common Stock”), which were distributed in accordance with the Plan of Reorganization.
F-26
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
On November 10, 2008, the Court of Chancery of the State of Delaware (the “Court”) issued an Implementing Order (the
“Implementing Order”) in the In re: Loral Space and Communications Consolidated Litigation . Effective December 22, 2008,
pursuant to the Implementing Order, the Securities Purchase Agreement by and between Loral and MHR Fund Management LLC
(together with its affiliates, “MHR”), as amended and restated on February 27, 2007 (the “SPA”), was reformed to provide for MHR
to have purchased 9,505,673 shares of Loral non-voting common stock, par value $.01 (the “Non-Voting Common Stock”), which are
in all respects identical to and treated equally with shares of Loral Voting Common Stock except for the absence of voting rights
(other than as provided in the New Charter (defined below) or as provided by law), in exchange for the net payment of $293.3 million
made by MHR to Loral on February 27, 2007 in connection with the SPA. Pursuant to the Implementing Order, all other terms of the
SPA are of no further force or effect.
Pursuant to the Implementing Order, on December 23, 2008, Loral filed an Amended and Restated Certificate of Incorporation
(the “New Charter”), which was accepted by the Secretary of State of Delaware. The New Charter, as ratified and further amended by
Loral’s stockholders on May 19, 2009, is the operative certificate of incorporation of Loral.
The New Charter, as amended, is substantially the same as the Restated Certificate of Incorporation of Loral previously in effect,
except that the New Charter, as amended, provides that the total authorized capital stock of the Company is eighty million
(80,000,000) shares consisting of two classes: (i) seventy million (70,000,000) shares of common stock, $0.01 par value per share
divided into two series, of which 50,000,000 shares are Voting Common Stock and 20,000,000 shares are Non-Voting Common
Stock, and (ii) ten million (10,000,000) shares of preferred stock, $0.01 par value per share.
As a result of the cancellation of the Loral Series-1 Preferred Stock and the issuance of the Non-Voting Common Stock on
December 23, 2008, equity in our consolidated balance sheet has been adjusted to include the Non-Voting Common Stock at its fair
value on December 23, 2008 and remove the Loral Series-1 Preferred Stock (defined below) balances. Fair value was determined
based on the closing market price per share of Loral common stock on December 23, 2008. The difference between the fair value of
the 9,505,673 shares of Non-Voting Common Stock and the carrying value of the Loral Series-1 Preferred Stock, including accrued
dividends thereon, has been reflected as an increase to paid-in capital.
In connection with a stipulation entered into with certain directors and officers of Old Loral, certain claims aggregating
$30 million may result in the distribution of our Common Stock in addition to the 20 million shares distributed under the Plan of
Reorganization (see Note 14).
Preferred Stock
On February 27, 2007, Loral completed a $300.0 million preferred stock financing pursuant to the SPA, under which Loral sold
136,526 shares of its Series A-1 cumulative 7.5% convertible preferred stock (the “Series A-1 Preferred Stock”) and 858,486 shares of
its Series B-1 cumulative 7.5% convertible 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
(the “MHR Funds”).
Prior to the conversion of the Loral Series-1 Preferred Stock to Non-Voting Common Stock, the Loral Series-1 Preferred Stock
had, among others, the following terms:
Each share of the Series A-1 Preferred Stock was convertible, at the option of the holder, into ten shares of Loral common stock
at a conversion price of $30.1504 per share. The conversion price reflected a premium of 12% to the closing price of Loral’s common
stock on October 16, 2006. The conversion price was subject to customary adjustments. Dividends on the Loral Series-1 Preferred
Stock were paid in kind (i.e., in additional shares of Loral Series-1 Preferred Stock).
The Company paid dividends of $24.2 million through the issuance of 2,725 shares and 77,698 shares of Series A-1 and
Series B-1 Preferred Stock, respectively, during the year ended December 31, 2008. Accrued dividends at the date of conversion of the
Loral Series-1 Preferred Stock were $4.8 million.
Loral incurred issuance costs of $8.9 million in connection with this preferred stock financing. In addition, Loral paid MHR a
placement fee of $6.8 million upon closing of the financing.
F-27
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Pursuant to the Implementing Order, the Certificates of Designation of the Series A-1 Preferred Stock and Series B-1 Preferred
Stock were eliminated and are of no further force and effect.
Stock Plans
The Loral amended and restated 2005 stock incentive plan (the “Stock Incentive Plan”) allows for the grant of several forms of
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 Voting Common Stock reserved and
available for issuance under the Stock Incentive Plan is 2,972,452 shares of which 682,663 were available for future grant at
December 31, 2010. This number of shares of Voting Common Stock available for issuance would be reduced if SS/L phantom stock
appreciation rights are settled in Voting Common Stock. 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 issued under the Stock Incentive Plan generally have an exercise price equal to the
fair market value of our stock, as defined, vest over a four year period and have a five to seven year life. The Awards provide for
accelerated vesting if there is a change in control, as defined in the Stock Incentive Plan.
In June 2009, Michael B. Targoff, Chief Executive Officer of Loral, was awarded an option to purchase 125,000 shares of
Voting Common Stock with an exercise price of $35 per share (the “June 2009 CEO Grant”). The option was vested with respect to
25% of the underlying shares upon grant, with the remainder of the option subject to vesting as to 25% of the underlying shares on
each of the first three anniversaries of the grant date. The option expires on June 30, 2014.
The fair value of the June 2009 CEO Grant was estimated using the Hull-White I barrier lattice model based on the assumptions
below. There were no stock options granted in 2010.
Risk — free interest rate
Expected life (years)
Estimated volatility
Expected dividends
Weighted average grant date fair value
Year Ended
December 31,
2009
2.72 %
4.67
64.77 %
None
11.39
$
A summary of the Company’s stock option activity for the year ended December 31, 2010 is presented below:
Weighted
Average
Weighted
Outstanding at January 1, 2010
Granted
Exercised
Forfeited
Outstanding at December 31, 2010
Vested and expected to vest at December 31, 2010
Exercisable at December 31, 2010
Shares
1,786,077
—
(643,662 )
(7,500 )
1,134,915
1,134,915
1,072,415
$
$
$
$
$
$
$
F-28
28.20
—
27.73
28.44
28.46
28.46
28.08
Average
Exercise
Price
Remaining
Contractual
Term
2.3 years
Aggregate
Intrinsic
Value
(In thousands)
6,523
$
1.3 years
1.3 years
1.2 years
$
$
$
54,524
54,524
51,930
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A summary of the Company’s non-vested restricted stock activity for the year ended December 31, 2010 is presented below:
Non-vested restricted stock at January 1, 2010
Granted
Vested
Forfeited
Non-vested restricted stock at December 31, 2010
Weighted Average
Shares
45,526 $
— $
(39,526) $
— $
6,000 $
Grant-Date
Fair Value
39.91
—
40.87
—
33.58
On March 5, 2009, the Compensation Committee approved awards of restricted stock units (the “RSUs”) for certain executives
of the Company. Each RSU has a value equal to one share of Voting Common Stock and generally provides the recipient with the
right to receive one share of Voting Common Stock or cash equal to the value of one share of Voting Common Stock, at the option of
the Company, on the settlement date.
Mr. Targoff was awarded 85,000 RSUs (the “Initial Grant”) on March 5, 2009 (the “Grant Date”). In addition, the Company
agreed to issue Mr. Targoff 50,000 RSUs on the first anniversary of the Grant Date and 40,000 RSUs on the second anniversary of the
Grant Date (the “Subsequent Grants”). Vesting of the Initial Grant requires the satisfaction of two conditions: a time-based vesting
condition and a stock price vesting condition. Vesting of the Subsequent Grants is subject only to the stock-price vesting condition.
The time-based vesting condition for the Initial Grant was satisfied upon Mr. Targoff’s continued employment through March 5, 2010,
the first anniversary of the Grant Date. The stock price vesting condition, which applies to both the Initial Grant and the Subsequent
Grants, has been satisfied. Both the Initial Grant and the Subsequent Grants will be settled on March 31, 2013 or earlier under certain
circumstances.
The fair value of the RSUs awarded in 2009 that vest upon achievement of a market condition and a time-based vesting
condition was estimated using Monte Carlo simulation. Ex-dividend prices were simulated and those prices were used to determine
when the price hurdle target will be achieved, if ever. The following assumptions were used to derive the fair value of such RSUs and
the period over which the price hurdle target would be achieved:
Risk — free interest rate
Estimated volatility
Expected dividends
Weighted average grant date fair value
Year Ended
December 31,
2009
1.581 %
59.83 %
None
8.51
$
C. Patrick DeWitt, formerly Senior Vice President of Loral and Chief Executive Officer of SS/L and currently Chairman of the
Board of SS/L, was awarded 25,000 RSUs on March 5, 2009, of which 66.67% vested on March 5, 2010, with the remainder vesting
ratably on a quarterly basis over the subsequent two years. All of Mr. DeWitt’s RSUs will be settled on March 12, 2012 or earlier
under certain circumstances. The fair value of these RSUs is based upon the market price of Loral Voting Common Stock as of the
grant date. The weighted average grant date fair value of the award was $12.41.
F-29
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A summary of the Company’s non-vested RSU activity for the year ended December 31, 2010 is presented below:
Weighted
Average
Non-vested RSUs at January 1, 2010
Granted
Vested
Forfeited
Non-vested RSUs at December 31, 2010
Shares
Grant-Date
Fair Value
11.03
$
38.34
$
10.42
$
—
$
18.25
$
223,250
15,000
(167,439)
—
70,811
In April 2009, other SS/L employees were granted 66,259 shares of Loral Voting Common Stock, which were fully vested as of
the grant date. The grant date fair value of the award is based on Loral’s average stock price of $24.01 at the date of grant.
In June 2009, the Company introduced a performance based long-term incentive compensation program consisting of SS/L
phantom stock appreciation rights (“SS/L Phantom SARs”). Because SS/L common stock is not freely tradable on the open market
and thus does not have a readily ascertainable market value, SS/L equity value under the program is derived from an Adjusted
EBITDA-based formula. Each SS/L Phantom SAR provides the recipient with the right to receive an amount equal to the increase in
SS/L’s notional stock price over the base price multiplied by the number of SS/L Phantom SARs vested on the applicable vesting date,
subject to adjustment. SS/L Phantom SARs are settled and the SAR value (if any) is paid out on each vesting date. SS/L Phantom
SARs may be settled in Loral common stock (based on the fair value of Loral common stock on the date of settlement) or cash at the
option of the Company. SS/L Phantom SARs expire on June 30, 2016.
A summary of SS/L Phantom SARs granted along with their vesting schedule is presented below. The fair value of the SS/L
Phantom SARs in included as a liability in our consolidated balance sheet.
Grant Date
June-2009
Oct-2009
Oct-2009
Dec-2009
May-2010
SARs granted
225,000
217,500
65,000
32,500
175,000
2010
50 %
50 %
25 %
50 %
—
Vesting Date – March 18,
2012
2011
2013
25%
25%
25%
25%
25%
25 %
25 %
25 %
25 %
25 %
—
—
25%
—
25%
2014
—
—
—
—
25 %
A summary of the Company’s non-vested SS/L Phantom SAR activity for the year ended December 31, 2010 is presented below:
Weighted
Average
Non-vested SS/L Phantom SARs at January 1, 2010
Granted
Vested
Forfeited
Non-vested SS/L Phantom SARs at December 31, 2010
F-30
Shares
Grant-Date
Fair Value
6.53
$
2.73
6.39
—
5.17
$
540,000
175,000
(253,750)
—
461,250
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
During fiscal years 2010, 2009 and 2008, the following activity occurred under the Stock Incentive Plan (in thousands):
Total intrinsic value of options exercised
Total fair value of restricted stock vested
Total fair value of stock awards vested
Total fair value of restricted stock units vested
Year Ended December 31,
2009
2010
2008
$
$
$
$
16,889
1,493
—
12,687
$
$
$
$
1,578
1,395
1,591
—
$
$
$
$
—
1,131
—
—
We recorded total stock compensation expense of $10.0 million (of which $7.5 million was or is expected to be paid in cash),
$9.6 million (of which $2.1 million was paid in cash) and $7.6 million for the years ended December 31, 2010, 2009 and 2008,
respectively. As of December 31, 2010, total unrecognized compensation costs related to non-vested awards were $6.0 million and are
expected to be recognized over a weighted average remaining period of 1.5 years.
11. Earnings (Loss) Per Share
Telesat has awarded employee stock options, which, if exercised, would result in dilution of Loral’s ownership interest in
Telesat. The following table presents the dilutive impact of Telesat stock options on Loral’s reported net income for the purpose of
computing diluted earnings per share.
Net income attributable to Loral common shareholders — basic
Less: Adjustment for dilutive effect of Telesat stock options
Net income attributable to Loral common shareholders — diluted
Year Ended
December 31,
2010
486,846
(4,177)
482,669
$
$
Telesat stock options were excluded from the calculations of 2009 and 2008 diluted earnings (loss) per share because they did
not have a significant dilutive effect in 2009 and were antidilutive in 2008.
Basic earnings (loss) per share is computed based upon the weighted average number of shares of voting and non-voting
common stock outstanding. The following is the computation of common shares outstanding for diluted earnings (loss) per share:
Common shares outstanding for diluted earnings (loss) per share:
Weighted average common shares outstanding
Stock options
Unvested restricted stock units
Unvested restricted stock
Unvested SS/L Phantom SARS
Common shares outstanding for diluted earnings (loss) per share
F-31
2010
Year Ended December 31,
2009
(In thousands)
2008
30,085
495
206
8
93
30,887
29,761
48
115
4
53
29,981
20,407
—
—
—
—
20,407
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
For the year ended December 31, 2009, the effect of certain stock options outstanding, which would be calculated using the
treasury stock method and certain non-vested restricted stock and non-vested RSUs were excluded from the calculation of diluted
earnings per share, as the effect would have been antidilutive. For the year ended December 31, 2008 all stock options outstanding and
non-vested restricted stock were excluded from the calculation of diluted loss per share as the effect would have been anti-dilutive.
The following summarizes stock options outstanding, non-vested restricted stock and non-vested restricted stock units excluded from
the calculation of diluted earnings (loss) per share:
Stock options outstanding
Unvested restricted stock units
Unvested restricted stock
12. Pensions and Other Employee Benefits
Pensions
Year Ended December 31,
2009
2008
(In thousands)
125
8
30
2,034
—
96
We maintain qualified pension and supplemental retirement plans. These plans are defined benefit pension plans, and members
may contribute to the pension plan in order to receive enhanced benefits. Employees hired after June 30, 2006 do not participate in the
defined benefit pension plans, but participate in our defined contribution savings plan with an additional Company contribution.
Benefits are based primarily 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 plans 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 funds as we direct.
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 generally 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.
F-32
Table of Contents
Funded Status
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following tables provide a reconciliation of the changes in the plans’ benefit obligations and fair value of assets for 2010 and
2009, and a statement of the funded status as of December 31, 2010 and 2009, respectively. We use a December 31 measurement date
for the pension plans and other post retirement benefit plans.
Reconciliation of benefit obligation
Obligation at beginning of period
Service cost
Interest cost
Participant contributions
Plan amendment
Actuarial loss (gain)
Benefit payments
Obligation at December 31,
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 at end of period
Pension Benefits
Year Ended
December 31,
2010
2009
(In thousands)
Other Benefits
Year Ended
December 31,
2010
2009
(In thousands)
$
$
420,076
10,677
24,673
1,507
—
41,826
(22,728 )
476,031
256,166
28,133
24,932
1,507
(21,702 )
289,036
(186,995 )
$
$
380,919
9,436
24,447
1,455
—
27,366
(23,547 )
420,076
211,982
42,643
22,526
1,455
(22,440 )
256,166
(163,910)
$
$
67,392
672
3,411
1,968
(1,386 )
(5,085 )
(4,132 )
62,840
507
2
1,924
1,968
(4,132 )
269
(62,571 )
$
$
66,587
863
3,965
1,863
—
(1,764 )
(4,122 )
67,392
742
5
2,019
1,863
(4,122 )
507
(66,885 )
The benefit obligations for pensions and other employee benefits exceeded the fair value of plan assets by $249.6 million at
December 31, 2010 (the “unfunded benefit obligations”). The unfunded benefit obligations were measured using a discount rate of
5.5% and 6.0% at December 31, 2010 and 2009, respectively. Lowering the discount rate by 0.5% would have increased the unfunded
benefit obligations by approximately $31.6 million and $26.6 million as of December 31, 2010 and 2009, respectively. Market
conditions and interest rates will significantly affect future assets and liabilities of Loral’s pension and other employee benefits plans.
The pre-tax amounts recognized in accumulated other comprehensive income (loss) as of December 31, 2010 and 2009 consist
of (in thousands):
Actuarial (loss) gain
Amendments-prior service credit
Pension Benefits
December 31,
Other Benefits
December 31,
2010
(108,826 )
22,673
(86,153 )
$
$
2009
2010
2009
$
$
(78,028 )
25,392
(52,636 )
$
$
12,402
3,144
15,546
$
$
8,464
2,485
10,949
The amounts recognized in other comprehensive income (loss) during the year ended December 31, 2010 consist of (in
thousands):
Actuarial (loss) gain during the period
Prior service credit during the period
Amortization of actuarial loss (gain)
Amortization of prior service credit
Total recognized in other comprehensive loss
Pension Benefits Other Benefits
5,056
(34,334 ) $
$
1,387
—
(1,118 )
3,536
(728 )
(2,719 )
4,597
(33,517 ) $
$
F-33
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Amounts recognized in the balance sheet consist of (in thousands):
Current Liabilities
Long-Term Liabilities
Pension Benefits
December 31,
Other Benefits
December 31,
2010
2009
2010
2009
$
$
1,223
185,772
186,995
$
$
1,236
162,674
163,910
$
$
3,526
59,045
62,571
$
$
3,369
63,516
66,885
The estimated actuarial loss and prior service credit for the pension benefits that will be amortized from accumulated other
comprehensive income into net periodic cost over the next fiscal year is $5.5 million and $2.7 million, respectively. The estimated
actuarial gain and prior service credit for other benefits that will be amortized from accumulated other comprehensive income into net
periodic cost over the next fiscal year is $0.7 million and $0.7 million, respectively.
The accumulated pension benefit obligation was $464.2 million and $412.1 million at December 31, 2010 and 2009,
respectively.
During 2010, we contributed $24.9 million to the qualified pension plan and $2.0 million for other employee post-retirement
benefit plans. In addition, we made benefit payments relating to the supplemental retirement plan of $1.0 million. During 2011, based
on current estimates, we expect to contribute approximately $34 million 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 years ended December 31, 2010, 2009 and
2008 (in thousands):
Other Benefits
For the Year Ended December 31,
2008
2009
2010
Pension Benefits
For the Year Ended December 31,
2010
2008
2009
$ 10,677
24,673
(20,641 )
(2,719 )
9,436
24,447
(17,176 )
(2,719 )
9,214
23,367
(24,469 )
(2,718)
$
$
$
672
3,411
(31 )
(728)
3,536
—
$ 15,526
4,083
—
$ 18,071
$
(18 )
(433)
4,943
(1,118)
—
2,206
$
$
$
863
3,965
(50 )
(481 )
(471 )
—
3,826
$
$
1,056
4,108
(72 )
(480 )
(30 )
—
4,582
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service credit
Amortization of net actuarial loss
(gain)
Curtailment gain
Net periodic cost
Assumptions
Assumptions used to determine net periodic cost:
Discount rate
Expected return on plan assets
Rate of compensation increase
Assumptions used to determine the benefit obligation:
Discount rate
Rate of compensation increase
F-34
For the Year Ended December 31,
2009
2008
2010
6.00%
8.00%
4.25%
6.50%
8.00%
4.25%
6.50 %
8.50 %
4.25 %
2010
5.50%
4.25%
December 31,
2009
6.00%
4.25%
2008
6.50 %
4.25 %
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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. The expected long-term rate of return on plan assets determined on this basis was 8.0% for the years ended December 31, 2010
and 2009 and 8.5% for the year ended December 31, 2008. Our expected long-term rate of return on plan assets for 2011 is 8.0%,
which is unchanged from 2010.
Actuarial assumptions to determine the benefit obligation for other benefits as of December 31, 2010, used a health care cost
trend rate of 9.0% decreasing gradually to 5% by 2018. Actuarial assumptions to determine the benefit obligation for other benefits as
of December 31, 2009, used a health care cost trend rate of 9.5% decreasing gradually to 5% by 2018. Assumed health care cost trend
rates have a significant effect on the amounts reported for the health care plans. A 1% change in assumed health care cost trend rates
for 2010 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
1% Increase
1% Decrease
$
$
84
2,358
$
$
(84 )
(2,154)
Plan Assets
The Company has established the pension plan as a retirement vehicle for participants and as a funding vehicle to secure
promised benefits. The investment goal is to provide a total return that over time will earn a rate of return to satisfy the benefit
obligations given investment risk levels, contribution amounts and expenses. The pension plan invests in compliance with the
Employee Retirement Income Security Act 1974, as amended (“ERISA”), and any subsequent applicable regulations and laws.
The Company has adopted an investment policy for the management and oversight of the pension plan. It sets forth the
objectives for the pension plans, the strategies to achieve these objectives, procedures for monitoring and control and the delegation of
responsibilities for the oversight and management of pension plan assets.
The Company’s Board of Directors has delegated primary fiduciary responsibility for pension assets to an investment committee.
In carrying out its responsibilities, the investment committee establishes investment policy, makes asset allocation decisions,
determines asset class strategies and retains investment managers to implement asset allocation and asset class strategy decisions. It is
responsible for the investment policy and may amend such policy from time to time.
Pension plan assets are invested in various asset classes in what we believe is a prudent manner for the exclusive purpose of
providing benefits to participants. U.S. equities are held for their long-term expected return premium over fixed income investments
and inflation. Non-U.S. equities are held for their expected return premium (along with U.S. equities), as well as diversification
relative to U.S. equities and other asset classes. Fixed income investments are held for diversification relative to equities. Alternative
investments are held for both diversification and higher returns than those typically available in traditional asset classes. Asset
allocation policy is reviewed regularly.
Asset allocation policy is the principal method for achieving the pension plans’ investment objectives stated above. Asset
allocation policy is reviewed regularly by the investment committee. The pension plans’ actual and targeted asset allocations are as
follows:
Equities
Fixed Income
Actual Allocation
December 31,
Target Allocation
2010
2009
Target
Target Range
61 %
39 %
100 %
59 %
41 %
100 %
60 %
40 %
100 %
50-65 %
35-50 %
100%
F-35
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The target and target range levels can be further defined as follows:
U.S. Large Cap Equities
U.S. Small Cap Equities
Non-U.S. Equities
Alternative Equity Investments
Total Equities
Fixed Income
Alternative Fixed Income Investments
Total Fixed Income
Total Target Allocation
Target Allocation
Target
Target Range
35 %
5 %
15 %
5 %
60 %
35 %
5 %
40 %
30-40 %
3-7 %
10-20 %
0-15 %
50-65 %
30-40 %
0-15 %
35-50 %
100 %
100%
The pension plan’s assets are actively managed using a multi-asset, multi-style, multi-manager investment approach. Portfolio
risk is controlled through this diversification process and monitoring of money managers. Consideration of such factors as differing
rates of return, volatility and correlation are utilized in the asset and manager selection process. Diversification reduces the impact of
losses in single investments. Performance results and fund accounting are provided to the Company by Russell on a monthly basis.
Periodic reviews of the portfolio are performed by the investment committee with Russell. These reviews typically consist of a market
and economic review, a performance review, an allocation review and a strategy review. Performance is judged by investment type
against market indexes. Allocation adjustments or fund changes may occur after these reviews. Performance is reported to the
Company’s Board of Directors at quarterly board meetings.
Fair Value Measurements
The values of the fund trusts are calculated using systems and procedures widely used across the investment industry. Generally,
investments are valued based on information in financial publications of general circulation, statistical and valuation services,
discounted cash flow methodology, records of security exchanges, appraisal by qualified persons, transactions and bona fide offers.
F-36
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The tables below provides the fair values of the Company’s pension plan assets at December 31, 2010 and 2009, by asset
category. The table also identifies the level of inputs used to determine the fair value of assets in each category. The Company’s
pension plan assets are mainly held in commingled employee benefit fund trusts.
Asset Category
Total
Percentage
Fair Value Measurements
Quoted Prices
In Active Markets
For Identical
Assets
Level 1
(In thousands)
Significant
Significant
Observable Unobservable
Inputs
Level 2
Inputs
Level 3
At December 31, 2010:
Cash
Equity securities:
U.S. large-cap (1)
U.S. small-cap (2)
Non-U.S. (3)
Alternative investments:
Equity long/short fund (4)
Private equity fund (5)
Fixed income securities:
Commingled funds (6)
Alternative investments:
Distressed opportunity limited
partnership (7)
Diversified alternatives fund (8)
Other limited partnerships (9)
At December 31, 2009:
Cash
Equity securities:
U.S. large-cap (1)
U.S. small-cap (2)
Non-U.S. (3)
Alternative investments:
Equity long/short fund (4)
Private equity fund (5)
Fixed income securities:
Commingled funds (6)
Alternative investments:
Distressed opportunity limited
partnership (7)
Diversified alternatives fund (8)
Other limited partnerships (9)
$
86,866
16,002
53,101
11,993
6,934
174,896
30 %
6 % $
18 %
4 %
2 %
61 %
$
3,783
1,249
86,866
12,219
51,852
6,111 $
5,032
157,048
110,152
38 %
110,152
3,598
353
37
114,140
1 %
0 %
0 %
39 %
110,152
5,882
6,934
12,816
3,598
353
37
3,988
$
289,036
100 % $
5,032 $
267,200 $
16,804
$
79,854
13,087
45,957
5,468
6,245
150,611
31 %
5 %
18 %
2 %
3 %
59 %
98,998
39 %
3,204
3,135
218
105,555
1 %
1 %
41 %
$
79,854
13,087
45,957
$
138,898
98,998
98,998
5,468
6,245
11,713
3,204
3,135
218
6,557
$
256,166
100 %
$
237,896 $
18,270
(1)
(2)
(3)
(4)
(5)
Investments in common stocks that rank among the largest 1,000 companies in the U.S. stock market.
Investments in common stocks that rank among the small capitalization stocks in the U.S. stock market.
Investments in common stocks of companies from developed and emerging countries around the world.
Investments primarily in long and short positions in equity securities of U.S. and non-U.S. companies. We are invested in two
funds; one fund has semi-annual tender offer redemption periods on June 30 and December 31.
Fund invests in portfolios of secondary interest in established venture capital, buyout, mezzanine and special situation funds on a
global basis. The Company committed to invest up to $10 million in this fund, and $7.30 million and $6.95 million has been
invested through December 31, 2010 and 2009, respectively. Fund is valued on a quarterly lag with adjustment for subsequent
cash activity.
(6)
Investments in bonds representing many sectors of the broad bond market with both short-term and intermediate-term maturities.
F-37
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(7)
(8)
Investments mainly in discounted debt securities, bank loans, trade claims and other debt and equity securities of financially
troubled companies. This partnership has a one year lock-up period with semi-annual withdrawal rights on June 30 and
December 31 thereafter. Our initial investment was made August 3, 2009.
Fund is a fund of hedge funds. Fund is closed and currently unwinding its holdings. The remaining portfolio which was deemed
illiquid has been sold with cash distribution to shareholders made as the assets are transferred to the purchaser. Fund was valued
on a one month lag with adjustment for subsequent cash activity.
(9)
Company invested in other partnerships that have reached their end of life and have closed and are unwinding their holdings.
Mainly partnerships that provided mezzanine financing.
The significant amount of Level 2 investments in the table results from including in this category investments in commingled
funds that contain investments with values based on quoted market prices, but for which the funds are not valued on a quoted market
basis. These commingled funds are valued at their net asset values (NAVs) that are calculated by the investment manager or sponsor.
Equity investments in both U.S. and non-U.S. stocks are primarily valued using a market approach based on the quoted market prices
of identical securities. Fixed income investments are primarily valued using a market approach with inputs that include broker quotes,
benchmark yields, base spreads and reported trades.
Additional information pertaining to the changes in the fair value of the pension plan assets classified as Level 3 for the years
ended December 31, 2010 and 2009 is presented below:
Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)
Private
Equity Long/Short
Equity
Fund
Fund
Distressed
Opportunity
Ltd. Partnership
Diversified
Alternatives
Fund
Other
Limited
Partnership
Total
Beginning balance at January 1,
2009
Unrealized gain/(loss)
Realized gain/(loss)
Purchases
Sales
Ending balance at December 31,
2009
Unrealized gain/(loss)
Realized gain/(loss)
Purchases
Sales
Ending balance at December 31,
$ 6,645 $
(1,050 )
—
650
—
— $
468
—
5,000
—
6,245
339
—
1,300
(950 )
5,468
414
—
—
—
(In thousands)
— $
204
—
3.000
—
3,204
394
—
—
—
8,735 $
(525 )
(1,095 )
—
(3,980 )
3,135
(884 )
(697)
—
(1,201 )
402 $ 15,782
192
(711 )
(1,439 )
(344)
8,650
—
(4,012 )
(32 )
218
(66 )
233
35
(383)
18,270
197
(464 )
1,335
(2,534 )
2010
$ 6,934 $
5,882 $
3,598 $
353 $
37 $ 16,804
Both the Equity Long/Short Fund and the Distressed Opportunity Limited Partnership are valued at each month-end based upon
quoted market prices by the investment managers. They are included in Level 3 due to their restrictions on redemption to semi-annual
periods on June 30 and December 31.
The diversified alternatives fund is a fund of hedge funds. Hedge fund net asset value is calculated by the fund manager and is
not publicly available. The fund of funds manager accumulates all the underlying fund values and accumulates them in determining
the fund of funds net asset value. The remaining holdings at December 31, 2010, have been sold. The balance reflects what will be
received as the assets are actually transferred to the purchaser.
The private equity fund and limited partnership valuations are primarily based on cost/price of recent investments,
earnings/performance multiples, net assets, discounted cash flows, comparable transactions and industry benchmarks. The annual
audited financial statements of all funds are reviewed by the Company.
F-38
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LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Assets designated to fund the obligations of our supplemental retirement plan are held in a trust. Such assets amounting to
$2.1 million and $2.9 million as of December 31, 2010 and 2009, respectively, are available to general creditors in the event of
bankruptcy and, therefore, do not qualify as plan assets. Accordingly, other current assets included $0.8 million of these assets as of
December 31, 2010 and 2009, and other assets included $1.3 million and $2.1 million of these assets as of December 31, 2010 and
2009, respectively.
Benefit Payments
The following benefit payments, which reflect future services, as appropriate, are expected to be paid (in thousands):
Other Benefits
2011
2012
2013
2014
2015
2016 to 2020
Employee Savings (401k) Plan
$
Pension
Benefits
26,922
27,411
27,900
28,738
29,388
161,400
Gross
Benefit
Medicare
$
$
Payments
4,186
4,457
4,556
4,686
4,812
25,447
Subsidy
Receipts
288
323
356
388
423
2,535
We have an employee savings (401k) plan, to which the Company provides contributions which match up to 6% of a
participant’s base salary at a rate of 66 2 / 3 %, and retirement contributions. Retirement contributions represent contributions made by
the Company to provide added retirement benefits to employees hired on or after July 1, 2006, as they are not eligible to participate in
our defined benefit pension plan. Retirement contributions are provided regardless of an employee’s contribution to the savings (401k)
plan. Matching contributions and retirement contributions are collectively known as Company contributions. Company contributions
are made in cash and placed in each participant’s age appropriate “life cycle” fund. For the years ended December 2010, 2009 and
2008, Company contributions were $10.0 million, $8.7 million and $8.3 million, respectively. Participants of the savings (401k) plan
are able to redirect Company contributions to any available fund within the plan. Participants are also able to direct their contributions
to any available fund.
13. Financial Instruments, Derivative Instruments and Hedging
Financial Instruments
The carrying amount of cash equivalents and restricted cash 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 derivatives is based on the income approach, using observable Level II market
expectations at the measurement date and standard valuation techniques to discount future amounts to a single present value.
Foreign Currency
In the normal course of business, we are subject to the risks associated with fluctuations in foreign currency exchange rates. To
limit this foreign exchange rate exposure, the Company seeks to denominate its contracts in U.S. dollars. If we are unable to enter into
a contract in U.S. dollars, we review our foreign exchange exposure and, where appropriate, derivatives are used to minimize the risk
of foreign exchange rate fluctuations to operating results and cash flows. We do not use derivative instruments for trading or
speculative purposes.
F-39
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of December 31, 2010, 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, 2010 exchange rates) that were unhedged:
Future revenues — Japanese yen
Future expenditures — Japanese yen
Future revenues — euros
Future expenditures — euros
Derivatives and Hedging Transactions
Foreign Currency
U.S. $
¥
¥
€
€
(In thousands)
201,007 $
4,253,762 $
12,584 $
7,498 $
2,465
52,159
16,678
9,937
All derivative instruments are recorded at fair value as either assets or liabilities in our consolidated balance sheets. Each
derivative instrument is generally designated and accounted for as either a hedge of a recognized asset or a liability (“fair value
hedge”) or a hedge of a forecasted transaction (“cash flow hedge”). Certain of these derivatives are not designated as hedging
instruments and are used as “economic hedges” to manage certain risks in our business.
As a result of the use of derivative instruments, the Company is exposed to the risk that counterparties to derivative contracts will
fail to meet their contractual obligations. The Company does not hold collateral or other security from its counterparties supporting its
derivative instruments. In addition, there are no netting arrangements in place with the counterparties. To mitigate the counterparty
credit risk, the Company has a policy of only entering into contracts with carefully selected major financial institutions based upon
their credit ratings and other factors.
The aggregate fair value of derivative instruments in an asset position was $4.5 million as of December 31, 2010. This amount
represents the maximum exposure to loss at the reporting date as a result of the potential failure of the counterparties to perform as
contracted.
Cash Flow Hedges
The Company enters into long-term construction contracts with customers and vendors, some of which are denominated in
foreign currencies. Hedges of expected foreign currency denominated contract revenues and related purchases are designated as cash
flow hedges and evaluated for effectiveness at least quarterly. Effectiveness is tested using regression analysis. The effective portion
of the gain or loss on a cash flow hedge is recorded as a component of other comprehensive income (“OCI”) and reclassified to
income in the same period or periods in which the hedged transaction affects income. The ineffective portion of a cash flow hedge
gain or loss is included in income.
In June 2010 and July 2008, SS/L was awarded satellite contracts denominated in euros and entered into a series of foreign
exchange forward contracts with maturities through 2013 and 2011, respectively, to hedge associated foreign currency exchange risk
because our costs are denominated principally in U.S. dollars. These foreign exchange forward contracts have been designated as cash
flow hedges of future euro denominated receivables.
F-40
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LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The maturity of foreign currency exchange contracts held as of December 31, 2010 is consistent with the contractual or expected
timing of the transactions being hedged, principally receipt of customer payments under long-term contracts. These foreign exchange
contracts mature as follows:
Maturity
2011
2012
2013
Balance Sheet Classification
Euro
Amount
€
€
111,363
27,000
27,000
165,363
To Sell
At
Contract
Rate
(In thousands)
142,269
$
32,649
32,894
207,812
$
At
Market
Rate
$
$
147,305
35,529
35,437
218,271
The following summarizes the fair values and location in our consolidated balance sheet of all derivatives held by the Company
as of December 31, 2010 (in thousands):
Asset Derivatives
Liability Derivatives
Balance Sheet
Location
Fair Value
Balance Sheet
Location
Fair Value
Derivatives designated as hedging instruments
Foreign exchange contracts
Other current assets $
4,152 Other current liabilities $
Other liabilities
4,152
Derivatives not designated as hedging instruments
Foreign exchange contracts
Total derivatives
Other current assets
396 Other current liabilities
Other liabilities
$
4,548
$
9,451
5,360
14,811
133
63
15,007
The following summarizes the fair values and location in our consolidated balance sheet of all derivatives held by the Company
as of December 31, 2009 (in thousands):
Derivatives designated as hedging instruments
Foreign exchange contracts
Foreign exchange contracts
Derivatives not designated as hedging instruments
Foreign exchange contracts
Total derivatives
F-41
Asset Derivatives
Balance Sheet
Location
Fair Value
Other current assets $
Other assets
Other assets
$
1,860
1,846
3,706
167
3,873
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Cash Flow Hedge Gains (Losses) Recognition
The following summarizes the gains (losses) recognized in the consolidated statements of operations and in accumulated other
comprehensive loss for all derivatives for the years ended December 31, 2010 and 2009 (in thousands):
Derivatives in Cash Flow
Hedging Relationships
Year ended December 31, 2010
Foreign exchange contracts
Year ended December 31, 2009
Foreign exchange contracts
Loss Recognized
in OCI on Derivatives
(Effective Portion)
Gain Reclassified from
Accumulated
OCI into Income
(Effective Portion)
Location
Amount
Gain (Loss) on Derivative
Ineffectiveness and
Amounts Excluded from
Effectiveness Testing
Location
Amount
$
$
(15,790 ) Revenue
$
6,054 Revenue
$
Interest income $
636
(13 )
(94 ) Revenue
$
11,806 Revenue
$
Interest income $
(1,085 )
(72 )
Cash Flow Derivatives Not Designated as Hedging Instruments
Year ended December 31, 2010
Foreign exchange contracts
Year ended December 31, 2009
Foreign exchange contracts
Gain Recognized in Income
on Derivatives
Location
Amount
Revenue
Revenue
$
$
33
335
We estimate that $6.6 million of net losses from derivative instruments included in accumulated other comprehensive loss will
be reclassified into earnings within the next 12 months.
14. Commitments and Contingencies
Financial Matters
Due to the long lead times required to produce purchased parts, we have entered into various purchase commitments with
suppliers. These commitments aggregated approximately $454 million as of December 31, 2010 and primarily relate to Satellite
Manufacturing backlog. We also had total commitments of approximately $30 million relating to our portion of costs for the ViaSat-1
satellite and the related gateways.
SS/L has deferred revenue and accrued liabilities for warranty payback obligations relating to performance incentives for
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 the year ended December 31, 2010 is as follows (in thousands):
Balance of deferred amounts at January 1
Warranty costs incurred including payments
Accruals relating to pre-existing contracts (including changes in estimates)
Balance of deferred amounts at December 31
2010
37,167
(1,292 )
(145 )
35,730
$
$
F-42
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LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 (“orbital incentives”), 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, companies in the early stages of building their businesses or highly leveraged companies,
including some with near-term debt maturities. 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 incentive payments is subject to the continued performance of its
satellites generally over the contractually stipulated life of the satellites. Because 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. Orbital
receivables included in our consolidated balance sheet as of December 31, 2010 were $312 million, net of fair value adjustments of
$18 million. Approximately $196 million of the gross orbital receivables are related to satellites launched as of December 31, 2010,
and $134 million are related to satellites under construction as of December 31, 2010.
On October 19, 2010, TerreStar Networks Inc. (“TerreStar”), an SS/L customer, filed for bankruptcy under Chapter 11 of the
Bankruptcy Code. As of December 31, 2010, SS/L had $19 million of past due receivables from TerreStar related to an in-orbit SS/L
built satellite and other related ground system deliverables and $16 million of past due receivables from TerreStar related to a second
satellite under construction. SS/L had previously exercised its contractual right to stop work on the satellite under construction as a
result of TerreStar’s payment default. The in-orbit satellite long-term orbital receivable balance, net of fair value adjustment, reflected
on the balance sheet at December 31, 2010 is $15 million. The long term orbital receivable balance reflected on the balance sheet for
the satellite under construction is $13 million. In addition, there are approximately $3 million of costs that have been committed to and
will be incurred in the future, substantially relating to the ground system deliverables. In February 2011, TerreStar withdrew its
proposed plan of reorganization and has indicated that it will explore an alternative plan of reorganization or a sale of its assets. Prior
to withdrawing its plan, TerreStar had indicated that it intended to assume its contract for the satellite under construction. In March
2011, TerreStar filed a motion to authorize it to reject its contracts for the in-orbit satellite and related ground system deliverables.
SS/L intends to file an objection to TerreStar’s motion and believes, based on discussions with TerreStar, that TerreStar intends to
negotiate with SS/L terms for the assumption of these contracts. SS/L believes and will assert in its objection that the satellite in orbit
and related ground system deliverables are critical to the execution of TerreStar’s operation and business plan. In addition, under its
contracts with TerreStar, SS/L is obligated to provide orbital anomaly and troubleshooting support for the life of the in-orbit satellite
and related ground system deliverables, and, if TerreStar were to reject these contracts, SS/L would not provide this support. SS/L
believes that a prudent satellite operator would not risk losing SS/L’s support services because no other service provider has the data
or capability to provide these services which are necessary for the continued successful operation of a satellite over its lifetime. SS/L
believes, therefore, although no assurance can be given, that, notwithstanding TerreStar’s motion to reject the contracts for the in-orbit
satellite and related ground system deliverables, because of their importance to TerreStar and the importance of SS/L’s ongoing
technical support, any plan of reorganization for or sale of assets by TerreStar that does not provide for assumption of these contracts
would not be feasible. Accordingly, SS/L believes that TerreStar (or its successor in reorganization) will likely assume its contracts for
the in-orbit satellite and related ground system deliverables, and it is not probable that SS/L will incur a material loss with respect to
the past due receivables or amounts scheduled to be paid in the future under those contracts. Notwithstanding these considerations, if
TerreStar, nevertheless, were to reject its contracts for the in-orbit satellite and related ground system deliverables, and assuming that
SS/L received no recovery on its claim as a creditor with respect to these contracts, SS/L believes that it would incur a loss of
approximately $27 million, SS/L’s cash flow in the short term would be reduced by $20 million and SS/L’s cash flow over the
approximate 15-year life of the satellite would be reduced by an additional $18 million of long term orbital receivables plus interest.
As of December 31, 2010, SS/L had receivables included in contracts in process from DBSD Satellite Services G.P. (formerly
known as ICO Satellite Services G.P. and referred to herein as “ICO”), a customer with an SS/L-built satellite in orbit, in the
aggregate amount of approximately $7 million. In addition, under its contract, ICO has future payment obligations to SS/L that total
approximately $25 million, of which approximately $12 million (including $9 million of orbital incentives) is included in long-term
receivables. ICO, which sought to reorganize under chapter 11 of the Bankruptcy Code in May 2009, has agreed to, and the ICO
Bankruptcy Court has approved, ICO’s assumption of its contract with SS/L, with certain modifications. The contract modifications
do not have a material adverse effect on SS/L, and, although the timing of payments to be received from ICO has changed (for
example, certain significant payments become due only on or after the effective date of ICO’s plan of reorganization), SS/L will
receive substantially the same net present value from ICO as SS/L was entitled to receive under the original contract. ICO’s plan of
F-43
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LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
reorganization was confirmed by the ICO Bankruptcy Court in October 2009. In September 2010, ICO satisfied the regulatory
approval condition precedent to the effective date of the plan when ICO obtained FCC approval for the transfer of its spectrum
licenses to the reorganized entity. In December 2010, however, the United States Second Circuit Court of Appeals stayed
consummation of the plan, ruled that ICO’s plan of reorganization violated the absolute priority rule of the Bankruptcy Code, and
reversed the orders approving confirmation of ICO’s plan so that it could not be declared effective. SS/L understands that there are
various avenues available to ICO to complete its reorganization, including modifying its existing plan to remove the deficiencies
found by the Second Circuit Court of Appeals, proceeding with a plan proposed by certain of ICO’s creditors or developing a new
plan to be based on a sale of the company for which ICO has received competing offers. ICO has obtained an extension to July 31,
2011 of the authority to transfer FCC licenses under the existing plan ownership structure and has stated that it will seek FCC approval
necessary for any sale of the company if and when that sale process continues.
See Note 16 — Related Party Transactions — Transactions with Affiliates — Telesat for commitments and contingencies
relating to our agreement to indemnify Telesat for certain liabilities and our arrangements with ViaSat, Inc. and Telesat.
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. Thirty-one of the satellites
built by SS/L, launched since 1997 and still on-orbit have experienced some loss 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. A complete or partial loss of a satellite’s capacity could result in a loss of performance incentives by SS/L. SS/L has
implemented remediation measures that SS/L believes will reduce this type of anomaly for satellites launched after June 2001. Based
upon information currently available relating to the power losses, 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.
Non-performance can increase costs and subject SS/L to damage claims from customers and termination of the contract for
SS/L’s default. SS/L’s contracts contain detailed and complex technical specifications to which the satellite must be built. It is very
common that satellites built by SS/L do not conform in every single respect to, and contain a small number of minor deviations from,
the technical specifications. Customers typically accept the satellite with such minor deviations. In the case of more significant
deviations, however, SS/L may incur increased costs to bring the satellite within or close to the contractual specifications or a
customer may exercise its contractual right to terminate the contract for default. In some cases, such as when the actual weight of the
satellite exceeds the specified weight, SS/L may incur a predetermined penalty with respect to the deviation. A failure by SS/L to
deliver a satellite to its customer by the specified delivery date, which may result from factors beyond SS/L’s control, such as delayed
performance or non-performance by its subcontractors or failure to obtain necessary governmental licenses for delivery, would also be
harmful to SS/L unless mitigated by applicable contract terms, such as excusable delay. As a general matter, SS/L’s failure to deliver
beyond any contractually provided grace period would result in the incurrence of liquidated damages by SS/L, which may be
substantial, and if SS/L is still unable to deliver the satellite upon the end of the liquidated damages period, the customer will generally
have the right to terminate the contract for default. If a contract is terminated for default, SS/L 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 its 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.
F-44
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LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
SS/L is building a satellite known as CMBStar under a contract with EchoStar Corporation (“EchoStar”). Satellite construction is
substantially complete. EchoStar and SS/L have agreed to suspend final construction of the satellite pending, among other things,
further analysis relating to efforts to meet the satellite performance criteria and/or confirmation that alternative performance criteria
would be acceptable. In May 2010, SS/L provided EchoStar, at its request, with a proposal to complete construction and prepare the
satellite for launch under the current specifications. In August 2010, SS/L provided EchoStar, at its request, additional proposal
information. There can be no assurance that a dispute will not arise as to whether the satellite meets its technical performance
specifications or if such a dispute did arise that SS/L would prevail. SS/L believes that if a loss is incurred with respect to this
program, such loss would not be material.
SS/L 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.
See Note 16 — Related Party Transactions — Transactions with Affiliates — Telesat for commitments and contingencies
relating to SS/L’s obligation to make payments to Telesat for transponders on Telstar 18.
Regulatory Matters
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 or provision of
defense services 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 and equipment 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, 2010
Year ended December 31, 2009
Year ended December 31, 2008
Gross
Rent
Sublease
Income
Net Rent
$
$
$
18,911
16,337
12,154
$
$
$
—
—
(6 )
$
$
$
18,911
16,337
12,148
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, 2010 (in thousands):
2011
2012
2013
2014
2015
Thereafter
Legal Proceedings
Insurance Coverage Litigation
$
$
11,435
9,017
6,821
5,883
4,723
8,625
46,504
The Company is obligated to indemnify its directors and officers for expenses incurred by them in connection with their defense
in the Delaware shareholder derivative case, entitled In re: Loral Space and Communications Inc. Consolidated Litigation , relating to
the Company’s sale of $300 million of preferred stock to certain funds affiliated with MHR (the “MHR Funds”) pursuant to the
Securities Purchase Agreement dated October 17, 2006, as amended and restated on February 27, 2007, and the related Babus
shareholder litigation in New York. The Company has purchased directors and officers liability insurance coverage that provides the
Company with coverage of up to $40 million for amounts paid as a result of the Company’s indemnification obligations to its directors
and officers and for losses incurred by the Company in certain circumstances, including shareholder derivative actions.
F-45
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LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In December 2010, the Company, the three Loral directors (the “MHR-Affiliated Directors”) who are or were affiliated with
MHR and Loral’s insurers (the “Insurers”) entered into a Settlement Agreement (the “Settlement Agreement”) with respect to the
litigation in which Loral asserted claims for coverage under directors and officers liability insurance policies (the “Policies”) for
(a) the $19.4 million in fees and expenses that Loral paid to plaintiffs’ counsel in the above-mentioned Delaware shareholder litigation
(the “Delaware Plaintiffs’ Fee Awards”), and (b) substantially all of the $14.4 million that Loral’s Special Committee determined to
pay, as indemnification, to the MHR-Affiliated Directors relating to fees and expenses they incurred in the defense of the Delaware
shareholder litigation (the “MHR Directors’ Fee Indemnification”). The Settlement Agreement further provided for mutual releases by
the parties. Additional parties to the Settlement Agreement for purposes of such releases are MHR and certain of its affiliates.
Pursuant to the Settlement Agreement, the Insurers paid Loral in December 2010 and January 2011: (a) $5.0 million in
conditional settlement of Loral’s claim for coverage under the Policies for the Delaware Plaintiffs’ Fee Award; and (b) $7.5 million in
full settlement of Loral’s claim for coverage under the Policies for the MHR Directors’ Fee Indemnification. The Settlement
Agreement terminated the coverage action with respect to the MHR Directors’ Fee Indemnification issue but did not terminate the
coverage action with respect to the Delaware Plaintiffs’ Fee Awards. Rather, the trial court’s judgment in favor of Loral on its claim
for coverage of the Delaware Plaintiffs’ Fee Awards was the subject of a pending appeal.
In February 2011, the Appellate Division of the Supreme Court of the State of New York issued a decision in the pending appeal
and ruled that Loral is entitled to coverage for approximately $8.8 million of the Delaware Plaintiffs’ Fee Awards, representing the
fees and expenses paid to counsel for the plaintiffs who filed the derivative claims in the case. Since the Insurers have already paid
$5.0 million of the covered amount, they are obligated to pay the remaining approximately $3.8 million of the covered amount, plus
prejudgment interest and attorneys’ fees of approximately $2.2 million, within 30 days of entry of judgment based on the Appellate
Division’s ruling.
The Insurers and the Company will each have 30 days from the entry of judgment to file or seek to file an appeal of the
Appellate Division’s ruling. If a final judgment, after all appeals, results in a declaration that the Policies cover less than $5.0 million
of the Fee Awards, the Insurers will not be obligated to pay anything beyond, and Loral is not obligated to repay or return, the
aforementioned $5.0 million conditional settlement payment. There can be no assurance that, if there is a further appeal, the
Company’s position regarding coverage for the Delaware Plaintiffs’ Fee Awards, or any portion thereof, will prevail.
Reorganization Matters
On July 15, 2003, Old Loral and certain of its subsidiaries (collectively with Old Loral, the “Debtors”) filed voluntary petitions
for reorganization under chapter 11 of title 11 of the United States Code in the U.S. Bankruptcy Court for the Southern District of
New York (Lead Case No. 03-41710 (RDD), Case Nos. 03-41709 (RDD) through 03-41728 (RDD)). The Debtors emerged from
chapter 11 on November 21, 2005 pursuant to the Plan of Reorganization.
Indemnification Claims of Directors and Officers of Old Loral. Old Loral was obligated to indemnify its directors and officers
for, among other things, any losses or costs they may incur as a result of the lawsuits described below in Old Loral Class Action
Securities Litigations . Most directors and officers 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 agreed that in no event will their
indemnity claims against Old Loral and Loral Orion, Inc. 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 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 Loral common stock distributed under the Plan of Reorganization to other creditors.
Instead of issuing such additional shares, 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 Loral will not incur any substantial losses as a result of these claims.
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LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Old Loral Class Action Securities Litigations
Beleson . In August 2003, plaintiffs Robert Beleson and Harvey Matcovsky filed a purported class action complaint against
Bernard L. Schwartz, the former Chief Executive Officer of Old Loral, in the United States District Court for the Southern District of
New York. The complaint sought, among other things, damages in an unspecified amount and reimbursement of plaintiffs’ reasonable
costs and expenses. The complaint alleged (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 by Old Loral to Intelsat and Old Loral’s 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. The defendant filed a motion for summary judgment in July 2008, and plaintiffs filed a cross-
motion for partial summary judgment in September 2008. In February 2009, the court granted defendant’s motion and denied
plaintiffs’ cross motion. In March 2009, plaintiffs filed a notice of appeal with respect to the court’s decision. Pursuant to stipulations
entered into in February, May, July, August and October 2010 among the parties and the plaintiffs in the Christ case discussed below,
the appeal, which had been consolidated with the Christ case, was withdrawn, provided however, that plaintiffs could reinstate the
appeal on or before November 19, 2010. In November 2010, plaintiffs did reinstate the appeal, which is fully briefed and pending
before the Second Circuit. 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 Loral, if
any, with respect thereto is limited solely to the D&O Claims as described above under “Reorganization Matters — Indemnification
Claims of Directors and Officers of Old Loral.”
Christ . 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,
the former Chief Financial Officer of Old Loral, in the United States District Court for the Southern District of New York. The
complaint sought, among other things, damages in an unspecified amount and reimbursement of plaintiffs’ reasonable costs and
expenses. The complaint alleged (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 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 September 2008, the parties entered into an agreement to settle the case, pursuant to
which a settlement will be funded entirely by Old Loral’s directors and officers liability insurer, and Loral will not be required to
make any contribution toward the settlement. By order dated February 26, 2009, the court finally approved the settlement as fair,
reasonable and adequate and in the best interests of the class. Certain class members objected to the settlement and filed a notice of
appeal, and other class members, who together had class period purchases valued at approximately $550,000, elected to opt out of the
class action settlement and commenced individual lawsuits against the defendants. In August 2009, the objecting and opt-out class
members entered into an agreement with the defendants to settle their claims, pursuant to which a settlement will be funded entirely by
Old Loral’s directors and officers liability insurer, and Loral will not be required to make any contribution toward the settlement. In
addition, in March 2009, at the time that they filed a notice of appeal with respect to the Beleson decision (discussed above), the
plaintiffs in the Beleson case also filed a notice of appeal with respect to the court’s decision approving the Christ settlement, arguing
that the Christ settlement impairs the rights of the Beleson class. In September 2010, counsel for the Beleson class agreed to
voluntarily dismiss this appeal and, in November 2010, a stipulation of voluntary dismissal was approved by the court. In
February 2011, the court approved distribution of the settlement proceeds. As a result of the settlement and final dismissal of all
appeals, Loral will not incur any liability as a result of this case.
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LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 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.
15. Segments
Loral has two segments: satellite manufacturing and satellite services. Our segment reporting data includes unconsolidated
affiliates that meet the reportable segment criteria. The satellite services segment includes 100% of the results reported by Telesat for
the years ended December 31, 2010, 2009 and 2008. Although we analyze Telesat’s revenue and expenses under the satellite services
segment, we eliminate its results in our consolidated financial statements, where we report our 64% share of Telesat’s results as equity
in net income (losses) of affiliates. Our investment in XTAR, for which we use the equity method of accounting, is included in
Corporate.
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, amortization and stock-based compensation
(excluding stock-based compensation from SS/L Phantom SARs expected to be settled in cash) and directors’ indemnification expense
(“Adjusted EBITDA”) as the measure of a segment’s profit or loss. Adjusted EBITDA is equivalent to the common definition of
EBITDA before: asset impairment charges; gains or losses on litigation not related to our operations; other expense; and equity in net
income (losses) of affiliates.
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, asset impairment charges, gains or losses on litigation not related
to our operations, other expense and equity in net income (losses) of affiliates. 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.
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.
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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:
Segment Information
(In thousands)
2010
Year Ended December 31,
2009
(In thousands)
2008
Revenues
Satellite manufacturing:
External revenues
Intersegment revenues (1)
Satellite manufacturing revenues
Satellite services revenues (2)
Segment revenues before eliminations
Intercompany eliminations (3)
Affiliate eliminations (4)
Total revenues as reported
Segment Adjusted EBITDA
Satellite manufacturing
Satellite services (2)
Corporate (5)
Adjusted EBITDA before eliminations
Intercompany eliminations (3)
Affiliate eliminations (4)
Adjusted EBITDA
Reconciliation to Operating Income
Depreciation, Amortization and Stock-Based Compensation
Satellite manufacturing
Satellite services (2)
Corporate
Segment depreciation before affiliate eliminations
Affiliate eliminations (4)
Depreciation, amortization and stock-based compensation as reported
Directors’ indemnification expense (6)
Satellite manufacturing — impairment of goodwill (7)
Operating income (loss) as reported
Capital Expenditures
Satellite manufacturing
Satellite services (2)
Corporate
Segment capital expenditures before affiliate eliminations (8)
Affiliate eliminations (4)
Capital expenditures as reported
Total Assets (8)
Satellite manufacturing
Satellite services (9)
Corporate
Total Assets before affiliate eliminations
Affiliate eliminations (4)
Total assets as reported
$ 1,021,768
143,318
1,165,086
797,283
1,962,369
(6,101)
(797,283)
$ 1,158,985
$
$
$
$
143,076
606,651
(17,866 )
731,861
(1,465)
(606,651)
123,745
(34,675 )
(249,318)
(1,605)
(285,598)
249,318
(36,280 )
(6,857)
—
80,608
35,378
254,020
18,679
308,077
(254,020)
54,057
$
901,283
107,401
1,008,684
691,566
1,700,250
(15,284 )
(691,566)
993,400
$
$
785,534
95,913
881,447
685,187
1,566,634
(12,049 )
(685,187)
869,398
$
$
$
$
$
90,565
488,149
(21,371 )
557,343
(1,673 )
(488,149)
67,521
(44,203 )
(230,176)
(3,107 )
(277,486)
230,176
(47,310 )
—
—
20,211
26,426
231,654
17,131
275,211
(231,654)
43,557
$
$
$
$
45,055
436,514
(14,875 )
466,694
(1,569 )
(427,176)
37,949
(38,646 )
(220,843)
(5,342 )
(264,831)
220,843
(43,986 )
—
(187,940 )
(193,977)
53,883
255,506
10,676
320,065
(255,506)
64,559
As of December 31,
2010
2009
(In thousands)
$
920,647
5,605,239
538,464
7,064,350
(5,309,441 )
$ 1,754,909
$
863,866
5,202,785
181,485
6,248,136
(4,994,684 )
$ 1,253,452
(1)
(2)
Intersegment revenues include $137 million, $92 million and $84 million for the years ended December 31, 2010, 2009 and
2008, respectively, of revenue from affiliates.
Satellite services represents Telesat. Satellite services Adjusted EBITDA also includes approximately $9 million for the year
ended December 31, 2008, related to the distribution from a bankruptcy claim against a former customer of Loral Skynet.
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LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Represents the elimination of intercompany sales and intercompany Adjusted EBITDA for a satellite under construction by SS/L
for Loral.
Affiliate eliminations represent the elimination of amounts attributable to Telesat whose results are reported under the equity
method of accounting in our consolidated statements of operations (see Note 6).
Includes corporate expenses incurred in support of our operations and includes our equity investments in XTAR and Globalstar
service providers.
Represents indemnification expense, net of insurance recovery, in connection with defense costs incurred by MHR affiliated
directors in the Delaware shareholder derivative case (see Note 14).
During 2008, we determined that the implied fair value of SS/L goodwill had decreased below its carrying value, and we
recorded an impairment charge for the entire goodwill balance of $187.9 million to reflect this impairment.
Amounts are presented after the elimination of intercompany profit.
Includes $2.4 billion and $2.3 billion of satellite services goodwill related to Telesat as of December 31, 2010 and 2009,
respectively.
Revenue by Customer Location
The following table presents our revenues by country based on customer location for the years ended December 31, 2010, 2009
and 2008 (in thousands):
United States
Canada
Spain
Luxembourg
United Kingdom
Mexico
People’s Republic of China (including Hong Kong)
The Netherlands
France
Other
$
$
$
For the Year Ended December 31,
2009
534,294
92,094
85,499
61,673
101,499
22
54,677
59,509
344
3,789
993,400
2010
645,769
137,195
85,161
70,678
57,976
49,157
44,135
26,721
24,657
17,536
$ 1,158,985
2008
612,282
83,767
25,506
11,398
68,956
1,024
13,236
50,110
—
3,119
869,398
$
$
During 2010, five of our customers accounted for approximately 19%, 13%, 12%, 12% and 11% of our consolidated revenues.
During 2009, three of our customers accounted for approximately 22%, 16% and 10% of our consolidated revenues. During 2008,
four of our customers accounted for approximately 20%, 15%, 14% and 11% of our consolidated revenues.
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LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
16. Related Party Transactions
Transactions with Affiliates
Telesat
As described in Note 6, we own 64% of Telesat and account for our investment under the equity method of accounting.
In connection with the acquisition of our ownership interest in Telesat (which we refer to as the Telesat transaction), Loral and
certain of its subsidiaries, our Canadian partner, PSP and one of its subsidiaries, Telesat Holdco and certain of its subsidiaries,
including Telesat, and MHR entered into a Shareholders Agreement (the “Shareholders Agreement”). The Shareholders Agreement
provides for, among other things, the manner in which the affairs of Telesat Holdco and its subsidiaries will be conducted and the
relationships among the parties thereto and future shareholders of Telesat Holdco. The Shareholders Agreement also contains an
agreement by Loral not to engage in a competing satellite communications business and agreements by the parties to the Shareholders
Agreement not to solicit employees of Telesat Holdco or any of its subsidiaries. Additionally, the Shareholders Agreement details the
matters requiring the approval of the shareholders of Telesat Holdco (including veto rights for Loral over certain extraordinary
actions), provides for preemptive rights for certain shareholders upon the issuance of certain capital shares of Telesat Holdco and
provides for either PSP or Loral to cause Telesat Holdco to conduct an initial public offering of its equity shares if an initial public
offering is not completed by the fourth anniversary of the Telesat transaction. The Shareholders Agreement also restricts the ability of
holders of certain shares of Telesat Holdco to transfer such shares unless certain conditions are met or approval of the transfer is
granted by the directors of Telesat Holdco, provides for a right of first offer to certain Telesat Holdco shareholders if a holder of
equity shares of Telesat Holdco wishes to sell any such shares to a third party and provides for, in certain circumstances, tag-along
rights in favor of shareholders that are not affiliated with Loral if Loral sells equity shares and drag-along rights in favor of Loral in
case Loral or its affiliate enters into an agreement to sell all of its Telesat Holdco equity securities.
Under the Shareholders Agreement, in the event that, either (i) ownership or control, directly or indirectly, by Dr. Rachesky,
President of MHR, of Loral’s voting stock falls below certain levels or (ii) there is a change in the composition of a majority of the
members of the Loral Board of Directors over a consecutive two-year period, Loral will lose its veto rights relating to certain
extraordinary actions by Telesat Holdco and its subsidiaries. In addition, after either of these events, PSP will have certain rights to
enable it to exit from its investment in Telesat Holdco, including a right to cause Telesat Holdco 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 Telesat Holdco, to cause the sale of Telesat Holdco and to drag along the other shareholders in such sale, subject to
Loral’s right to call PSP’s shares at fair market value.
The Shareholders Agreement provides for a board of directors of each of Telesat Holdco and certain of its subsidiaries, including
Telesat, consisting of 10 directors, three nominated by Loral, three nominated by PSP and four independent directors to be selected by
a nominating committee comprised of one PSP nominee, one nominee of Loral and one of the independent directors then in office.
Each party to the Shareholders Agreement is obligated to vote all of its Telesat Holdco shares for the election of the directors
nominated by the nominating committee. Pursuant to action by the board of directors taken on October 31, 2007, Dr. Rachesky, who is
non-executive Chairman of the Board of Directors of Loral, was appointed non-executive Chairman of the Board of Directors of
Telesat Holdco and certain of its subsidiaries, including Telesat. In addition, Michael B. Targoff, Loral’s Vice Chairman, Chief
Executive Officer and President, serves on the board of directors of Telesat Holdco and certain of its subsidiaries, including Telesat.
As of December 31, 2010, SS/L had contracts with Telesat for the construction of the Telstar 14R, Nimiq 6 and Anik G1
satellites. Information related to satellite construction contracts with Telesat is as follows:
Revenues from Telesat satellite construction contracts
Milestone payments received from Telesat
$
2010
For Year Ended December 31,
2009
(In thousands)
92,095
$
89,419
$
137,195
168,130
2008
83,767
79,107
Amounts receivable by SS/L from Telesat related to satellite construction contracts as of December 31, 2010 and 2009 were nil
and $6.1 million, respectively.
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LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
On October 31, 2007, Loral and Telesat entered into a consulting services agreement (the “Consulting Agreement”). Pursuant to
the terms of the Consulting Agreement, Loral provides to Telesat certain non-exclusive consulting services in relation to the business
of Loral Skynet which was transferred to Telesat as part of the Telesat transaction as well as with respect to certain aspects of the
satellite communications business of Telesat. The Consulting Agreement has a term of seven years with an automatic renewal for an
additional seven year term if certain conditions are met. In exchange for Loral’s services under the Consulting Agreement, Telesat will
pay Loral an annual fee of US $5.0 million payable quarterly in arrears on the last day of March, June, September and December of
each year during the term of the Consulting Agreement. If the terms of Telesat’s bank or bridge facilities or certain other debt
obligations prevent Telesat from paying such fees in cash, Telesat may issue junior subordinated promissory notes to Loral in the
amount of such payment, with interest on such promissory notes payable at the rate of 7% per annum, compounded quarterly, from the
date of issue of such promissory note to the date of payment thereof. Our selling, general and administrative expenses for each of the
years ended December 31, 2010, 2009 and 2008, included income of $5.0 million related to the Consulting Agreement. We also had a
long-term receivable related to the Consulting Agreement from Telesat of $17.6 million and $11.6 million as of December 31, 2010
and 2009, respectively.
In connection with the Telesat transaction, Loral has indemnified Telesat for certain liabilities including Loral Skynet’s tax
liabilities arising prior to January 1, 2007. As of December 31, 2010 and 2009, we had recognized liabilities of approximately
$6.2 million representing our estimate of the probable outcome of these matters. These liabilities are offset by tax deposit assets of
$6.6 million relating to periods prior to January 1, 2007. There can be no assurance, however, that the eventual payments required by
us will not exceed the liabilities established.
ViaSat/Telesat
In connection with an agreement entered into between SS/L and ViaSat, Inc. (“ViaSat”) for the construction by SS/L for ViaSat
of a high capacity broadband satellite called ViaSat-1, on January 11, 2008, we entered into certain agreements, described below,
pursuant to which, we invested in the Canadian coverage portion of the ViaSat-1 satellite. Michael B. Targoff and another Loral
director serve as members of the ViaSat Board of Directors.
A Beam Sharing Agreement between us and ViaSat provides for, among other things, (i) the purchase by us of a portion of the
ViaSat-1 satellite payload providing coverage into Canada (the “Loral Payload”) and (ii) payment by us of 15% of the actual costs of
launch and associated services, launch insurance and telemetry, tracking and control services for the ViaSat-1 satellite. SS/L
commenced construction of the Viasat-1 satellite in January 2008. We recorded sales to ViaSat under this contract of $34.6 million
and $86.6 million for the years ended December 31, 2010 and 2009, respectively. Loral’s cumulative costs for the Loral Payload were
$40.5 million as of December 31, 2010, which is reflected as satellite capacity under construction in property, plant and equipment.
In February 2010, a subsidiary of Loral entered into a contract with ViaSat for the procurement of certain RF equipment and
services to be integrated into the gateways constructed and owned by Loral to enable commercial service using the Loral Payload. As
of December 31, 2010, the contract was valued at approximately $7.8 million before the exercise of options. Loral guaranteed the
financial obligations of the subsidiary that entered into the contract. As of December 31, 2010, Loral had paid $3.9 million under this
agreement.
In January 2010, we entered into a Consulting Services Agreement with Telesat for Telesat to provide services related to
gateway construction, regulatory and licensing support and preparation for satellite traffic operations for the Loral Payload. Payments
under the agreement were on a time and materials basis. As of December 31, 2010, $0.1 million had been expensed under this
agreement.
In September 2010, we entered into an agreement with Telesat for Telesat to provide us with project management, engineering
and integration services for three gateway sites including engineering and installation of the civil works, design and integration of the
shelters and associated shelter infrastructure and monitoring the delivery and installation of equipment. The agreement was valued at
approximately CAD 4.2 million. As of December 31, 2010, Loral had incurred cumulative costs under this agreement of $1.2 million.
On March 1, 2011, Loral entered into agreements (the “Assignment Agreements”) with Telesat pursuant to which Loral will
assign to Telesat and Telesat will assume from Loral all of Loral’s rights and obligations with respect to the Loral Payload and all
related agreements. Under the Assignment Agreements, Loral will receive from Telesat $13 million and will be reimbursed for
approximately $48.2 million of net costs incurred through closing of the sale, including costs for the satellite, launch and insurance,
and costs of the gateways and related equipment. Also, if Telesat obtains certain supplemental capacity on the payload, Loral will be
entitled to receive one-half of any net revenue actually earned by Telesat in connection with the leasing of such supplemental capacity
to its customers during the first four years after the commencement of service using the supplemental capacity. In connection with the
sale, Loral will also assign to Telesat and Telesat will assume Loral’s 15-year contract with Barrett Xplore Inc. for delivery of high
throughput satellite Ka-band capacity and gateway services for broadband services in Canada. The gain on the transaction adjusted for
our retained ownership interest will be recorded upon completion of the transaction which is expected to close in March 2011.
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LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Costs of satellite manufacturing for sales to related parties were $140.5 million and $153.5 million for the years ended
December 31, 2010 and 2009, respectively.
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, SS/L has provided ChinaSat with usage rights to two Ku-band transponders on Telesat’s Telstar
10 for the life of such transponders (subject to certain restoration rights) and to one Ku-band transponder on Telesat’s 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. Pursuant to an amendment to the agreement executed in June 2009, in lieu of rights to one of the Ku-band transponders on
Telstar 10, ChinaSat has rights to an equivalent amount of Ku-band capacity on Telstar 18 (the “Alternative Capacity”). The
Alternative Capacity may be utilized by ChinaSat until April 30, 2019 subject to certain conditions. Under the agreement, SS/L makes
monthly payments to Telesat for the transponders allocated to ChinaSat. Effective with the termination of Telesat’s leasehold interest
in Telstar 10 in July 2009, SS/L makes monthly payments with respect to capacity used by ChinaSat on Telstar 10 directly to APT, the
owner of the satellite. As of December 31, 2010 and 2009, our consolidated balance sheets included a liability of $6.0 million and
$8.7 million, respectively, for the future use of these transponders. For the year ended December 31, 2010, we made payments of
$3.1 million to Telesat pursuant to the agreement.
XTAR
As described in Note 6, we own 56% of XTAR, a joint venture between Loral and Hisdesat and account for our investment in
XTAR under the equity method of accounting. SS/L constructed XTAR’s satellite, which was successfully launched in February 2005.
XTAR and Loral have entered into a management agreement whereby Loral provides general and specific services of a technical,
financial, and administrative nature to XTAR. For the services provided by Loral, XTAR is charged a quarterly management fee equal
to 3.7% of XTAR’s quarterly gross revenues. Amounts due to Loral under the management agreement as of December 31, 2010 and
2009 were $3.0 million and $1.3 million, respectively. During the quarter ended March 31, 2008, Loral and XTAR agreed to defer
amounts owed to Loral under this agreement and XTAR has agreed that its excess cash balance (as defined), will be applied at least
quarterly towards repayment of receivables owed to Loral, as well as to Hisdesat and Telesat. Our selling, general and administrative
expenses included offsetting income to the extent of cash received under this agreement of nil, $1.2 million and $1.1 million for the
years ended December 31, 2010, 2009 and 2008, respectively.
MHR Fund Management LLC
Two of the managing principals of MHR, Mark H. Rachesky and Hal Goldstein, and a former managing principal of MHR, Sai
Devabhaktuni, are members of Loral’s board of directors. Prior to December 23, 2008, various funds affiliated with MHR held all
issued and outstanding shares of Loral Series-1 Preferred Stock which was issued in February 2007. Pursuant to an order of the
Delaware Chancery Court, on December 23, 2008, we issued to the MHR Funds 9,505,673 shares of Non-Voting Common Stock, and
all shares of Loral Series-1 Preferred Stock (including all PIK dividends) previously issued to the MHR Funds pursuant to the
Securities Purchase Agreement were cancelled.
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LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Also pursuant to the Delaware Chancery Court Order, on December 23, 2008, Loral and the MHR Funds entered into a
registration rights agreement which provides for registration rights for the shares of Non-Voting Common Stock, in addition and
substantially similar to, the registration rights provided for the shares of Voting Common Stock held by the MHR Funds. In
June 2009, Loral filed a shelf registration statement covering shares of Voting Common Stock and Non-Voting Common Stock held
by the MHR Funds, which registration statement was declared effective in July 2009. Various funds affiliated with MHR held, as of
December 31, 2010 and 2009, approximately 38.9% and 39.9%, respectively of the outstanding Voting Common Stock and as of
December 31, 2010 and 2009 had a combined ownership of Voting and Non-Voting Common Stock of Loral of 58.0% and 59.0%,
respectively. Information on dividends paid to the funds affiliated with MHR, with respect to their holdings of the Loral Series-1
Preferred Stock is as follows (in thousands, except share amounts):
Loral Series-1 Preferred Stock
Dividends paid in the form of additional shares
— Number of shares
— Amount
For Year Ended December 31,
2008
$
80,423
24,248
Funds affiliated with MHR were participants in a $200 million credit facility of Protostar Ltd. (“Protostar”), dated March 19,
2008, with an aggregate participation of $6.0 million. The MHR funds also owned certain equity interests in Protostar. During
July 2009, Protostar filed for bankruptcy protection under chapter 11 of the Bankruptcy Code. The United States Bankruptcy Court for
the District of Delaware entered an order confirming the plan of reorganization for Protostar and its affiliated debtors on October 6,
2010. The plan provided for the establishment of liquidating trusts for the Protostar debtors’ remaining assets, and Protostar
commenced distributions on October 21, 2010 to the agent under the above-referenced facility for the benefit of its lenders. The plan
of reorganization provided for no recovery by holders of equity interests in Protostar, and all equity interests were deemed cancelled
as of the effective date of the plan.
Pursuant to a contract with Protostar valued at $26 million, SS/L has modified a satellite that Protostar acquired from China
Telecommunications Broadcast Satellite Corporation, China National Postal and Telecommunication Broadcast Satellite Corporation
and China National Postal and Telecommunications Appliances Corporation under an agreement reached in 2006. This satellite,
renamed Protostar I, was launched on July 8, 2008. Pursuant to a bankruptcy auction, Protostar I was sold in November 2009. For the
year ended December 31, 2008, we recorded sales to Protostar of $15.3 million, and, during 2009, as a result of Protostar’s bankruptcy
process and the sale of the satellite, SS/L recorded a charge of approximately $3 million to increase its allowance for billed receivables
from Protostar.
As of December 31, 2010, funds affiliated with MHR hold $83.7 million in principal amount of Telesat 11% Senior Notes and
$29.75 million in principal amount of Telesat 12.5% Senior Subordinated Notes.
17. Selected Quarterly Financial Information (unaudited, in thousands, except per share amounts)
Quarter Ended
Year ended December 31, 2010
Revenues
Operating income (loss)
Income (loss) before income taxes and equity in net
income (losses) of affiliates
Equity in net income (losses) of affiliates
Net income (loss)
Net income (loss) attributable to Loral common
shareholders
Basic and diluted income (loss) per share (1) :
Basic income (loss) per share
Diluted income (loss) per share
March 31,
228,914
(16,267 )
$
$
June 30,
September 30, December 31,
326,671
34,156
323,438
39,621
$
$
279,962
23,098
(13,704 )
44,592
29,373
26,355
(44,374 )
(19,665 )
41,462
40,011
72,392
38,981
45,396
405,241
29,373
(19,665 )
72,392
404,746
0.98
0.97
(0.66 )
(0.66 )
2.40
2.29
13.36
12.87
F-54
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Quarter Ended
Year ended December 31, 2009
Revenues
Operating income (loss)
Income (loss) before income taxes and equity in net
income (losses) of affiliates
Equity in net income (losses) of affiliates
Net income (loss)
Net income (loss) attributable to Loral common
shareholders
Basic and diluted income (loss) per share (1) :
Basic income (loss) per share
Diluted income (loss) per share
March 31,
212,491
(5,480 )
$
$
June 30,
September 30, December 31,
260,225
18,537
249,237
14,849
$
$
271,447
(7,695 )
(5,180 )
(5,668 )
(10,828 )
(4,563 )
85,276
74,295
16,012
93,071
108,424
20,706
37,619
59,811
(10,828 )
74,295
108,424
59,811
(0.36 )
(0.36 )
2.50
2.48
3.64
3.61
2.01
1.97
(1)
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.
F-55
Table of Contents
LORAL SPACE & COMMUNICATIONS INC.
VALUATION AND QUALIFYING ACCOUNTS
For the Year Ended December 31, 2010, 2009 and 2008
(In thousands)
SCHEDULE II
Description
Year ended 2008
Allowance for billed receivables
Inventory allowance
Deferred tax valuation allowance
Year ended 2009
Allowance for billed receivables
Inventory allowance
Deferred tax valuation allowance
Year ended 2010
Allowance for billed receivables
Inventory allowance
Deferred tax valuation allowance
Balance at Charged to
Costs and
Beginning
Expenses
of Period
Charged to Deductions
Other
From
Accounts (1) Reserves (2)
Balance at
End of
Period
Additions
$
$
$
$
$
$
$
$
$
223
28,446
241,228
923
27,200
487,762
3,682
28,297
414,038
$
$
$
$
$
$
$
$
$
700
—
202,510
2,759
1,042
(96,617 )
—
4,297
(402,809 ) (3)
$
$
$
$
$
$
$
$
$
—
—
82,611
—
55
22,893
—
—
—
$
$
$
$
$
$
$
$
$
—
(1,246 )
(38,587 )
—
—
—
(3,459 )
(1,224 )
—
$
$
$
$
$
$
$
$
$
923
27,200
487,762
3,682
28,297
414,038
223
31,370
11,229
(1)
(2)
(3)
The allowance for long-term receivables is recorded as a reduction to revenues. Changes in the deferred tax valuation allowance
which have been charged to other accounts have been recorded in accumulated other comprehensive income (loss), goodwill and
other deferred tax assets.
Deductions from reserves reflect write-offs of uncollectible billed receivables, disposals of inventory and reversal of excess
deferred tax valuation allowance recorded as a reduction to goodwill.
During the fourth quarter of 2010, we determined, based on all available evidence, that a full valuation allowance was no longer
required on our deferred tax assets and, therefore, $335.3 million of the valuation allowance was reversed as an income tax
benefit. In addition, the valuation allowance was reduced by $67.5 million recorded as benefit to continuing operations.
F-56
Table of Contents
To the Board of Directors and Shareholders of Telesat Holdings Inc.
Report of Independent Registered Chartered Accountants
We have audited the accompanying consolidated financial statements of Telesat Holdings Inc. and subsidiaries (the “Company”),
which comprise the consolidated balance sheets as at December 31, 2010 and 2009, and the consolidated statements of earnings (loss),
shareholders’ equity, comprehensive income (loss) and cash flows for each of the years in the three-year period ended December 31,
2010, and a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with
Canadian generally accepted accounting principles and for such internal control as management determines is necessary to enable the
preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in
accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we comply with ethical requirements and plan and perform an audit to obtain
reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement
of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal
control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of
accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Telesat Holdings
Inc. and subsidiaries as at December 31, 2010 and 2009, and the results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 2010 in accordance with Canadian generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Independent Registered Chartered Accountants
Licensed Public Accountants
March 1, 2011
Toronto, Canada
F-57
Table of Contents
Telesat Holdings Inc.
Consolidated Statements of Earnings (Loss)
for the years ended December 31,
(in thousands of Canadian dollars)
Operating revenues
Service revenues
Equipment sales revenues
Total operating revenues
Amortization
Operations and administration
Cost of equipment sales
Impairment loss on long-lived assets
Impairment loss on intangible assets
Total operating expenses
Earnings (loss) from operations
Notes
2010
2009
2008
(4)
(10)
(11)
801,144
20,217
821,361
251,194
186,467
15,575
—
—
453,236
368,125
767,138
20,060
787,198
256,867
219,690
16,380
—
—
492,937
294,261
680,791
30,584
711,375
235,640
247,550
24,368
2,373
483,000
992,931
(281,556)
Interest expense
(Loss) gain on changes in fair value of financial
instruments
Gain (loss) on foreign exchange
Other income (expense)
Earnings (loss) before income taxes
Income tax (expense) recovery
(5), (18)
(253,086)
(272,780)
(257,313)
(18)
(18)
(6)
(7)
(11,168 )
163,998
(116,992)
499,366
241,720
(697,288)
4,339
31,859
(1,713 )
272,208
(44,017 )
435,714
(4,949 )
(996,150)
164,879
Net earnings (loss)
228,191
430,765
(831,271)
Net earnings (loss) applicable to common shares
228,191
430,765
(831,271)
See accompanying notes to the consolidated financial statements
F-58
Table of Contents
Telesat Holdings Inc.
Consolidated Statements of Comprehensive Income (Loss)
for the years ended December 31,
(in thousands of Canadian dollars)
Net earnings (loss)
2010
228,191
2009
430,765
2008
(831,271)
Other comprehensive income (loss):
Unrealized foreign currency translation gains (losses) of self sustaining
foreign operations, net of related taxes (2010 — nil, 2009 — $346, 2008
— ($2,090))
Comprehensive income (loss)
1,215
229,406
320
431,085
(7,143 )
(838,414)
See accompanying notes to the consolidated financial statements
F-59
Table of Contents
Telesat Holdings Inc.
Consolidated Statements of Shareholders’ Equity
Accumulated
deficit and
Accumulated Accumulated
other
other
Total
Common Preferred Accumulated comprehensive comprehensive Contributed shareholders’
Notes shares Shares
deficit
loss
loss
surplus
equity
(in thousands of
Canadian dollars)
Balance at January 1,
2008
Stock-based
756,414 541,764
(4,051 )
(599)
(4,650)
—
1,293,528
compensation
(19)
—
—
—
—
—
(831,271 )
—
—
—
(831,271)
5,448
—
5,448
(831,271 )
Net loss
Unrealized foreign
currency
translation losses
on translation of
self sustaining
foreign
operations
Balance at December
31, 2008
Stock based
Net earnings
Unrealized foreign
currency
translation gains
on translation of
self-sustaining
foreign
operations
Balance at December
31, 2009
Stock based
Net earnings
Dividends declared
on preferred
shares
Unrealized foreign
currency
translation gains
on translation of
self-sustaining
foreign
operations
Balance at December
31, 2010
—
—
—
(7,143 )
(7,143)
—
(7,143 )
756,414 541,764
(835,322 )
(7,742)
(843,064)
5,448
460,562
compensation
(19)
—
—
—
—
—
430,765
—
—
—
430,765
5,649
—
5,649
430,765
—
—
—
320
320
—
320
756,414 541,764
(404,557 )
(7,422)
(411,979)
11,097
897,296
compensation
(19)
—
—
—
—
—
228,191
—
—
—
228,191
5,653
—
5,653
228,191
—
—
(30 )
—
(30 )
—
(30 )
—
—
—
1,215
1,215
—
1,215
756,414 541,764
(176,396 )
(6,207)
(182,603)
16,750
1,132,325
See accompanying notes to the consolidated financial statements
F-60
Table of Contents
Telesat Holdings Inc.
Consolidated Balance Sheets
as at December 31,
(in thousands of Canadian dollars)
Assets
Current assets
Cash and cash equivalents
Accounts receivable, net
Current future tax asset
Other current assets
Total current assets
Satellites, property and other equipment, net
Other long-term assets
Intangible assets, net
Goodwill
Total assets
Liabilities
Current liabilities
Accounts payable and accrued liabilities
Other current liabilities
Debt due within one year
Total current liabilities
Debt financing
Future tax liability
Other long-term liabilities
Senior preferred shares
Total liabilities
Shareholders’ equity
Common shares (74,252,460 common shares issued and outstanding)
Preferred shares
Accumulated deficit
Accumulated other comprehensive loss
Contributed surplus
Total shareholders’ equity
Total liabilities and shareholders’ equity
Notes
2010
2009
(8)
(7)
(9)
(4), (10)
(9), (18)
(11)
(11)
(12)
(13)
(13), (18)
(7)
(12)
(14)
(15)
(15)
(18)
(19)
220,295
44,109
1,900
26,476
292,780
1,994,122
112,816
461,060
2,446,603
5,307,381
154,189
70,203
2,184
29,018
255,594
1,926,190
56,924
510,675
2,446,603
5,195,986
49,906
128,296
96,848
275,050
2,771,802
310,552
676,217
141,435
4,175,056
756,414
541,764
1,298,178
(176,396)
(6,207 )
(182,603)
16,750
1,132,325
5,307,381
43,413
127,704
23,602
194,719
3,021,820
269,193
671,523
141,435
4,298,690
756,414
541,764
1,298,178
(404,557)
(7,422 )
(411,979)
11,097
897,296
5,195,986
See accompanying notes to the consolidated financial statements
F-61
Table of Contents
Telesat Holdings Inc.
Consolidated Statements of Cash Flows
for the years ended December 31,
(in thousands of Canadian dollars)
Cash flows from operating activities
Net (loss) earnings
Notes
2010
2009
2008
228,191
430,765
(831,271)
Adjustments to reconcile net earnings (loss) to cash flows
from operating activities:
Amortization
Future income taxes
Unrealized foreign exchange (gain) loss
Unrealized loss (gain) on derivatives
Dividends on senior preferred shares
Stock-based compensation expense
(Gain) loss on disposal of assets
Impairment losses
Other
(18)
(18)
(5)
(19)
(6)
Customer prepayments on future satellite services
Customer refunds
Operating assets and liabilities
(16)
Cash flows used in investing activities
Satellite programs
Property additions
Proceeds on disposals of assets
Insurance proceeds
Cash flows from financing activities
Debt financing
Repayment of debt financing
Capitalized debt issuance costs
Dividends paid on preferred shares
Capital lease payments
Satellite performance incentive payments
Effect of changes in exchange rates on cash and cash
equivalents
Increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Supplemental disclosure of cash flow information
Interest paid
Income taxes paid
(16)
251,194
41,738
256,867
4,598
(170,048)
13,955
2,075
5,653
(3,826)
—
(25,098 )
30,982
—
(30,006 )
344,810
(522,636)
116,992
13,540
5,649
(33,430 )
—
(46,803 )
82,966
(17,566 )
7,203
298,145
235,640
(175,951)
694,677
(237,965)
9,855
5,448
252
485,373
(44,447 )
88,587
—
48,859
279,057
(257,725)
(258,083)
(263,763)
(3,966)
(6,118 )
(8,862 )
26,926
—
(234,765)
71,400
—
(192,801)
5,120
4,006
(263,499)
—
(34,946 )
23,880
(53,855 )
—
(30 )
—
—
186,687
(91,560 )
(19,131 )
—
(3,306)
(14,620 )
(30,954 )
(5,099)
(43,381 )
(558 )
66,106
154,189
220,295
281,525
3,391
284,916
(5,418 )
(50,013 )
319
55,650
98,539
154,189
287,733
6,499
294,232
(3,524 )
41,518
(740 )
56,336
42,203
98,539
286,784
8,866
295,650
See accompanying notes to the consolidated financial statements
F-62
Table of Contents
Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
1. BACKGROUND OF THE COMPANY AND BASIS OF PRESENTATION
Telesat Holdings Inc. (“the Company” or “Telesat”) is a global fixed satellite services operator providing secure satellite-
delivered communications solutions worldwide to broadcast, telecom, corporate and government customers. The Company has a fleet
of 12 satellites with three more under construction, and manages the operations of additional satellites for third parties. Telesat is
headquartered in Ottawa, Canada, with offices and facilities around the world.
On October 31, 2007 Canada’s Public Sector Pension Investment Board (“PSP Investments”) and Loral Space &
Communications Inc. (“Loral”), through a newly formed entity called Telesat Holdings Inc. completed the acquisition of Telesat
Canada from BCE Inc. (“BCE”). Loral and PSP Investments indirectly hold an economic interest in Telesat of 64% and 36%,
respectively. Loral indirectly holds a voting interest of 33 1/3% on all matters. PSP Investments indirectly holds a voting interest of 66
2/3% on all matters except for the election of directors, and a 30% voting interest for the election of directors.
These consolidated financial statements reflect the financial statements of Telesat Holdings Inc. and its subsidiaries on a
consolidated basis. The consolidated financial statements have been prepared in accordance with Canadian generally accepted
accounting principles (“GAAP”) and include the results of Telesat’s wholly owned subsidiaries, the most significant of which are:
Telesat Interco Inc., Telesat Canada, Infosat Communications GP Inc. (“Infosat”), Able Infosat Communications Inc. (“Able”), The
SpaceConnection, Inc. (“SpaceConnection”), Skynet Satellite Corporation (“SSC”), Telesat Network Services, Inc. (“TNSI”), and
Telesat Brasil Capacidade de Satelites Ltda. (“TBCS”). All transactions and balances between these companies have been eliminated
on consolidation.
2. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
When preparing financial statements in accordance with GAAP, management makes estimates and assumptions relating to the
reported amounts of revenues and expenses, assets and liabilities and the disclosure of contingent assets and liabilities. Telesat bases
its estimates on a number of factors, including historical experience, current events and actions that the Company may undertake in the
future, and other assumptions that the Company believes are reasonable under the circumstances. Actual results could differ from
those estimates under different assumptions or conditions. The Company uses estimates when accounting for certain items such as
revenues, allowance for doubtful accounts, useful lives of long-lived assets, capitalized interest, asset impairments, inventory
valuation, legal and tax contingencies, employee compensation plans, employee benefit plans, evaluation of minimum lease terms for
operating leases, income taxes, fair valuation of financial instruments, goodwill and intangible asset impairments. The Company also
uses estimates when recording the fair values of assets acquired and liabilities assumed in a business combination.
Revenue Recognition
Telesat recognizes operating revenues when earned, as services are rendered or as products are delivered to customers. There
must be clear proof that an arrangement exists, the amount of revenue must be fixed or determinable and collectability must be
reasonably assured. Consulting revenues for cost plus contracts are recognized after the work has been completed and accepted by the
customer. The percentage of completion method is used for fixed price consulting revenue contracts. Deferred revenues consist of
remuneration received in advance of the provision of service and are recognized in income on a straight-line basis over the term of the
related customer contract. When it is questionable whether or not Telesat is the principal in a transaction, the transaction is evaluated
to determine whether it should be recorded on a gross or net basis.
F-63
Table of Contents
Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
2. SIGNIFICANT ACCOUNTING POLICIES — (continued)
Equipment sales revenues are recognized when the equipment is delivered to and accepted by the customer. Only equipment
sales are subject to warranty or return and there is no general right of return. Historically Telesat has not incurred significant expense
for warranties and consequently no provision for warranty is recorded. When a transaction involves more than one product or service,
revenue is allocated to each deliverable based on its relative fair value with product revenue recognized once delivery and customer
acceptance has occurred and service revenue recognized as services are provided over the term of the customer contract.
Lease contracts that qualify for capital lease treatment are accounted for as sales-type leases. Sales-type leases are those where
substantially all of the benefits and risks of ownership are transferred to the customer. Sales revenue recognized at the inception of the
lease represents the present value of the minimum lease payments net of any executory costs, computed at the interest rate implicit in
the lease. Unearned finance income, effectively the difference between the total minimum lease payments and the aggregate present
value, is deferred and recognized in earnings over the lease term to produce a constant rate of return on the investment in the lease.
The net investment in the lease includes the minimum lease payments receivable less the unearned finance income.
Cash and Cash Equivalents
All highly liquid investments with an original maturity of 90 days or less are classified as cash and cash equivalents.
Inventories
Inventories are valued at the lower of cost or net realizable value and consist of work in process and finished goods. Cost for
substantially all network equipment inventories is determined on an average cost basis. Cost for work in process and certain one-of-a-
kind finished goods is determined using the specific identification method.
Satellites, Property and Other Equipment
Satellites, property and other equipment, which are carried at cost, less accumulated amortization, include the contractual cost of
equipment, capitalized engineering and, with respect to satellites, the cost of launch services, launch insurance and capitalized interest
during construction. Capitalized interest is based on the Company’s average cost of debt.
Amortization is calculated using the straight line method over the respective estimated service lives of the assets. Below are the
estimated useful lives in years of satellites, property and other equipment as of December 31, 2010.
Satellites
Transponders under capital lease
Earth stations
Office buildings and other
Years
6 to 15
6 to 14
5 to 30
3 to 30
The estimates of useful lives are reviewed every year and adjusted prospectively if necessary.
Liabilities related to the legal obligation of retiring satellites, property and other equipment are measured at fair value with a
corresponding increase to the carrying amount of the related long-lived asset. The liability is accreted over the period of expected cash
flows with a corresponding charge to operating expenses. The liabilities recorded to date have not been significant and are reassessed
annually.
F-64
Table of Contents
Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
2. SIGNIFICANT ACCOUNTING POLICIES — (continued)
In the event of an unsuccessful launch or total in-orbit satellite failure, all unamortized costs that are not recoverable under
launch or in-orbit insurance are recorded as an operating expense.
The investment in each satellite will be removed from the property accounts when the satellite has been fully amortized and is no
longer in service. When other property is retired from operations at the end of its useful life, the amount of the investment and
accumulated amortization are removed from the accounts. Earnings are credited with the amount of any net salvage and charged with
any net cost of removal. When an item is sold prior to the end of its useful life, the gain or loss is recognized in earnings immediately.
Leases
Leases entered into by the Company in which substantially all of the benefits and risks of ownership are transferred to the
Company are recorded as capital lease liabilities, and the corresponding asset is recorded in satellites, property and other equipment.
Capital lease liabilities reflect the present value of future lease payments, discounted at an appropriate interest rate, and are reduced by
rental payments net of imputed interest. Satellites, property and other equipment under capital leases are depreciated based on the
useful life of the asset. All other leases are classified as operating leases and leasing costs, including leasehold incentives, and rent
concessions, are expensed on a straight-line basis over the lease term.
Impairment of Long-Lived Assets
Long-lived assets, including finite life intangible assets and satellites, property and other equipment, are assessed for impairment
when events or changes in circumstances indicate that the carrying value exceeds the total undiscounted cash flows expected from the
use and disposition of the assets. If impairment is indicated, the loss is determined by deducting the asset’s fair value (based on
discounted cash flows expected from its use and disposition) from its carrying value and is recorded as an operating expense.
Translation of Foreign Currencies
Assets and liabilities denominated in foreign currencies are translated into Canadian dollars at the exchange rates in effect as of
the balance sheet date. Operating revenues and expenses, and interest on debt transacted in foreign currencies are reflected in the
financial statements using the average exchange rates during the period. The translation gains and losses are included in gain (loss) on
foreign exchange in the statement of earnings.
For those subsidiaries considered to be self-sustaining foreign operations, assets and liabilities are translated at the exchange rate
in effect on the balance sheet date, and revenues and expenses are translated at average exchange rates during the year. The resulting
unrealized gains or losses are reflected as a component of other comprehensive income (“OCI”).
For those subsidiaries considered to be integrated foreign operations, non-monetary assets and liabilities are translated at their
historical exchange rates and monetary assets and liabilities are translated at the exchange rate in effect on the balance sheet date, and
revenues and expenses are translated at average exchange rates during the year. The resulting unrealized gains or losses are reflected
as a component of net earnings.
Financing costs
The deferred financing cost related to the revolving credit facility and Canadian term loan are included in deferred charges in
Other assets and are amortized to interest expense on a straight-line basis. All other financing costs are amortized to interest expense
using the effective interest method.
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Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
2. SIGNIFICANT ACCOUNTING POLICIES — (continued)
Financial Instruments
Telesat uses derivative financial instruments to manage its exposure to foreign exchange rate risk associated with anticipated
purchases and with debt denominated in foreign currencies, as well as to reduce its exposure to interest rate risk associated with debt.
The Company’s risk management policy does not permit the use of derivative financial instruments for speculative purposes.
Currently, Telesat does not designate any of its derivative financial instruments as hedging instruments for accounting purposes. All
realized and unrealized gains and losses on these derivative financial instruments are recorded in the statement of earnings.
Telesat classifies investments as held-for-trading, if they are acquired principally for the purpose of selling or repurchasing in the
near term or are part of a portfolio of financial instruments that is managed for short term profit taking. Derivatives are also classified
as held-for-trading unless designated as hedging instrument.
Financial assets and financial liabilities that are classified as held-for-trading (“HFT”) and available-for-sale (“AFS”) are
measured at fair value. AFS equity securities which do not have a quoted market price will continue to be recorded at cost. Loans and
receivables and other liabilities are recorded at amortized cost. Derivatives, including embedded derivatives that must be separately
accounted for, are measured at fair value at inception with a corresponding increase in the financial liability, recorded on the
consolidated balance sheet and marked to market at each reporting period thereafter. Derivatives embedded in other financial
instruments are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contract
and the host contract are measured separately according to its characteristics. The unrealized gains and losses relating to the HFT
assets and liabilities are recorded in the consolidated statement of earnings. Unrealized gains and losses on assets and liabilities
classified as AFS are recorded in OCI until realized, at which time they are recognized in the consolidated statement of earnings.
Changes in the fair values of derivative instruments are recognized in the consolidated statement of earnings.
The Company has chosen to account for embedded foreign currency derivatives in a host contract as a single instrument where
the contract requires payments denominated in the currency that is commonly used in contracts to procure non-financial items in the
economic environment in which Telesat transacts.
Transaction costs are expensed as incurred for financial instruments classified or HFT or AFS.
Goodwill and Other Intangible Assets
The Company accounts for business combinations using the purchase method of accounting, which establishes specific criteria
for the recognition of intangible assets separately from goodwill. The excess of the cost of acquisition over the fair value of net assets
acquired, including both tangible and intangible assets, has been allocated to goodwill. For goodwill and intangible assets with
indefinite useful lives, an assessment for impairment is undertaken annually, or whenever events or changes in circumstances indicate
that the carrying amount of these assets is likely to exceed their fair value. The Company considers orbital slots and trade names to be
indefinite lived intangible assets.
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Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
2. SIGNIFICANT ACCOUNTING POLICIES — (continued)
Finite-lived intangible assets consist of revenue backlog, customer relationships, favourable leases, concession rights,
transponder rights and patents. Intangible assets with finite useful lives are amortized over their estimated useful lives using the
straight-line method of amortization. Below are the estimated useful lives of the finite-lived intangible assets:
Revenue backlog
Customer relationships
Favorable leases
Concession rights
Transponder rights
Patents
Years
4 to 17
11 to 21
4 to 5
15
5 to 14
18
The estimates of useful lives are reviewed every year and adjusted prospectively if necessary.
Goodwill is tested for impairment using a two-step process. The first step of the impairment assessment is to compare the fair
value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying
amount, there is no goodwill impairment and the assessment is complete. However, if the carrying amount of the reporting unit
exceeds its fair value, it indicates impairment may exist and step two of the impairment test must be conducted. In the second step of
the impairment test, the implied fair value of the reporting unit’s goodwill is compared to its carrying value. If the carrying amount of
the reporting unit’s goodwill exceeds the implied fair value, an impairment loss is recognized.
In performing the first step of the goodwill impairment analysis, the Company used the income approach as well as the market
approach in the determination of the fair value of the reporting unit. Under the income approach, the sum of the projected discounted
cash flows for the next five years in addition to a terminal value are used to determine the fair value of the reporting unit. In this
model, significant assumptions used include: revenues, expenses, capital expenditures, working capital, terminal growth rate and
discount rate.
Under the market based approach, the fair value of the reporting unit is determined based on market multiples derived from
comparable public companies. As part of that analysis, assumptions are made regarding comparability of selected companies including
revenue, earnings before interest, taxes, depreciation and amortization multiples for valuation purposes, growth rates, size and overall
profitability.
Deferred Revenues
Deferred revenues represent the Company’s liability for the provision of future services and are classified on the balance sheet in
other current liabilities and other long-term liabilities. The deferred amount is brought into income over the period of service to which
it applies.
Deferred Satellites Performance Incentive Payments
Deferred satellite performance incentive payments are obligations payable to satellite manufacturers over the lives of the Nimiq
1, Nimiq 4, Nimiq 5, Anik F1, Anik F2, Anik F3 and Anik F1R satellites. The present value of the payments is capitalized as part of
the cost of the satellite and charged against operations as part of the amortization of the satellite.
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Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
2. SIGNIFICANT ACCOUNTING POLICIES — (continued)
Employee Benefit Plans
Telesat maintains one contributory and three non-contributory defined benefit pension plans which provide benefits based on
length of service and rate of pay. Telesat is responsible for adequately funding these defined benefit pension plans. Contributions are
made based on various actuarial cost methods that are permitted by pension regulatory bodies and reflect assumptions about future
investment returns, salary projections and future service benefits. Telesat also provides other post-employment and retirement
benefits, including health care and life insurance benefits on retirement and various disability plans, workers compensation and
medical benefits to former or inactive employees, their beneficiaries and covered dependents, after employment but before retirement,
under certain circumstances. The Company accrues its obligations under employee benefit plans and the related costs, net of plan
assets. Pension costs and other retirement benefits are determined using the projected benefit method prorated on service and
management’s best estimate of expected investment performance, salary escalation, retirement ages of employees and expected health
care costs.
Pension plan assets are valued at fair value which is also the basis used for calculating the expected rate of return on plan assets.
The discount rate is based on the market interest rate of high quality long-term bonds. Past service costs arising from plan amendments
are amortized on a straight-line basis over the average remaining service period of the active employees at the date of amendment. The
Company deducts 10% of the benefit obligation or the fair value of plan assets, whichever is greater, from the net actuarial gain or loss
and amortizes the excess over the average remaining service period of active employees. A valuation is performed at least every three
years to determine the present value of the accrued pension and other retirement benefits. The 2010 and 2009 pension expense
calculations are extrapolated from a valuation performed as of January 1, 2007. The accrued benefit obligation is extrapolated from an
actuarial valuation as of January 1, 2007. The most recent valuation of the pension plans for funding purposes was as of January 1,
2010, and the next required valuation is as of January 1, 2011.
In addition, Telesat provides certain health care and life insurance benefits for retired employees and dependents of Skynet.
These benefits are funded primarily on a pay-as-go basis, with the retiree generally paying a portion of the cost through contributions,
deductibles and co-insurance provisions.
Stock-Based Compensation Plans
The Company introduced a stock incentive plan for certain key employees in 2008 and has adopted the fair-value based method
for measuring the compensation cost of employee stock options using the Black-Scholes pricing model.
Income Taxes
Current income tax expense is the estimated income taxes payable for the current year after any refunds or the use of losses
incurred in previous years. The Company uses the liability method to account for future income taxes. Future income taxes reflect:
•
the temporary differences between the carrying amounts of assets and liabilities for accounting purposes and the amounts
used for tax purposes; and
•
the benefit of unutilized tax losses that will more likely than not be realized and carried forward to future years to reduce
income taxes.
The Company estimates future income taxes using the rates enacted by tax law and those substantively enacted. The effect of a
change in tax rates on future income tax assets and liabilities is included in earnings in the period when the change is substantively
enacted.
Recent Accounting Pronouncements
Changes in Accounting Policies
The Company has prepared the consolidated financial statements in accordance with Canadian GAAP using the same basis of
presentation and accounting policies as outlined in notes 1 and 2 to the consolidated financial statements for the year ended
December 31, 2009. There were no new accounting policies adopted in the current fiscal year.
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Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
2. SIGNIFICANT ACCOUNTING POLICIES — (continued)
Future Accounting Policies
The Canadian Institute of Chartered Accountants’ Accounting Standards Board confirmed in February 2008 that International
Financial Reporting standards (“IFRS”) will replace Canadian GAAP for publicly accountable enterprises for financial periods
beginning on and after January 1, 2011. IFRS is premised on a conceptual framework similar to Canadian GAAP. However,
significant differences exist in certain matters of recognition, measurement and disclosure. The Company adopted IFRS with a
transition date of January 1, 2010 and is required to report using the IFRS standards effective for interim and annual financial
statements relating to fiscal years beginning on or after January 1, 2011. While the adoption of IFRS will not change the cash flows
generated by the Company, it will result in changes to the reported financial position and results of operations of the Company, the
effects of which may be material.
3. BUSINESS ACQUISITIONS
Fifth Dimension Television Acquisition
On May 9, 2008, SpaceConnection completed the acquisition of the assets of Fifth Dimension Television, with the effective date
of the agreement being April 1, 2008. The purchase price is based on a profit-sharing arrangement for a percentage of future monthly
occasional use revenues collected, as well as a percentage of future margins on certain space only customer contracts, from the
effective date of the acquisition until December 31, 2010, and will not exceed $0.8 million. Profit-sharing payments of $0.2 million
have been expensed in Operations and administration in the year ended December 31, 2010 (2009 — $0.3 million, 2008 —
$0.2 million).
4. SEGMENTED INFORMATION
Telesat operates in a single industry segment, in which it provides satellite-based services to its broadcast, enterprise and
consulting customers around the world.
The Company derives revenues from the following services:
— Broadcast — distribution or collection of video and audio signals in the North American and International markets which
include television transmit and receive services, occasional use, bundled Digital Video Compression and radio services.
— Enterprise — provision of satellite capacity and ground network services for voice, data, and image transmission and
internet access around the world.
— Consulting and other — all consulting services related to space and earth segments, government studies, satellite control
services and R&D.
Revenues derived from the above service lines were as follows:
Revenues
Year ended December 31,
Broadcast
Enterprise
Consulting and other
Total operating revenues
2010
454,216
334,983
32,162
821,361
2009
406,712
349,530
30,956
787,198
2008
345,382
333,834
32,159
711,375
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Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
4. SEGMENTED INFORMATION — (continued)
Geographic Information
Revenue by geographic region was based on the point of origin of the revenues (destination of the billing invoice) and upon the
groupings of countries reviewed by the Chief Operating Decision Maker, allocated as follows:
Revenues
Year ended December 31,
Canada
United States
Europe, Middle East & Africa
Asia, Australia
Latin America & Caribbean
Total operating revenues
2010
419,032
261,136
77,031
16,268
47,894
821,361
2009
397,225
254,685
66,028
23,976
45,284
787,198
2008
357,937
240,505
47,014
33,768
32,151
711,375
Telesat’s satellites are in geosynchronous orbit. For disclosure purposes, the Anik and Nimiq satellites, along with the Telstar
14R/Estrela do Sul 2 satellite under construction, have been classified as located in Canada, and the other Telstar satellites have been
classified as located in the United States, based on ownership. Satellites, property and other equipment by geographic region, based on
the location of the asset, are allocated as follows:
Satellites, property and other equipment
At December 31,
Canada
United States
all others
Total satellites, property and other equipment
Intangibles
At December 31,
Canada
United States
all others
Total intangible assets
2010
1,644,049
342,941
7,132
1,994,122
2009
1,519,663
397,956
8,571
1,926,190
2010
443,945
14,406
2,709
461,060
2009
492,435
15,505
2,735
510,675
Goodwill was not allocated to geographic regions in any of the periods.
Major Customers
For the year ended December 31, 2010, the Company had two customers generating more than 10% of consolidated revenues
each. For the year ended December 31, 2009, the Company had one customer generating more than 10% of consolidated revenues. For
the year ended December 31, 2008, the Company had two customers generating more than 10% of consolidated revenues each.
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Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
5. INTEREST EXPENSE
Year ended December 31,
Debt service costs
Dividends on senior preferred shares
Capitalized interest
6. OTHER INCOME (EXPENSE)
Year ended December 31,
Interest income
Interest on performance incentive payments
Other (a)
2010
255,391
12,339
(14,644 )
253,086
2009
278,644
13,540
(19,404 )
272,780
2008
286,466
9,855
(39,008 )
257,313
2010
2009
2008
1,937
(5,016)
7,418
4,339
636
(4,642 )
35,865
31,859
1,888
(4,057 )
456
(1,713 )
(a) On December 15, 2010, the Company sold its land, building and certain equipment used at its corporate headquarters. Proceeds
on the sale were $18.5 million and the resulting gain of $2.8 million was included in Other. During the year, additional asset
disposals resulted in gains of $1.0 million which were included in Other.
On July 9, 2009, the Company terminated its leasehold interest in the Telstar 10 satellite and transferred certain related customer
contracts. The satellite and related revenue backlog and customer relationships were transferred for total consideration of
$80 million, of which approximately $8 million represented deferred payments collected during the current period. The gain of
$34.6 million was included in Other.
In May 2009, Telesat Network Services Inc., a wholly-owned subsidiary of Telesat, sold the equipment at its Kapolei site and
transferred the operating lease for the premises to the buyer of the equipment. Proceeds on this sale were $0.5 million and the
resulting loss of $0.2 million is included in Other.
In May 2008, Skynet Satellite Corporation, a wholly-owned subsidiary of Telesat, sold its Hawley facility. Proceeds on this sale
were $4.1 million and the resulting loss on the sale of $0.1 million is included in Other.
In February 2008, Infosat Communications Inc., a wholly-owned subsidiary of Telesat, sold its security division. Proceeds on
this sale were $0.6 million and the resulting gain on the sale of $0.4 million is included in Other.
7. INCOME TAXES
Income tax expense (recovery)
Year ended December 31,
Current
Future
2010
2009
2,279
41,738
44,017
351
4,598
4,949
2008
11,072
(175,951)
(164,879)
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Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
7. INCOME TAXES — (continued)
A reconciliation of the statutory income tax rate, which is a composite of federal and provincial rates, to the effective income tax
rate is as follows:
Year ended December 31,
Statutory income tax rate
Permanent differences
Adjustment for tax rate changes
Valuation allowance
Other
Effective income tax rate
2010
2009
2008
30.5%
32.3 %
33.0 %
(6.8%)
(3.3%)
(7.1%)
2.9%
(10.5 %)
(9.3 %)
(12.9 %)
1.5 %
(6.1 %)
(2.5 %)
(6.7 %)
(1.1 %)
16.2%
1.1 %
16.6 %
The tax effects of temporary differences between the carrying amounts of assets and liabilities for accounting purposes and the
amounts used for tax purposes are presented below:
Future tax assets
Capital assets
Intangible assets
Unrealized foreign exchange loss
Investments
Loss carry forwards
Other
Less: valuation allowance
Total future tax assets
Future tax liabilities
Capital assets
Intangibles
Derivative liabilities
Other
Total future tax liabilities
Net future income tax liability
Net future income tax liability is comprised of:
Net future income tax asset — current portion
Net future income tax liability — long-term portion
Net future income tax liability
F-72
Year ended December 31,
2010
2009
2,193
4,368
14,276
544
67,885
6,290
(25,648 )
69,908
(236,053)
(120,096)
(14,935 )
(7,476 )
(378,560)
(308,652)
1,900
(310,552)
(308,652)
924
6,180
31,867
541
98,024
8,437
(45,040 )
100,933
(215,162)
(124,955)
(21,958 )
(5,867 )
(367,942)
(267,009)
2,184
(269,193)
(267,009)
Table of Contents
Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
7. INCOME TAXES — (continued)
Losses
As of December 31, 2010 Telesat Holdings Inc. had the following operating and capital loss carry-forwards which are scheduled
to expire in the following years:
2027
2028
2029
2030
Indefinite
Non-Capital
Losses
Capital
Losses
5,668
221,291
5,933
3,987
—
—
—
—
—
39,058
The Company recognized a benefit of $31,608 related to tax losses for the year ended December 31, 2010 (2009 — $8,755, 2008
— $5,756).
8. ACCOUNTS AND NOTES RECEIVABLE
At December 31,
Trade receivables — net of allowance for doubtful accounts
Less: long-term portion of trade receivables
2010
2009
48,521
(4,412 )
44,109
74,018
(3,815 )
70,203
The allowance for doubtful accounts was $7.1 million at December 31, 2010 (2009 — $8.7 million).
The long-term portion of trade receivables includes items that will not be collected during the subsequent year and is included in
the long-term portion of other assets in note 9.
9. OTHER ASSETS
Income taxes recoverable
Accrued pension benefit (note 20)
Prepaid expenses and deposits (a)
Deferred charges (b)
Derivative assets (note 18)
Inventories (c)
Tax indemnification receivable from Loral (note 21)
Investments (d)
Long term trade receivables
Investment tax credit benefit
Other assets
December 31, 2010
December 31, 2009
Current
3,027
—
17,706
1,996
—
2,985
—
—
—
556
206
26,476
Long term
—
20,197
10,913
1,751
72,405
—
2,332
558
4,412
—
248
112,816
Current
3,487
—
17,548
2,108
—
5,214
—
—
—
661
—
29,018
Long term
—
14,199
14,423
5,244
15,914
—
2,461
475
3,815
—
393
56,924
(a) Prepaid expense and deposits includes mainly prepaid insurance for in-orbit satellites, deposits related to foreign taxes, prepaid
interest on long term debt, security deposits, and other prepaid expenses.
(b) Deferred charges include the deferred financing charges related to the Revolving facility and the Canadian term loan facility
(note 13).
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Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
9. OTHER ASSETS — (continued)
(c) Inventories are valued at lower of cost and net realizable value and consist of $2.4 million (2009 — $2.9 million) of finished
goods and $0.6 million (2009 — $2.3 million) of work in process. All of the inventories have been pledged as security pursuant
to the terms of the senior secured credit facilities.
(d) Investments include an interest in Hellas-Sat Consortium Limited, a satellite operator offering services in Europe, Middle East
and Southern Africa, and an interest in Information Systems Associates Limited, a satellite service provider.
10. SATELLITES, PROPERTY AND OTHER EQUIPMENT
December 31, 2010
Satellites
Earth stations
Transponders under capital lease
Office buildings and other
Construction in progress
December 31, 2009
Satellites
Earth stations
Transponders under capital lease
Office buildings and other
Construction in progress
Cost
Accumulated
Amortization
Net Book
Value
2,018,871
150,457
25,871
14,700
354,742
2,564,641
2,018,871
149,085
28,048
31,735
72,366
2,300,105
(505,606)
(45,599 )
(10,491 )
(8,823 )
—
(570,519)
(323,734)
(30,083 )
(8,550 )
(11,548 )
—
(373,915)
1,513,265
104,858
15,380
5,877
354,742
1,994,122
1,695,137
119,002
19,498
20,187
72,366
1,926,190
The Company had two successful launches in 2009. The Nimiq 5 satellite was launched in September 2009, and was placed in
service in October 2009. The Telstar 11N satellite was launched in February 2009, and was placed in service in March 2009. The
current construction in progress amount relates primarily to satellite construction and related launch service costs for Telstar
14R/Estrela do Sul 2, Nimiq 6 and Anik G1.
Consistent with its accounting policy, the Company tests for asset impairment upon the occurrence of triggering events.
There were no triggering events in 2010 or 2009 and therefore no impairment charges were recorded. In 2008, the Company
recorded a $2.4 million impairment charge relating to the Nimiq 3 satellite.
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Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
11. GOODWILL AND INTANGIBLE ASSETS
December 31, 2010
Finite life intangible assets:
Revenue backlog
Customer relationships
Favourable leases
Concession rights
Transponder rights
Patents
Indefinite life intangible assets:
Orbital slots
Trade name
Total intangible assets
Goodwill
Goodwill and intangible assets
December 31, 2009
Finite life intangible assets:
Revenue backlog
Customer relationships
Favourable leases
Concession rights
Transponder rights
Patents
Indefinite life intangible assets:
Orbital slots
Trade name
Total intangible assets
Goodwill
Goodwill and intangible assets
Cost
Accumulated
Amortization
Net Book
Value
268,123
197,920
—
1,398
28,497
59
495,997
(110,162)
(44,156 )
—
(186 )
(10,842 )
(10 )
(165,356)
157,961
153,764
—
1,212
17,655
49
330,641
113,419
17,000
626,416
2,446,603
3,073,019
—
—
(165,356)
—
(165,356)
113,419
17,000
461,060
2,446,603
2,907,663
Cost
Accumulated
Amortization
Net Book
Value
268,123
197,920
2,990
1,404
29,550
59
500,046
(77,210 )
(33,140 )
(1,774 )
(94 )
(7,493 )
(7 )
(119,718)
190,913
164,780
1,216
1,310
22,057
52
380,328
113,347
17,000
630,393
2,446,603
3,076,996
—
—
(119,718)
—
(119,718)
113,347
17,000
510,675
2,446,603
2,957,278
The Company performed its annual impairment test on goodwill and indefinite life intangibles in 2010 by comparing the
estimated fair value to the carrying value. The annual impairment test of goodwill and indefinite life intangibles did not result in any
impairment in 2010 or in 2009. In 2008, the Company recorded a $483.0 million impairment charge to the orbital slots.
The Company only has one reporting unit with a corresponding goodwill balance of $2,446.6 million. The fair value of the
reporting unit exceeds its carrying value on step one of the annual impairment test. The most significant assumptions used in step one
of the impairment test were as follows:
At December 31,
Discount rate
Compounded annual growth rate (5 years)
Terminal year growth rate
2010
2009
10 %
6.7%
3.0%
9.5%
6.2%
3.0%
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Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
11. GOODWILL AND INTANGIBLE ASSETS — (continued)
The Company believes the assumptions used to determine the fair value of the reporting unit are reasonable and are the most
appropriate in the circumstances. If different assumptions were used, particularly with respect to forecasted cash flows or the discount
rate, different estimates of fair value may have resulted and there could have been a risk of failing step one of the goodwill impairment
test Actual operating results and the related cash flows of the reporting unit could differ from the estimated operating results and
related cash flows used in the impairment analysis.
The Company recorded amortization expense on intangible assets of $45.5 million for the year ended December 31, 2010 (2009
— $54.8 million, 2008 — $55.5 million).
12. OTHER LIABILITIES
At December 31,
Other current liabilities
Other long-term liabilities
2010
128,296
676,217
804,513
2009
127,704
671,523
799,227
Other liabilities include the following items and maturities:
Deferred revenues and
deposits
Derivative liabilities (note 18)
Capital lease liabilities (a)
Deferred satellites
performance incentive
payments
Interest payable
Dividends payable on senior
preferred shares (note 14)
Pension and other post
retirement liabilities (note
20)
Promissory note payable to
Loral (note 22)
Tax indemnification payable
to Loral
Potential tax liability
Asset retirement obligations
Unfavourable backlog
Unfavourable leases
Other liabilities (b)
2011
2012
2013
2014
2015
Thereafter
Total
63,109
20,475
3,656
35,870
—
3,975
36,421
—
4,368
34,971
223,979
4,154
31,218
—
751
179,847
—
—
381,436
244,454
16,904
10,321
23,171
3,863
—
4,098
—
4,423
—
4,776
—
39,996
—
67,477
23,171
2,075
—
—
—
—
—
2,075
491
—
—
17,525
—
—
—
—
—
—
23,703
24,194
—
17,525
—
636
165
—
—
4,197
128,296
6,949
6,949
541
—
—
—
75,672
—
—
176
—
—
—
45,063
—
—
224
—
—
—
267,751
—
—
—
—
—
—
36,745
—
—
426
3,922
926
2,166
250,986
6,949
7,585
1,532
3,922
926
6,363
804,513
(a) At December 31, 2010, interest payable related to the capital lease liabilities was $3.4 million (2009 — $5.3 million).
(b) Other liabilities include items that are both current and long-term in nature. The long-term items are estimated to mature after
2015 due to uncertainty in settlement dates.
F-76
Table of Contents
Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
13. DEBT FINANCING
At December 31,
Senior secured credit facilities (a) :
Revolving facility
The Canadian term loan facility
The U.S. term loan facility (2010 — USD $1,702,350, 2009 — USD $1,719,900)
The U.S. term loan II facility (2010 — USD $146,225, 2010 — USD $147,725)
Senior Notes (USD $692,825) (b)
Senior Subordinated Notes (USD $217,175) (c) )
Less: deferred financing costs and prepayment options (d)
Less: current portion (net of deferred financing costs)
Long-term portion
2010
2009
—
170,000
1,698,945
145,933
691,439
216,741
2,923,058
(54,408 )
2,868,650
(96,848 )
2,771,802
—
185,000
1,811,399
155,584
729,683
228,729
3,110,395
(64,973 )
3,045,422
(23,602 )
3,021,820
(a) The senior secured credit facilities are secured by substantially all of Telesat’s assets. Under the terms of these facilities, Telesat
is required to comply with certain covenants including financial reporting, maintenance of certain financial covenant ratios for
leverage and interest coverage, a requirement to maintain minimum levels of satellite insurance, restrictions on capital
expenditures, a restriction on fundamental business changes or the creation of subsidiaries, restrictions on investments,
restrictions on dividend payments, restrictions on the incurrence of additional debt, restrictions on asset dispositions, and
restrictions on transactions with affiliates. The financial covenant ratios include total debt to EBITDA for covenant purposes
(earnings before interest, taxes, depreciation, amortization and other charges) and EBITDA for covenant purposes to interest
expense. Both financial covenant ratios tighten over the term of the credit facility. At December 31, 2010 Telesat was in
compliance with all of the required covenants.
Telesat was required to hedge, at fixed rates, prior to February of 2008, 50% of its floating interest rate debt for a three year
period ending October 31, 2010. The Company has complied with this obligation and has no additional hedging requirements.
These derivative instruments have not been designated as hedging instruments for accounting purposes.
Each tranche of the credit facility is subject to mandatory principal repayment requirements, which, in the initial years, are
generally an annual amount representing 1% of the initial aggregate principal amount, payable quarterly. The senior secured
credit facility has several tranches which are described below:
(i) A revolving Canadian dollar denominated credit facility (the “revolving facility”) of up to $153 million is available to
Telesat. This revolving facility matures on October 31, 2012 and is available to be drawn at any time. The drawn loans bear
interest at the prime rate or LIBOR or Bankers’ Acceptance plus an applicable margin of 150 to 250 basis points per
annum. Undrawn amounts under the facility are subject to a commitment fee. As of December 31, 2010, other than
approximately $0.2 million in drawings related to letters of credit, there were no borrowings under this facility.
(ii) The Canadian term loan facility was initially a $200 million facility denominated in Canadian dollars, with a maturity date
of October 31, 2012. Loans under this facility bear interest at a floating rate of the Bankers’ Acceptance rate plus an
applicable margin of 275 basis points per annum. The required repayments on the Canadian term loan facility are as
follows:
2011
2012
Total repayments
F-77
Annual
Repayments
90,000
80,000
170,000
Table of Contents
Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
13. DEBT FINANCING — (continued)
The payments are generally made quarterly in varying amounts. The average interest rate was 3.63% for the year ended
December 31, 2010 (2009 — 3.61%, 2008 — 6.57%). This facility had $170 million outstanding at December 31, 2010,
which represents the full amount available, with principal repayments being made as required.
(iii) The U.S. term loan was initially a $1,755 million facility denominated in U.S. dollars, bears interest at LIBOR plus an
applicable margin of 300 basis points per annum, and has a maturity of October 31, 2014. The average interest rate was
3.28% for the year ended December 31, 2010 (2009 — 3.80%, 2008 — 6.35%). Principal repayments of U.S. $4.4 million
are made on a quarterly basis, with a lump sum repayment of the remaining balance payable on the maturity date.
(iv) The U.S. term loan II was initially a $150 million delayed draw facility denominated in U.S. dollars, bears interest at
LIBOR plus an applicable margin of 300 basis points per annum, and has a maturity of October 31, 2014. The average
interest rate was 3.28% for the year ended December 31, 2010 (2009 — 3.80%, 2008 — 6.17%). The U.S. term loan II
facility was available to be drawn for 12 months after the closing of the Telesat Canada acquisition to fund capital
expenditures. The undrawn amount of the U.S. term loan II was subject to a commitment fee. The facility was fully drawn
at December 31, 2010. Principal repayments of U.S. $0.4 million are made on a quarterly basis, with a lump sum repayment
of the remaining balance payable on the maturity date.
(b) The Senior Notes bear interest at an annual rate of 11.0% and are due November 1, 2015. The Senior Notes include covenants or
terms that restrict Telesat’s ability to, among other things, (i) incur additional indebtedness, (ii) incur liens, (iii) pay dividends or
make certain other restricted payments, investments or acquisitions, (iv) enter into certain transactions with affiliates, (v) modify
or cancel the Company’s satellite insurance, (vi) effect mergers with another entity, and (vii) redeem the Senior Notes prior to
May 1, 2012, in each case subject to exceptions provided in the Senior Notes indenture.
(c) The Senior Subordinated Notes bear interest at a rate of 12.5% and are due November 1, 2017. The Senior Subordinated Notes
include covenants or terms that restrict Telesat’s ability to, among other things, (i) incur additional indebtedness, (ii) incur liens,
(iii) pay dividends or make certain other restricted payments, investments or acquisitions, (iv) enter into certain transactions with
affiliates, (v) modify or cancel the Company’s satellite insurance, (vi) effect mergers with another entity, and (vii) redeem the
Senior Subordinated Notes prior to May 1, 2013, in each case subject to exceptions provided in the Senior Subordinated Notes
indenture.
(d) The U.S. term loan facilities, Senior Notes and Senior Subordinated Notes are presented on the balance sheet net of related
deferred financing costs of $61.6 million (2009 — $73.1 million). The indenture agreements for the Senior Notes and Senior
Subordinated Notes contain provisions for certain prepayment options which were fair valued at the time of debt issuance (note
18). The initial fair value impact of the prepayment options on the Senior Notes and Senior Subordinated Notes was an increase
to the liabilities of $6.5 million and $2.7 million, respectively. These liability amounts are subsequently amortized using the
effective interest rate method with carrying amounts of $4.9 million and $2.3 million respectively, at December 31, 2010 (2009
— $5.6 million and $2.5 million, 2008 — $6.3 million and $2.6 million).
The short-term and long-term portions of deferred financing costs and prepayment options are as follows:
At December 31,
Short-term deferred financing costs
Long-term deferred financing costs
Long-term prepayment option — Senior notes
Long-term prepayment option — Senior subordination notes
Total deferred financing costs and prepayment options
2010
2009
12,165
49,433
61,598
(4,928 )
(2,262 )
(7,190 )
54,408
11,462
61,593
73,055
(5,631 )
(2,451 )
(8,082 )
64,973
F-78
Table of Contents
Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
13. DEBT FINANCING — (continued)
The outstanding balance of debt financing, excluding deferred financing costs and prepayment options, will be repaid as follows
(in millions of Canadian dollars):
2011
109.0
2012
99.0
2013
19.0
2014
1,787.9
2015
691.4
Thereafter
216.8
Total
2,923.1
14. SENIOR PREFERRED SHARES
Telesat issued 141,435 senior preferred shares with an issue price of $1,000 per Senior Preferred Share on October 31, 2007. The
Senior Preferred Shares rank in priority, with respect to the payment of dividends and return of capital upon liquidation, dissolution or
winding-up, ahead of the shares of all other classes of Telesat stock which have currently been created, as well as any other shares that
may be created that by their terms rank junior to the senior preferred shares. Senior Preferred Shares are entitled to receive cumulative
preferential dividends at a rate of 7% per annum on the Liquidation Value, being $1,000 per Senior Preferred Share plus all accrued
and unpaid dividends (8.5% per annum following a Performance Failure, being a failure to pay annual dividends in cash or in Holding
PIK Preferred Stock in any year, while such failure is continuing, the failure to redeem the Holding PIK Preferred Stock when
submitted for redemption on or after the twelfth anniversary of the date of issue, or the failure to redeem Holding PIK Preferred Stock
for which an offer of redemption is accepted following a Change of Control). Such annual dividend may be paid in cash, subject to the
requirements of the CBCA, if such payment is permitted under the terms of (i) the senior secured credit facilities and (ii) the
indentures governing the notes. If the cash payment is not permitted under the terms of the senior secured credit facilities, the
dividends will be paid, subject to the requirements of the CBCA, in senior preferred shares based on an issue price of $1,000 per
Senior Preferred Share. Dividends of $2.1 million (note 12) have been accrued at December 31, 2010 (2009 — $25.1 million) and
dividends of $35.4 million were paid during year ended December 31, 2010 (2009 — $nil, 2008 — $nil).
The Senior Preferred Shares may be submitted by the holder for redemption on or after the twelfth anniversary of the date of
issue, subject to compliance with law. Upon a change of control which occurs after the fifth anniversary of the issue of the Senior
Preferred Shares, or on the fifth anniversary if a change of control occurs prior to the fifth anniversary of the issue, Telesat must make
an offer of redemption to all holders of Senior Preferred Shares, and must redeem any Senior Preferred Shares for which the offer of
redemption is accepted within 25 days of such offer. As a result, the Senior Preferred Shares have been classified as a liability on the
balance sheet.
The holders of the Senior Preferred Shares are not entitled to receive notice of or to vote at any meeting of shareholders of the
Company except for meetings of the holders of the Senior Preferred Shares as a class, called to amend the terms of the Senior
Preferred Shares, or otherwise as required by law.
15. CAPITAL STOCK
The authorized capital of the Company is comprised of: (i) an unlimited number of common shares, (ii) an unlimited number of
voting participating preferred shares, (iii) an unlimited number of non-voting participating preferred shares, (iv) an unlimited number
of redeemable common shares, (v) an unlimited number of redeemable non-voting participating preferred shares, (vi) 1,000 director
voting preferred shares, and (vii) 325,000 senior preferred shares. None of the Redeemable Common Shares or Redeemable Non-
Voting Participating Preferred Shares have been issued as at December 31, 2010.
Common Shares
The holders of the Common Shares are entitled to receive notice of and to attend all annual and special meetings of the
shareholders of the Company and to one vote in respect of each common share held on all matters at all such meetings, except in
respect of a class vote applicable only to the shares of any other class, in respect of which the common shareholders shall have no
right to vote. The holders of the Common Shares are entitled to receive dividends as may be declared by the Board of Directors of the
Company, and are entitled to share in the distribution of the assets of the Company upon liquidation, winding-up or dissolution,
subject to the rights, privileges and conditions attaching to any other class of shares ranking in order of priority. The Common Shares
are convertible at the holders’ option, at any time, into Voting Participating Preferred Shares or Non-Voting Participating Preferred
Shares, on a one-for-one basis.
F-79
Table of Contents
Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
15. CAPITAL STOCK — (continued)
There were 74,252,460 Common Shares issued and outstanding as at December 31, 2010 and 2009 with a stated value of
$756 million.
Voting Participating Preferred Shares
The rights, privileges and conditions of the Voting Participating Preferred Shares are identical in all respects to those of the
Common Shares, except for the following:
•
The holders of Voting Participating Preferred Shares are not entitled to vote at meetings of the shareholders of the
Company on resolutions electing directors.
•
•
For all other meetings of the shareholders of the Company, the holders of Voting Participating Preferred Shares are entitled
to a variable number of votes per Voting Participating Preferred Share based on the number of Voting Participating
Preferred Shares, Non-Voting Participating Preferred Shares and Redeemable Non-Voting Participating Preferred Shares
outstanding on the record date of the given meeting of the shareholders of the Company.
The Voting Participating Preferred Shares are convertible, at any time, at the holders’ option into Common Shares or Non-
Voting Participating Preferred Shares on a one-for-one basis as long as the result of such conversion does not cause the
Company to cease to be a “qualified corporation” within the meaning of the Canadian Telecommunication Common Carrier
Ownership and Control Regulations pursuant to the Telecommunications Act (Canada).
There were 7,034,444 Voting Participating Preferred Shares issued and outstanding as at December 31, 2010 and 2009 with a
stated value of $117 million.
Non-Voting Participating Preferred Shares
The rights, privileges and conditions of the Non-Voting Participating Preferred Shares are identical in all respects to those of the
Common Shares, except for the following:
•
•
The holders of Non-Voting Participating Preferred Shares are not entitled to vote on any matter at meetings of the
shareholders of the Company, except in respect of a class vote applicable only to the Non-Voting Participating Preferred
Shares.
The Non-Voting Participating Preferred Shares are convertible, at any time, at the holders’ option into Common Shares or
Voting Participating Preferred Shares on a one-for-one basis as long as the result of such conversion does not cause the
Company to cease to be a “qualified corporation” within the meaning of the Canadian Telecommunication Common Carrier
Ownership and Control Regulations pursuant to the Telecommunications Act (Canada).
There were 35,953,824 Non-Voting Participating Preferred Shares issued and outstanding as at December 31, 2010 and 2009
with a stated value of $424 million.
F-80
Table of Contents
Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
15. CAPITAL STOCK — (continued)
Director Voting Preferred Shares
The rights, privileges and conditions of the Director Voting Preferred Shares are identical in all respects to those of the Common
Shares, except for the following:
•
•
•
The holders of Director Voting Preferred Shares are entitled to receive notice of and to attend all meetings of the
shareholders of the Company at which directors of the Company are to be elected. The holders of the Director Voting
Preferred Shares are not entitled to attend meetings of the shareholders of the Company and have no right to vote on any
matter other than the election of directors of the Company.
The holders of Director Voting Preferred Shares are entitled to receive annual non-cumulative dividends of $10 per share if
declared by the Board of Directors of the Company, in priority to the payment of dividends on the Common Shares, Voting
Participating Preferred Shares, Non-Voting Participating Preferred Shares, Redeemable Common Shares, and Redeemable
Non-Voting Participating Preferred Shares, but after payment of any accrued dividends on the Senior Preferred Shares.
In the event of liquidation, wind-up or dissolution, the holders of Director Voting Preferred Shares are entitled to receive
$10 per share in priority to the payment of dividends on the Common Shares, Voting Participating Preferred Shares, Non-
Voting Participating Preferred Shares, Redeemable Common Shares, and Redeemable Non-Voting Participating Preferred
Shares, but after payment of any accrued dividends on the Senior Preferred Shares.
•
The Director Voting Preferred Shares are redeemable at the option of the Company, at any time, at a redemption price of
$10 per share.
There were 1,000 Director Voting Preferred Shares issued and outstanding as at December 31, 2010 and 2009 with a nominal
stated value.
16. CASH FLOW INFORMATION
Year ended December 31,
Cash and cash equivalents is comprised of:
Cash
Short term investments, original maturity 90 days or less
Changes in operating assets and liabilities are comprised of:
Accounts and notes receivable
Other assets
Accounts payable and accrued liabilities
Other liabilities
Year ended December 31,
Non-cash investing and financing activities are comprised of:
Purchase of satellites, property and other equipment
Purchase of concession rights
F-81
2010
2009
2008
129,217
91,078
220,295
21,884
(1,836)
(22,484 )
(27,570 )
(30,006 )
89,679
64,510
154,189
(2,021 )
15,693
7,270
(13,739 )
7,203
26,584
71,955
98,539
(3,303 )
(34,885 )
(12,947 )
99,994
48,859
2010
2009
2008
24,775
—
5,026
—
3,595
1,230
Table of Contents
Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
17. CAPITAL DISCLOSURES
Telesat Holdings Inc. is a privately held company with registered debt in the United States. The Company’s financial strategy is
designed to maintain compliance with its financial covenants under its senior secured credit facility, and to provide adequate returns to
its shareholders and other stakeholders. Telesat meets these objectives through its monitoring of its financial covenants and operating
results on a quarterly basis.
The Company defines its capital as follows:
At December 31,
Shareholders’ equity, excluding accumulated other comprehensive loss
Debt financing, excluding deferred financing costs and prepayment options
2010
1,138,532
2,923,058
2009
904,718
3,110,395
Telesat manages its capital by measuring the financial covenant ratios contained in its senior secured credit agreement (the
“credit agreement”), dated October 31, 2007 and which terminates in October 2014. As of December 31, 2010, the Company was
subject to three financial covenant compliance tests: a maximum Consolidated Total Debt to Consolidated Earnings Before Interest,
Taxes, Depreciation and Amortization (“EBITDA”) for covenant purposes ratio test, a minimum Consolidated EBITDA for covenant
purposes to Consolidated Interest Expense ratio test and a maximum Permitted Capital Expenditure Amount test. Compliance with
financial covenants is measured on a quarterly basis, except for the maximum Permitted Capital Expenditure Amount which is only
measured at the end of every fiscal year.
As of December 31, 2010, Telesat’s Consolidated Total Debt to Consolidated EBITDA for covenant purposes ratio, for credit
agreement compliance purposes, was 4.59:1 (2009 — 5.50:1), which was less than the maximum test ratio of 6.50:1. The
Consolidated EBITDA for covenant purposes to Consolidated Interest Expense ratio, for credit agreement compliance purposes, was
2.63:1 (2009 — 2.08:1), which was greater than the minimum test ratio of 1.60:1. The compliance test ratios become more restrictive
over the term of the credit agreement.
The maximum Permitted Capital Expenditure Amount varies in each fiscal year with the opportunity to carry forward or carry
back unused amounts based on conditions specified in the credit agreement. An additional amount of U.S. $500 million is also
available over the term of the credit agreement for the construction or acquisition of up to four new satellites. For the fiscal year ended
December 31, 2010, the Company’s Capital Expenditure Amount, as defined in the credit agreement, was $266.7 million (2009 —
$257.5 million) and was in compliance with the credit agreement.
As part of the on-going monitoring of Telesat’s compliance with its financial covenants, interest rate risk due to variable interest
rate debt is managed through the use of interest rate swaps (note 18), and foreign exchange risk exposure arising from principal and
interest payments on Telesat’s debt is partially managed through a cross currency basis swap (note 18). In addition, operating
expenses are tracked against budget on a monthly basis, and this analysis is reviewed by senior management.
18. FINANCIAL INSTRUMENTS
Fair Value
Fair value is the amount that willing parties would accept to exchange a financial instrument based on the current market for
instruments with the same risk, principal and remaining maturity. Where possible, fair values are based on the quoted market values in
an active market. In the absence of an active market, we determine fair values based on prevailing market rates (bid and ask prices, as
appropriate) for instruments with similar characteristics and risk profiles or internal or external valuation models, such as option
pricing models and discounted cash flow analysis, using observable market-based inputs.
F-82
Table of Contents
Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
18. FINANCIAL INSTRUMENTS — (continued)
At December 31, 2010 and December 31, 2009, the current and long term portions of the fair value of the Company’s derivative
assets and liabilities and the fair value methodologies used to calculate those values were as follows:
December 31, 2010
Cross currency basis swap
Interest rate swaps
Forward foreign exchange contracts
Prepayment option embedded
derivatives
December 31, 2009
Cross currency basis swap
Interest rate swaps
Forward foreign exchange contracts
Prepayment option embedded
derivatives
Current
assets
Long-term
assets
Current
liabilities
Long-term
liabilities
(192,456 )
(31,523 )
Total
(192,456)
(49,427 )
—
(17,904)
(2,571 )
—
(2,571 )
—
—
—
72,405
72,405
—
(20,475 )
—
(223,979)
72,405
(172,049)
—
—
—
—
—
Current
assets
Long-term
assets
Current
liabilities
—
—
—
—
—
—
—
—
15,914
15,914
—
(6,020 )
(436)
—
(6,456)
Long-term
liabilities
(137,106 )
(41,724 )
Total
(137,106)
(47,744 )
—
(436 )
—
(178,830)
15,914
(169,372)
Reconciliation of fair value of derivative assets and liabilities
Opening fair value, December 31, 2009
Unrealized derivative losses
Realized derivative gains (losses) on:
Cross currency basis swap
Interest rate swaps
Forward foreign exchange contracts
Impact of foreign exchange
Fair value, December 31, 2010
At December 31,
Fair value methodology:
Net position determined using actively quoted prices (level 1)
Net position determined using observable data or market corroboration (level 2)
Net position determined using extrapolated data (level 3)
(169,372)
(13,955 )
1,183
—
1,604
8,491
(172,049)
2010
2009
—
(172,049)
—
(172,049)
—
(169,372)
—
(169,372)
Level 1 Quoted prices in active markets for identical assets or liabilities.
Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in
markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the
full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less
frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that
are observable in the market or can be derived principally from or corroborated by observable market data. For Telesat, this category
includes forward foreign exchange contracts, the credit basis swap, interest rate swaps and the prepayment option embedded
derivatives.
F-83
Table of Contents
Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
18. FINANCIAL INSTRUMENTS — (continued)
Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the
assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models,
discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires
significant management judgment or estimation.
Estimates of fair values are affected significantly by the assumptions for the amount and timing of estimated future cash flows
and discount rates, which all reflect varying degrees of risk. Potential income taxes and other expense that would be incurred on
disposition of these financial instruments are not reflected in the fair values. As a result, the fair values are not necessarily the net
amounts that would be realized if these instruments were actually settled.
The carrying amounts for cash and cash equivalents, trade receivables, promissory notes receivable, and accounts payable and
accrued liabilities approximate fair market value due to the short maturity of these instruments. At December 31, 2010 the fair value
of the debt financing is based on transactions and quotations from third parties excluding deferred financing costs considering market
interest rates.
The carrying amounts and fair values of financial instruments were as follows as at:
December 31, 2010
Financial assets
Cash and cash equivalents
Accounts and notes receivable
Derivative financial instruments
Other assets
Carrying value
Loans &
HFT
AFS
Receivables
Total
Fair value
220,295
—
72,405
—
292,700
—
—
—
315
315
—
44,109
—
14,817
58,926
220,295
44,109
72,405
15,132
351,941
220,295
44,109
72,405
15,132
351,941
December 31, 2010
Financial liabilities
Accounts payable and accrued liabilities
Debt financing (excluding deferred financing costs)
Derivative financial instruments
Other liabilities
HFT
Carrying value
Other
Total
Fair value
—
—
244,454
—
244,454
49,906
2,930,248
—
266,692
3,246,846
49,906
2,930,248
244,454
266,692
3,491,300
49,906
3,067,412
244,454
276,990
3,638,762
F-84
Table of Contents
Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
18. FINANCIAL INSTRUMENTS — (continued)
December 31, 2009
Financial assets
Cash and cash equivalents
Accounts and notes receivable
Derivative financial instruments
Other assets
Carrying value
Loans &
HFT
AFS
Receivables
Total
Fair value
154,189
—
15,914
6,970
177,073
—
—
—
474
474
—
70,203
—
5,351
75,554
154,189
70,203
15,914
12,795
253,101
154,189
70,203
15,914
12,795
253,101
December 31, 2009
Financial liabilities
Accounts payable and accrued liabilities
Debt financing (excluding deferred financing costs)
Derivative financial instruments
Other liabilities
HFT
Carrying value
Other
Total
Fair value
—
—
185,286
—
185,286
43,413
3,118,477
—
291,412
3,453,302
43,413
3,118,477
185,286
291,412
3,638,588
43,413
3,104,151
185,286
322,187
3,655,037
Included in cash and cash equivalents are $91.9 million (2009 — $64.5 million) of short-term investments classified as Level 2
in the fair value hierarchy. Included in Other assets are $0.3 million (2009 — $0.5 million) of AFS securities classified as Level 3 in
the fair value hierarchy.
The Company, through its financial assets and liabilities, is exposed to various risks. The following analysis provides a
measurement of risks as at the balance sheet date of December 31, 2010.
Measurement of Risks
Credit Risk
Credit risk is the risk that a counterparty to a financial asset will default, resulting in the Company incurring a financial loss. At
December 31, 2010, the maximum exposure to credit risk is equal to the carrying value of the financial assets, $352 million (2009 —
$253 million) as listed above. Cash and cash equivalents are invested with high quality investment grade financial institutions and are
governed by the Company’s corporate investment policy, which aims to reduce credit risk by restricting investments to high-grade
U.S. dollar and Canadian dollar denominated investments.
It is expected that the counterparties to our financial assets will be able to meet their obligations as they are institutions with
strong credit ratings. Telesat regularly monitors the credit risk and credit exposure.
Telesat has a number of diverse customers, which limits the concentration of credit risk with respect to accounts receivable. The
Company has credit evaluation, approval and monitoring processes intended to mitigate potential credit risks. Telesat’s standard
payment terms are 30 days. Interest at a rate of 1.5% per month, compounded monthly, is typically charged on balances remaining
unpaid at the end of the standard payment terms. Telesat’s historical experience with customer defaults has been minimal. As a result,
Telesat considers the credit quality of its North American customers to be high; however due to the additional complexities of
collecting from its International customers the Company considers the credit quality of its International customers to be lower than the
North American customers. At December 31, 2010, North American and International customers made up 38% and 62% of the
outstanding trade receivable balance, respectively. Anticipated bad debt losses have been provided for in the allowance for doubtful
accounts.
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Table of Contents
Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
18. FINANCIAL INSTRUMENTS — (continued)
The allowance for doubtful accounts at December 31, 2010 was $7.1 million (2009 — $8.7 million). A reconciliation of the
allowance for doubtful accounts is as follows:
Allowance for doubtful accounts
Balance at January 1
Provision for receivables impairment
Receivables written off during the period as uncollectible
Balance at December 31
Foreign Exchange Risk
2010
2009
8,708
(1,324 )
(256 )
7,128
5,410
4,067
(769 )
8,708
The Company’s operating results are subject to fluctuations as a result of exchange rate variations to the extent that transactions
are made in currencies other than Canadian dollars. The most significant impact of variations in the exchange rate is on the U.S. dollar
denominated debt financing. At December 31, 2010, approximately $2,753 million of the $2,923 million total debt financing (before
netting of deferred financing costs and prepayment options) is the Canadian dollar equivalent of the U.S. dollar denominated portion
of the debt.
The Company has entered into a cross currency basis swap to economically hedge the foreign currency risk on a portion of its
U.S. dollar denominated debt. At December 31, 2010, the Company had a cross currency basis swap of $1,187 million (2009 —
$1,200 million) which requires the Company to pay Canadian dollars to receive U.S. $1,022 million (2009 — U.S. $1,033 million). At
December 31, 2010, the fair value of this derivative contract was a liability of $192.5 million (2009 — liability of $137.1 million).
The non-cash loss will remain unrealized until the contract is settled. This contract is due on October 31, 2014.
Telesat uses forward contracts to hedge foreign currency risk on anticipated transactions, mainly related to the construction of
satellites. At December 31, 2010, the Company had nine outstanding foreign exchange contracts which will require the Company to
pay $188.3 million Canadian dollars (2009 — $21.5 million) to receive U.S. $185.0 million (2009 — U.S. $20.0 million) for future
capital expenditures and interest payments. At December 31, 2010, the fair value of the derivative contracts was a liability of $2.6
million (2009 — liability of $0.4 million). Any non-cash gain or loss will remain unrealized until the contracts are settled. These
forward contracts mature between January 31, 2011 and December 31, 2011.
The Company’s main currency exposures as at December 31, 2010 lie in its U.S. dollar denominated cash and cash equivalents,
accounts receivable, accounts payable and debt financing.
As at December 31, 2010, a 5 percent increase (decrease) in the Canadian dollar against the U.S. dollar would have increased
(decreased) the Company’s net earnings by approximately $151 million and increased (decreased) other comprehensive income by $2
million. This analysis assumes that all other variables, in particular interest rates, remain constant.
Interest Rate Risk
The Company is exposed to interest rate risk on its cash and cash equivalents and its long term debt which is primarily variable
rate financing. Changes in the interest rates could impact the amount of interest Telesat is required to pay. Telesat uses interest rate
swaps to economically hedge the interest rate risk related to variable rate debt financing.
On November 30, 2007, the Company entered into a series of five interest rate swaps to fix interest rates on U.S. $600 million of
U.S. dollar denominated debt and $630 million of Canadian dollar denominated debt for an average term of 3.2 years. On August 25,
2009, the Company entered into delayed-start interest rate swaps related to the $630 million of Canadian dollar denominated debt to
extend their maturities to October 31, 2014. On October 1, 2009, the Company entered into a delayed-start interest rate swap for an
F-86
Table of Contents
Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
18. FINANCIAL INSTRUMENTS — (continued)
additional CAD$300 million to fix the interest rate on Canadian dollar denominated debt from January 2011 to October 2014. As of
December 31, 2010, the fair value of these derivative contracts was a liability of $49.4 million (2009 — liability of $47.8). These
contracts mature on various dates between January 31, 2011 and October 31, 2014.
If the interest rates on the unhedged variable rate debt change by 0.25% this would result in a change in the net earnings of
approximately $2.5 million for the year ended December 31, 2010.
Liquidity Risk
The Company maintains credit facilities to ensure it has sufficient available funds to meet current and foreseeable financial
requirements. The following are the contractual maturities of financial liabilities as at December 31, 2010:
In millions of
Canadian dollars
Accounts payable and
accrued liabilities
Customer and other
deposits
Deferred satellites
Carrying
Contractual
cash flows
After
amount (undiscounted)
2011
2012
2013
2014
2015
2015
49,906
49,906
49,906
4,121
4,121
1,377
—
—
—
—
—
—
—
—
—
2,744
performance incentive
payments
Capital lease liabilities
Dividends payable on
senior preferred shares
(note 14)
Promissory note payable
to Loral (note 22)
Tax indemnification
payable to Loral
Other liabilities
Long term debt
Forward foreign
exchange contacts
Interest rate swaps
Basis swap
70,808
16,904
100,357
20,273
17,898
5,030
7,985
5,030
7,910
5,030
7,909
4,408
7,908
775
50,747
—
2,075
2,075
2,075
—
17,525
17,525
—
17,525
—
—
—
—
—
—
—
—
6,949
3,940
2,942,899
2,571
49,427
192,456
3,359,581
6,949
3,940
3,733,469
—
3,940
298,973
6,949
—
264,140
—
—
181,830
—
—
1,940,202
—
—
781,914
—
—
266,410
2,571
87,474
108,556
4,137,216
2,571
34,805
28,623
445,198
—
18,625
28,418
348,672
—
18,574
28,066
241,410
—
15,470
23,449
1,991,438
—
—
—
790,597
—
—
—
319,901
The carrying value of the deferred satellites performance incentive payments includes $3.3 million interest payable. The carrying
value of the long-term debt includes $19.9 million of interest payable and excludes $61.6 million of financing costs and $7.2 million
of prepayment options.
Correction of an immaterial error
During the fourth quarter of 2010, the Company identified an error in the accounting for prepayment options in its senior notes
and senior subordinated notes (referred to as the “notes”) issued in June 2008. Under CICA Handbook Section 3855 “Financial
Instruments — Recognition and Measurement”, the prepayment options are considered embedded derivatives that should be separated
from the notes and accounted for as derivatives recorded at fair value at inception and marked to market each reporting period
thereafter. As a result, the Company has decreased its net earnings for 2008 by $8.9 million and increased its net earnings in 2009 by
$16.7 million.
F-87
Table of Contents
Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
18. FINANCIAL INSTRUMENTS — (continued)
After considering both quantitative and qualitative information applicable to the error, the Company believes that the error is not
material to its previously issued historical consolidated financial statements. As a result, the Company has corrected its consolidated
financial statements for the years ended December 31, 2009 and 2008, including the opening accumulated deficit, in these financial
statements. The Company does not believe this error to be material as the mark to market adjustment on the embedded derivatives at
each historical reporting period does not impact cash flows from operating activities and does not have a significant impact on the
Company’s earnings for the years ended December 31, 2009 and 2008. Furthermore, this error did not impact the Company’s
compliance with its debt covenants.
The impact on the Company’s consolidated financial statements for 2008 and 2009 is as follows:
Adjustments to the consolidated financial statements: debit (credit)
Impact on consolidated balance sheet:
Other long-term assets
Debt financing
Accumulated deficit
Impact on consolidated statement of earnings:
Interest expense
(Loss) gain on changes in fair value of financial instruments
Gain (loss) on foreign exchange
Impact on net earnings
2009
2008
15,915
788
(16,703 )
(788 )
(17,411 )
1,496
(16,703 )
—
(8,870 )
8,870
(328 )
9,966
(768 )
8,870
While the Company’s Canadian GAAP financial statements have been corrected as described above, its net earnings under
United States GAAP are not impacted by this error. Prepayment options in the notes represent embedded derivatives under Canadian
GAAP, but not under United States GAAP. As a result, the December 31, 2009 and 2008 reconciliations from Canadian GAAP to
United States GAAP contained in Note 23 to these financial statements, have been corrected to show an increase of $16.7 million and
a decrease of $8.9 million, respectively, in Canadian GAAP net earnings, with an equal and offsetting United States GAAP
adjustment, since this item has no impact on the Company’s reported results under United States GAAP.
F-88
Table of Contents
Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
19. STOCK-BASED COMPENSATION PLANS
Telesat Holdings Stock Options
On September 19, 2008, Telesat adopted a stock incentive plan for certain key employees of the Company and its subsidiaries.
The plan provides for the grant of up to 8,824,646 options to purchase non-voting participating preferred shares of Telesat Holdings
Inc., convertible into common shares.
Two different types of stock options can be granted under the plan: time-vesting options and performance-vesting options. The
time-vesting options generally become vested and exercisable over a five year period by 20% increments on each October 31st
starting in 2008. The vesting amount is prorated for optionees whose employment with the Company or its subsidiaries started after
October 31, 2007. The performance-vesting options become vested and exercisable over a five year period starting March 31, 2009,
provided that the Company has achieved or exceeded an annual or cumulative target consolidated EBITDA established and
communicated on the grant date by the Board of Directors.
The exercise periods of the share options expire ten years from the grant date. The exercise price of each share underlying the
options will be the higher of a fixed price, established by the Board of Directors on the grant date, and the fair market value of a non-
voting participating preferred share on the grant date.
Outstanding, January 1, 2010
Granted
Exercised
Forfeited
Expired
Outstanding December 31, 2010
Options exercisable at December 31, 2010
At December 31, 2009
Exercise price $11.07
Time Vesting Option Plans Performance Vesting Option Plan
Weighted-
Number
of Options
7,303,705
10,067
—
(47,820)
—
7,265,952
4,173,018
Average
Exercise
Price ($)
11.07
16.50
—
11.07
—
11.08
Number
of Options
1,453,814
12,305
—
(58,447)
—
1,407,672
526,252
Weighted-
Average
Exercise
Price ($)
11.07
16.50
—
11.07
—
11.12
Options Outstanding
Options Exercisable
Weighted-
Average
Remaining
Number
8,757,519
Life
8 years
Number
2,903,060
The assumptions used to determine the stock-based compensation expense under the Black-Scholes option pricing model were as
follows:
Compensation cost (credited to contributed surplus)
Number of stock options granted
Weighted-average fair value per option granted ($)
Weighted average assumptions:
Dividend yield
Expected volatility
Risk-free interest rate
Expected life (years)
F-89
December 31, December 31,
2010
5,653
22,372
16.50
2009
5,649
1,351,740
4.76
—%
31.1%
3.85%
10
—%
30.0 %
2.98 %
10
Table of Contents
Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
20. EMPLOYEE BENEFIT PLANS
The Company’s funding policy is to make contributions to its pension funds based on various actuarial cost methods as permitted
by pension regulatory bodies. Contributions reflect actuarial assumptions concerning future investment returns, salary projections and
future service benefits. Plan assets are represented primarily by Canadian and foreign equity securities, fixed income instruments and
short-term investments.
The Company provides certain health care and life insurance benefits for some of its retired employees and their dependents.
Participants are eligible for these benefits generally when they retire from active service and meet the eligibility requirements for the
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 changes in the benefit obligations and in the fair value of assets and the funded status of the defined benefit plans were as
follows:
Pension and other benefits
Change in benefit obligations
Benefit obligation, January 1, 2010
Current service cost
Interest cost
Actuarial (gains) losses
Benefit payments
Employee contributions
Plan amendments
Benefit obligation, December 31, 2010
Pension and other benefits
Change in fair value of plan assets
Fair value of plan assets, January 1, 2010
Return on plan assets
Benefit payments
Employee contributions
Employer contributions
Fair value of plan assets, December 31, 2010
Funded status
Plan surplus (deficit)
Unamortized net actuarial (gain) loss
Accrued benefit asset (liability)
Pension
December 31, 2010
Other
Total
151,977
2,630
9,665
19,165
(9,379)
1,386
—
175,444
22,433
232
1,237
(1,250 )
(856 )
32
(236 )
21,592
174,410
2,862
10,902
17,915
(10,235 )
1,418
(236 )
197,036
Pension
December 31, 2010
Other
Total
150,746
15,339
(9,379)
1,386
8,143
166,235
(9,209)
29,406
20,197
—
—
(856 )
32
824
—
(21,592 )
(2,602 )
(24,194 )
150,746
15,339
(10,235 )
1,418
8,967
166,235
(30,801 )
26,804
(3,997 )
F-90
Table of Contents
Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
20. EMPLOYEE BENEFIT PLANS — (continued)
Pension and other benefits
Change in benefit obligations
Benefit obligation, January 1, 2009
Current service cost
Interest cost
Actuarial (gains) losses
Benefit payments
Employee contributions
Benefit obligation, December 31, 2009
Pension and other benefits
Change in fair value of plan assets
Fair value of plan assets, January 1, 2009
Return on plan assets
Benefit payments
Employee contributions
Employer contributions
Fair value of plan assets, December 31, 2009
Funded status
Plan surplus (deficit)
Unamortized net actuarial (gain) loss
Accrued benefit asset (liability)
Pension
December 31, 2009
Other
Total
126,754
1,963
9,470
23,975
(11,899 )
1,714
151,977
21,252
260
1,444
408
(953 )
22
22,433
148,006
2,223
10,914
24,383
(12,852 )
1,736
174,410
Pension
December 31, 2009
Other
Total
138,293
20,692
(11,899 )
1,714
1,946
150,746
(1,231)
15,430
14,199
—
—
(953 )
22
931
—
(22,433 )
(1,394 )
(23,827 )
138,293
20,692
(12,852 )
1,736
2,877
150,746
(23,664 )
14,036
(9,628 )
The fair value of the pension plan assets consists of the following asset categories:
At December 31,
Equity securities
Fixed income instruments
Short-term investments
Other
Total
2010
2009
61 %
36 %
2 %
1 %
100%
60 %
37 %
3 %
—
100%
Pension plan assets are valued as at the measurement date of December 31 each year.
F-91
Table of Contents
Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
20. EMPLOYEE BENEFIT PLANS — (continued)
The significant weighted-average assumptions adopted in measuring the Company’s pension and other benefit obligations were
as follows:
Accrued benefit obligation
Discount rate
Rate of compensation increase
Benefit costs for the periods ended
Discount rate
Expected long-term rate of return on plan assets
Rate of compensation increase
Pension
Other
Pension
Other
December 31, 2010
December 31, 2009
5.5%
3.0%
6.4%
7.0%
3.5%
5.5%
—
6.4%
—
—
7.5 %
3.5 %
6.4 %
7.5 %
3.5 %
7.5%
3.5%
6.4%
—
3.5%
For measurement purposes, the medical trend rate for drugs was assumed to be 10.5% for 2010, decreasing by 1% per annum, to
a rate of 4.5% per annum in 2016. The health care cost trend was assumed to be 9% grading down to 5% in 2018. Other medical trend
rates were assumed to be 4.5%.
The net benefit expense included the following components:
Pension Other Total Pension Other Total Pension Other Total
December 31, 2010
Year Ended
December 31, 2009
December 31, 2008
2,630
9,665
232
1,237
2,862
10,902
1,963
9,470
260
1,444
2,223
10,914
3,926
9,271
433
1,745
4,359
11,016
(10,231 )
81
2,145
—
(284 )
1,185
(10,231 )
(203 )
3,330
(10,011 )
(65 )
1,357
—
(144 )
1,560
(10,011)
(209 )
2,917
(12,686)
—
511
—
—
2,178
(12,686)
—
2,689
Current service cost
Interest cost
Expected return on plan
assets
Amortization
Net benefit expense
Sensitivity of assumptions
The impact of a hypothetical 1% change in the health care cost trend rate on the other post-retirement benefit obligation and the
aggregate of service and interest cost would have been as follows:
As reported
Impact of increase of 1% point
Impact of decrease of 1% point
Benefit
obligation
21,592
1,746
(1,483 )
Aggregate of
service and
interest cost
1,469
137
(114 )
The above sensitivities are hypothetical and should be used with caution. Changes in amounts based on a 1% point variation in
assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in amounts may not
be linear. The sensitivities have been calculated independently of changes in other key variables. Changes in one factor may result in
changes in another, which could amplify or reduce certain sensitivities.
F-92
Table of Contents
Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
21. COMMITMENTS AND CONTINGENT LIABILITIES
Off balance sheet commitments include operating leases, commitments for future capital expenditures and other future
purchases.
Off balance sheet commitments
Operating leases
Purchase commitments —
Satellite programs
Total off balance sheet
commitments
2011
26,720
2012
21,180
2013
19,115
2014
16,257
2015
11,350
Thereafter
39,234
Total
133,856
257,359
164,352
365
394
425
7,090
429,985
284,079
185,532
19,480
16,651
11,775
46,324
563,841
Certain of the Company’s satellite transponders, offices, warehouses, earth stations, vehicles, and office equipment are leased
under various terms. The aggregate lease expense for the year ended December 31, 2010, and the year ended December 31, 2009 was
$29.1 million, and $34.5 million respectively. The expiry terms range from January 2011 to January 2043.
Telesat has entered into contracts for the construction and launch of Telstar 14R/Estrela do Sul 2 (targeted for launch in mid-
2011), Nimiq 6 (targeted for launch in 2012), and Anik G1 (targeted for launch in 2012). The total outstanding commitments at
December 31, 2010 are in U.S. dollars.
Telesat has agreements with various customers for prepaid revenues on several satellites which take effect on final acceptance of
the spacecraft. Telesat is responsible for operating and controlling these satellites. Customer prepayments of $377.1 million (2009 —
$358.4 million), refundable under certain circumstances, are reflected in other liabilities, both current and long-term.
In the normal course of business, the Company has executed agreements that provide for indemnification and guarantees to
counterparties in various transactions. These indemnification undertakings and guarantees may require the Company to compensate
the counterparties for costs and losses incurred as a result of certain events including, without limitation, loss or damage to property,
change in the interpretation of laws and regulations (including tax legislation), claims that may arise while providing services, or as a
result of litigation that may be suffered by the counterparties. The nature of substantially all of the indemnification undertakings
prevents the Company from making a reasonable estimate of the maximum potential amount the Company could be required to pay
counterparties as the agreements do not specify a maximum amount and the amounts are dependent upon the outcome of future
contingent events, the nature and likelihood of which cannot be determined at this time. Historically, the Company has not made any
significant payments under such indemnifications.
Telesat and Loral have entered into an indemnification agreement whereby Loral will indemnify Telesat for any tax liabilities for
taxation years prior to 2007. Likewise, Telesat will indemnify Loral for the settlement of any tax receivables for taxation years prior to
2007.
Telesat Canada’s Anik F1 satellite, built by Boeing and launched in November 2000, has defective solar arrays that have caused
a drop in power output on the satellite and reduced its operational life. Telesat Canada filed a claim for Anik F1 as a constructive total
loss under its insurance policies and received an amount from its insurers in settlement of that claim. Telesat Canada continues to seek
recovery of approximately $11 million, as noted below. In November 2006, Telesat Canada commenced arbitration proceedings
against Boeing. A portion of its claim was in respect of the subrogated rights of its insurers. Telesat Canada is alleging in this
proceeding that Boeing was grossly negligent and/or engaged in willful misconduct in the design and manufacture of the Anik F1
satellite and in failing to warn Telesat Canada prior to the launch of a material deficiency in the power performance of a similar
satellite previously launched. The arbitration tribunal has been constituted and Telesat Canada has filed its Statement of Claim seeking
approximately $331 million plus costs and post-award interest. Boeing has responded by alleging that Telesat Canada failed to obtain
F-93
Table of Contents
Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
21. COMMITMENTS AND CONTINGENT LIABILITIES — (continued)
what it asserts to be contractually required waivers of subrogation rights such that, if Telesat Canada is successful in obtaining an
award which includes an amount in respect of the subrogated rights of the insurers, Boeing is entitled to off-setting damages in that
amount. This amount is alleged to be as much as approximately U.S. $182 million. Boeing also asserts that Telesat Canada owes
Boeing performance incentive payments pursuant to the terms of the satellite construction contract in the amount of approximately
U.S. $5.5 million. Telesat Canada and Boeing are now engaged in exchanging further documentary evidence. The hearing currently is
scheduled to commence in April 2012. While it is not possible to determine the ultimate outcome of the arbitration, Telesat Canada
intends to vigorously prosecute its claims and defend its position that no liability is owed Boeing in connection with the dispute and
that, in the circumstances of this case, it was not contractually required to obtain waivers of the subrogation rights at issue.
Telesat Canada filed a claim with its insurers on December 19, 2002 for Anik F1 as a constructive total loss under its insurance
policies for losses suffered as a result of the power loss on the satellite. In March 2004, Telesat reached a settlement agreement with
its insurers pursuant to which the insurers made an initial payment in 2004 of U.S. $136.2 million, with potential additional payments
to be made according to the amount of degradation of the power on Anik F1 through 2007. In December 2005, a number of insurers
elected to pay a discounted amount, equal to U.S. $26.2 million, of the proceeds potentially due in 2007. In October 2007, Telesat
submitted final claims to its insurers for approximately U.S. $20 million as a result of the continued power degradation. In
January 2008, those insurers disputed Telesat’s determination of the available power, contending that the final payment should be
approximately U.S. $2.7 million. During 2008, one insurer paid Telesat approximately U.S. $2.0 million in full settlement of its share
of Telesat’s claim. Telesat advised the insurers of its intention to proceed with arbitration of the dispute, and on July 30, 2009, Telesat
served its Claim in accordance with the procedural rules governing the arbitration. The insurers served their Statement of Defense on
October 16, 2009. In January 2011, Telesat reached a compromise settlement with three insurance underwriters. As a result, the
amount in dispute now totals approximately U.S. $11 million. The remaining parties are engaged in production of documents and
exchange of witness statements. The hearing currently is scheduled to commence in September 2011. While it is not possible to
determine the ultimate outcome of the arbitration, Telesat Canada intends to vigorously prosecute its claim.
22. RELATED PARTY TRANSACTIONS
Related parties include PSP Investments and Loral, the common shareholders, together with their subsidiaries and affiliates. The
following transactions were in the normal course of operations and were measured at the exchange amount, which is the amount of
consideration established and agreed to by the related parties.
Year ended December 31,
Service revenues
Operations and administration
Capital expenditures — Satellites, property and other equipment
Dividends on senior preferred shares (note 14)
Interest expense
2010
2009
2008
3,998
5,618
168,040
12,339
1,004
6,360
7,820
97,815
13,540
660
3,560
6,100
83,203
9,855
195
F-94
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Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
22. RELATED PARTY TRANSACTIONS — (continued)
The balances with related parties are as follows:
At December 31,
Accounts receivable
Other long-term assets
Accounts payable and accrued liabilities
Other current liabilities
Other long-term liabilities
Note and interest payable at end of period
Dividends payable on senior preferred shares (note 14)
Senior preferred shares (note 14)
2010
2009
428
2,332
51
1,003
22,418
17,525
2,075
141,435
1,019
2,461
1,234
—
15,401
12,210
25,090
141,435
Dividends of $35.4 million on the senior preferred shares were paid during the year ended December 31, 2010 (2009 — $nil,
2008 — $nil).
Telesat has entered into contracts for the construction of Telstar 14R/Estrela do Sul 2, Nimiq 6 and Anik G1 with Loral. The total
outstanding commitments at December 31, 2010 were $187.4 million (2009 — $225.1 million).
23. RECONCILIATION OF CANADIAN GAAP TO UNITED STATES GAAP
The Company has prepared these consolidated financial statements according to Canadian GAAP. The following tables are a
reconciliation of differences relating to the statement of (loss) earnings and total Shareholders’ equity reported according to Canadian
GAAP and United States GAAP (“U.S. GAAP”).
Reconciliation of Net Earnings (Loss)
Year ended December 31,
Canadian GAAP — Net earnings (loss)
(Losses) gains on embedded derivatives (a)
(Losses) gains on prepayment option embedded derivatives (a)
Sales type lease — operating lease for U.S. GAAP (b)
Capital lease — operating lease for U.S. GAAP (b)
Lease amendments (c)
Dividends on senior preferred shares (d)
Tax effect of above adjustments (e)
Uncertainty in income taxes (f)
U.S. GAAP — Net earnings (loss)
Other comprehensive (loss) earnings items:
Change in currency translation adjustment
Net actuarial plans cost (g)
Net actuarial losses
Net transitional assets
U.S. GAAP — Comprehensive earnings (loss)
F-95
2010
228,191
(11,601 )
(57,384 )
—
—
125
12,339
2,851
(1,255)
173,266
2009
430,765
(35,480 )
(16,702 )
1,514
(1,567 )
719
13,540
10,510
(8,053 )
395,246
2008
(831,271)
20,118
8,870
18,808
(7,584 )
(1,233 )
9,855
(8,761 )
(6,875 )
(798,073)
1,312
214
(7,143 )
(9,524)
—
165,054
(9,373 )
—
386,087
(1,169 )
—
(806,385)
Table of Contents
Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
23. RECONCILIATION OF CANADIAN GAAP TO UNITED STATES GAAP — (continued)
Accumulated Other Comprehensive Loss
Year ended December 31,
Cumulative translation adjustment, net of tax
Net benefit plans cost (g)
Net actuarial losses
Accumulated other comprehensive loss
Reconciliation of Total Shareholders’ Equity
Year ended December 31,
Canadian GAAP
Adjustments
Gains on embedded derivatives (a)
Gains on prepayment option embedded derivatives (a)
Net actuarial losses (g)
Sales type lease — operating lease for U.S. GAAP (b)
Capital lease — operating lease for U.S. GAAP (b)
Lease amendment (c)
Tax effect of above adjustments (e)
Uncertainty in income taxes (f)
U.S. GAAP
Description of United States GAAP adjustments:
(a) Derivatives and embedded derivatives
Embedded derivatives
2010
2009
2008
(6,216)
(7,528 )
(7,742 )
(20,065 )
(26,281 )
(10,541 )
(18,069 )
(1,169 )
(8,911 )
2010
1,132,325
2009
897,296
(26,189 )
(65,216 )
(20,065 )
23,070
(9,229 )
(398 )
4,875
(18,831 )
1,020,342
(14,588 )
(7,832 )
(10,541 )
23,070
(9,229 )
(619 )
2,024
(17,576 )
862,005
The accounting for derivative instruments and hedging activities under Canadian GAAP is now substantially harmonized
with U.S. GAAP, with the exception of the accounting for certain embedded derivatives. Under U.S. GAAP an embedded
foreign currency derivative in a host contract that is not a financial instrument must be separated and recorded on the
balance sheet unless the currency in which payments are to be paid or received is: i) either the functional currency of either
party to the contract or ii) the currency that the price of the related good or service is routinely denominated in commercial
transactions around the world (typically referring to a traded commodity). The same applies to an embedded foreign
currency derivative in a host contract under Canadian GAAP except that the entity has the option, as a matter of accounting
policy, to account for the embedded foreign currency derivative in a host contract as a single instrument providing certain
criteria are met. One of these criteria is that the payments to be paid or received are in a currency that is commonly used in
contracts to purchase or sell such non-financial items in the economic environment in which the transaction takes place.
This option under Canadian GAAP results in embedded derivatives that must be recorded separately under U.S. GAAP to
not have to be separately recorded and disclosed under Canadian GAAP. The additional option loosens the more stringent
U.S. GAAP requirement that the currency be one in which such commercial transactions are denominated around the world
to be one that is commonly used in the economic environment in which the transaction takes place.
F-96
Table of Contents
Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
23. RECONCILIATION OF CANADIAN GAAP TO UNITED STATES GAAP — (continued)
In accordance with U.S. GAAP, all derivative instruments embedded in contracts are recorded on the balance sheet at fair
value. The Company denominates many of its long-term international purchase contracts in U.S. dollars resulting in
embedded derivatives. This exposure to the U.S. dollar is partially offset by revenue contracts that are also denominated in
U.S. dollars. For Canadian GAAP, the Company has elected to account for such contracts as single instruments, resulting in
a U.S. GAAP reconciling item. At December 31, 2010, the fair value of assets resulting from embedded derivatives was
$8.4 million (2009 — $20.0 million), while the year to date loss was $11.6 million (2009 — loss of $35.5 million, 2008 —
gain of $20.1 million).
Prepayment option embedded derivatives
Under Canadian GAAP prepayment options on the Company’s senior notes and senior subordinated notes are considered
embedded derivatives that should be separately accounted for as derivatives and recorded at fair value at inception and
marked to market each reporting period thereafter. Under U.S. GAAP, these embedded prepayment options were
considered to be clearly and closely related to the host debt instruments and as a result were not accounted for as embedded
derivatives (see Note 18).
(b) Sales-type and capital leases
Under U.S. GAAP, if the beginning of a lease term falls within the last 25% of a leased asset’s total estimated economic
life; then it can only be classified as a capital lease if the lease transfers ownership at the end of the lease term or there is a
bargain purchase option. This exception does not exist under Canadian GAAP, therefore certain leases are reported as a
capital lease and sales-type lease respectively under Canadian GAAP, and as operating leases for U.S. GAAP as the limited
capital lease criteria were not met.
(c) Lease amendments
Under Canadian GAAP, when amendments to the provisions of a capital lease agreement result in a change in lease
classification from a capital lease to an operating lease, the gain or loss that results from removing the capital lease from the
balance sheet is immediately recognized in the statement of earnings. Under U.S. GAAP, if removing the capital lease from
the balance sheet results in a gain or loss it is recognized over the remaining term of the lease. Therefore, an adjustment has
been made to defer the gain that has been recognized under Canadian GAAP.
(d) Senior preferred shares
In accordance with U.S. GAAP, the senior preferred shares are classified outside of permanent equity as they are
redeemable at the option of the holder. These senior preferred shares are classified as liabilities under Canadian GAAP.
This results in a U.S. GAAP reconciling item to reflect the different classification. As a result of this change in
classification, the amounts are treated as dividends for U.S. GAAP and interest expense for Canadian GAAP.
(e) Income taxes
The income tax adjustment reflects the impact the U.S. GAAP adjustments described above have on income taxes. Included
in the figures presented in the table above is the effect of tax rate changes applied to the accumulated gains and losses on
embedded derivatives and to certain lease transactions classified as operating leases as discussed above. The impact on the
statement of operations of the tax rate changes for the year ended December 31, 2010 was a nominal amount (2009 —
recovery of $1.8 million, 2008 — expense of $0.6 million).
F-97
Table of Contents
Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
23. RECONCILIATION OF CANADIAN GAAP TO UNITED STATES GAAP — (continued)
(f) Uncertainty in income taxes
Effective January 1, 2007 the Company adopted the recognition requirements of the Financial Accounting Standards Board
(“FASB”) issued Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes , an interpretation of FAS
109. FIN 48, which has been primarily codified into FASB Accounting Standards Codification (“ASC”) Topic 740, Income
Taxes , provides specific guidance on the recognition, derecognition and measurement of income tax positions in financial
statements, including the accrual of related interest and penalties recorded in interest expense. An income tax position is
recognized when it is more likely than not that it will be sustained upon examination based on its technical merits, and is
measured as the largest amount that is greater than 50% likely of being realized upon ultimate settlement. Under Canadian
GAAP, significant differences exist as Telesat recognizes and measures income tax positions, based on the best estimate of
the amount that is more likely than not of being realized.
(g) Net benefit plans cost
Effective December 31, 2006, the Company adopted the recognition requirements of Statement of Financial Accounting
Standards (SFAS) No. 158, Employers’ Accounting for Defined Benefit Pension and Other Post Retirement Plans , on a
prospective basis. SFAS No. 158 has been primarily codified into ASC 715, Compensation .
This standard requires that the Company recognize the funded status of benefit plans on the balance sheet as well as
recognize as a component of other comprehensive income, net of tax, the actuarial losses and transitional asset and
obligation. Amounts recognized in accumulated other comprehensive income are adjusted as they are subsequently
recognized as components of net periodic benefit cost.
At December 31, 2010, the balance sheet was adjusted such that actuarial losses and the transitional asset and obligation
that have not yet been included in net benefit plans cost at December 31, 2010 were recognized as components of
accumulated other comprehensive loss, net of tax. The adjustment at December 31, 2010 resulted in an increase of
$9.5 million in accumulated other comprehensive loss, net of tax of $3.2 million (2009 — an increase of $9.4 million in
accumulated other comprehensive loss, net of tax of $3.0 million, 2008 — an increase of $1.2 million in accumulated other
comprehensive loss, net of tax of $0.3 million).
Transaction costs on long-term debt
Under Canadian GAAP, transaction costs of $61.6 million (2009 — $73.1 million) related to the issuance of long-term debt are
netted against the long-term debt. Under U.S. GAAP these costs are recognized as deferred charges. This results in a U.S. GAAP
reconciling item to reflect the different classification on the balance sheet.
Reporting disposal gains or losses of long-lived assets
Under Canadian GAAP, gains or losses on disposal of long-lived assets were included in Other income (expense). Under U.S.
GAAP a gain or loss recognized on the sale of a long-lived asset shall be included in income from operations, which would result in
an increase of earnings from operations and a decrease in non-operating earnings of $3.8 million for the year ended December 31,
2010 (2009 — a decrease of $33.4 million, 2008 — an increase of $0.3 million).
Statement of cash flows
There are no material differences in the consolidated statement of cash flows under U.S. GAAP other than the impact of the
items identified above.
F-98
Table of Contents
Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
23. RECONCILIATION OF CANADIAN GAAP TO UNITED STATES GAAP — (continued)
Recent Accounting Pronouncements
In October 2009, the FASB issued ASU No. 2009-13 Multiple-Deliverable Revenue Arrangements (“ASU 2009-13”). ASU
2009-13 requires entities to allocate revenues in the absence of vendor-specific objective evidence or third party evidence of selling
price for deliverables using a selling price hierarchy associated with the relative selling price method. ASU 2009-13 should be applied
on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15,
2010, with early adoption permitted. We do not expect that the adoption of ASU 2009-13 will have a material impact on our
consolidated results of operations or financial condition.
In January 2010, the FASB issued ASU No. 2010-06, which updates the guidance in ASC Topic 820 Fair Value Measurements
and Disclosures , related to disclosures about fair value measurements. This amendment will require entities to disclose separately the
amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and to describe the reasons for the
transfers, as well as to present separately, in the reconciliation for fair value measurements in Level 3, information about purchases,
sales, issuances and settlements on a gross basis rather than as one net amount. Currently, the Company only has Level 2 fair value
measurements. The ASU also amends ASC Subtopic 820-10 to clarify certain existing disclosures regarding the level of
disaggregation at which fair value measurements are provided for each class of assets and liabilities, as well as disclosures about
inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in
either Level 2 or Level 3. These new disclosures and clarifications of existing disclosures are effective for interim and annual
reporting periods beginning after December 15, 2009. The adoption of this guidance has not had, and is not expected to have, a
material impact on our financial position or results of operations.
In April 2010, the FASB issued ASU No. 2010-17 Revenue Recognition — Milestone Method (“ASU 2010-17”). ASU 2010-017
provides guidance in applying the milestone method of revenue recognition to research or development deliverables or units of
accounting under which a vendor satisfies its performance obligations over a period of time. Under this guidance management may
recognize revenue contingent upon the achievement of a milestone in its entirety, in the period in which the milestone is achieved,
only if the milestone meets all the criteria within the guidance to be considered substantive. This ASU is effective on a prospective
basis for such milestones achieved in fiscal years beginning on or after June 15, 2010, and, in the Company’s case, our fiscal 2011.
We will not pursue early adoption of ASU 2010-17, so the effect of this guidance will be limited to future transactions. We do not
expect that the adoption of ASU 2010-17 will have a material impact on our consolidated results of operations or financial condition.
24. SUBSEQUENT EVENT
On March 1, 2011, Telesat Canada and one of its subsidiaries (“Telesat”) entered into agreements (the “Assignment and
Assumption Agreements”) with Loral Space & Communications Inc. and one of its subsidiaries (“Loral”) pursuant to which Loral will
assign to Telesat and Telesat will assume from Loral all of Loral’s rights and obligations with respect to the Canadian payload on the
ViaSat-1 satellite, which is being built by Space Systems/Loral, Inc., and all related agreements. Under the Assignment and
Assumption Agreements, Loral will receive from Telesat US$13 million and will be reimbursed approximately US$48.2 million of net
costs incurred through closing of the sale, including under the Consulting Services Agreement and the Service Agreement which will
terminate. Also, if Telesat obtains any non-geostationary capacity on the payload, Loral will be entitled to receive one-half of any net
revenue actually earned by Telesat in connection with the leasing of such supplemental capacity to its customers during the first four
years after the commencement of service using the supplemental capacity. In connection with the sale, Loral will also assign to Telesat
and Telesat will assume Loral’s 15-year contract with Barrett Xplore Inc. for ViaSat 1. This transaction is expected to be completed in
March 2011.
F-99
Table of Contents
Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
25. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The 11.0% Senior Notes and the 12.5% Senior Subordinated Notes were co-issued by Telesat LLC and Telesat Canada, (“the
Issuers”) which are 100% owned subsidiaries of Telesat Holdings, and were guaranteed fully and unconditionally, on a joint and
several basis, by Telesat Holdings and certain of its subsidiaries.
The condensed consolidating financial information below for the years ended December 31, 2010, 2009 and 2008 are presented
pursuant to Article 3-10(d) of Regulation S-X. The information presented consists of the operations of Telesat Holdings. Telesat
Holdings primarily holds investments in subsidiaries and equity. Telesat LLC is a financing subsidiary that has no assets, liabilities or
operations.
The condensed consolidating financial information reflects the investments of Telesat Holdings in the Issuers, of the Issuers in
their respective Guarantor and Non-Guarantor subsidiaries and of the Guarantors in their Non-Guarantor subsidiaries using the equity
method.
Condensed Consolidating Balance Sheet
As at December 31, 2010
Telesat Telesat
Holdings LLC Telesat Canada Subsidiaries Subsidiaries Adjustments Consolidated
Guarantor Non-guarantor
Assets
Current assets
Cash and cash equivalents
Accounts receivable
Current future tax asset
Intercompany receivable
Other current assets
Total current assets
Satellites, property and other
— —
— —
— —
— —
— —
— —
196,682
28,744
1,582
219,035
12,291
458,334
21,135
13,593
175
202,459
7,482
244,844
2,478
1,772
143
112,436
6,703
123,532
—
—
—
(533,930)
—
(533,930)
220,295
44,109
1,900
—
26,476
292,780
equipment, net
Other long-term assets
Intangible assets, net
Investment in affiliates
Goodwill
Total assets
— —
— —
— —
1,311,220 —
— —
1,311,220 —
1,643,419
107,568
443,945
333,126
4,622
16,929
1,295,517 1,484,866
2,078,056
343,876
6,026,839 2,428,263
—
17,577
—
626
186
—
261 (4,091,864)
—
166,853 (4,625,794)
24,671
1,994,122
112,816
461,060
—
2,446,603
5,307,381
Liabilities
Current liabilities
Accounts payable and
accrued liabilities
Intercompany payable
Other current liabilities
Debt due within one year
Total current liabilities
Debt financing
Future tax liability
Other long-term liabilities
Senior preferred shares
Total liabilities
— —
35,385 —
2,075 —
— —
37,460 —
— —
— —
— —
141,435 —
178,895 —
31,667
124,484
120,165
96,847
373,163
2,771,802
305,548
649,904
—
4,100,417
15,096
374,061
1,534
1
390,692
—
(88 )
12,546
—
403,150
3,143
—
4,522
—
7,665
—
5,092
13,767
—
26,524
—
(533,930 )
—
—
(533,930)
—
—
—
—
(533,930)
49,906
—
128,296
96,848
275,050
2,771,802
310,552
676,217
141,435
4,175,056
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Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
25. CONDENSED CONSOLIDATING FINANCIAL INFORMATION — (continued)
Telesat Holdings LLC Telesat Canada Subsidiaries Subsidiaries Adjustments Consolidated
Telesat
Guarantor Non-guarantor
Shareholders’ equity
Common shares
756,414 —
2,320,730 1,896,596
104,434 (4,321,760)
756,414
Preferred shares
Accumulated deficit
541,764 —
(176,396 ) —
—
(471,353 )
—
199,084
—
31,828
—
240,441
541,764
(176,396)
Accumulated other
comprehensive loss
Contributed surplus
Total shareholders’
equity
Total liabilities and
(6,207 ) —
16,750 —
63
76,982
(10,045 )
(60,522 )
3,777
290
6,205
(16,750)
(6,207 )
16,750
1,132,325 —
1,926,422 2,025,113
140,329 (4,091,864)
1,132,325
shareholders’ equity
1,311,220 —
6,026,839 2,428,263
166,853 (4,625,794)
5,307,381
Reconciliation to U.S.
GAAP of total
shareholders’ equity
is as follows:
Canadian GAAP
Underlying differences in
the income (loss) from
equity investments
Embedded derivatives
Net actuarial gains
(losses)
Sales type lease —
operating lease for
U.S. GAAP
Capital lease — operating
lease for U.S. GAAP
Lease amendments
Tax effect of above
adjustments
Uncertainty in income
taxes
U.S. GAAP
1,132,325 —
1,926,422 2,025,113
140,329 (4,091,864)
1,132,325
(111,983 ) —
— —
(239 )
(91,405 )
(239 )
—
—
—
112,461
—
—
(91,405)
— —
(20,065 )
—
—
—
(20,065)
— —
23,070
— —
— —
(9,229 )
—
—
—
—
—
—
23,070
—
(398)
—
—
(9,229 )
(398)
— —
4,716
—
159
—
4,875
— —
1,020,342 —
(18,831 )
—
1,814,439 2,024,874
—
—
140,090 (3,979,403)
(18,831)
1,020,342
F-101
Table of Contents
Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
25. CONDENSED CONSOLIDATING FINANCIAL INFORMATION — (continued)
Condensed Consolidating Statement of Earnings (Loss)
For the year ended December 31, 2010
Operating revenues
Service revenues
Equipment sales revenues
Total operating revenues
Amortization
Operations and
administration
Cost of equipment sales
Total operating expenses
Earnings (loss) from
operations
Income (loss) from equity
investments
Interest expense
(Loss) gain on changes in
fair value of financial
instruments
Gain (loss) on foreign
exchange
Other income (expense)
Earnings (loss) before
income taxes
Income tax recovery
(expense)
Net earnings (loss)
Reconciliation to U.S.
GAAP is as follows:
Income (loss) from equity
investments
Embedded derivatives
Lease amendments
Dividends on senior
preferred shares
Tax effect of above
adjustments
Telesat Telesat
Holdings LLC Telesat Canada Subsidiaries Subsidiaries Adjustments Consolidated
Guarantor Non-guarantor
— —
736,980
86,413
23,839
(46,088)
801,144
— —
— —
— —
— —
— —
— —
8,709
745,689
195,287
11,636
98,049
51,823
138,483
6,791
340,561
74,363
8,863
135,049
—
23,839
4,084
19,758
—
23,842
(128 )
(46,216)
—
(46,137)
(79 )
(46,216)
20,217
821,361
251,194
186,467
15,575
453,236
— —
405,128
(37,000 )
(3 )
—
368,125
240,530 —
(12,339 ) —
(36,162 )
(239,059 )
(31,196 )
52
—
(1,740)
(173,172)
—
—
(253,086 )
— —
(11,168 )
—
—
—
(11,168)
— —
— —
162,921
2,757
7,365
1,663
(6,288)
(81 )
—
—
163,998
4,339
228,191 —
284,417
(59,116 )
(8,112)
(173,172)
272,208
— —
228,191 —
(43,887 )
240,530
(906 )
(60,022 )
776
(7,336)
—
(173,172)
(44,017)
228,191
(67,264 ) —
— —
37
(68,985 )
— —
12,339 —
—
—
— —
— —
2,939
(1,255 )
37
—
—
—
—
—
—
—
67,190
—
—
(68,985)
125
—
125
—
(88)
—
—
12,339
—
—
2,851
(1,255 )
Uncertainty in income taxes
U.S. GAAP net earnings
(loss)
173,266 —
173,266
(59,985 )
(7,299)
(105,982)
173,266
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Table of Contents
Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
25. CONDENSED CONSOLIDATING FINANCIAL INFORMATION — (continued)
Condensed Consolidating Statement of Cash Flow
For the year ended December 31, 2010
Telesat Telesat
Holdings LLC Telesat Canada Subsidiaries Subsidiaries Adjustments Consolidated
Guarantor Non-guarantor
Cash flows from (used in)
operating activities
Net earnings (loss)
228,191 —
240,530
(60,022 )
(7,336)
(173,172)
228,191
Adjustments to reconcile net
earnings (loss) to cash
flows from operating
activities:
Amortization
Future income taxes
Unrealized foreign exchange
(gain) loss
Unrealized (gain) loss on
derivatives
Dividends on senior
preferred shares
Stock-based compensation
expense
(Income) loss from equity
— —
— —
195,287
42,757
51,823
(117 )
4,084
(902 )
—
—
251,194
41,738
— —
(168,787 )
(7,534 )
6,273
—
(170,048 )
— —
13,955
2,075 —
—
—
—
—
—
—
13,955
—
2,075
— —
4,908
554
191
—
5,653
investments
(240,530 ) —
36,162
31,196
—
173,172
—
(Gain) loss on disposal of
assets
Other
Customer prepayments on
future satellite services
Operating assets and
liabilities
Cash flows from (used in)
investing activities
Satellite programs
Property additions
Proceeds on disposal of
assets
Dividends received
— —
— —
(3,754 )
(24,600 )
(72 )
(315 )
—
(183 )
—
—
(3,826 )
(25,098)
— —
30,982
—
—
—
30,982
10,294 —
30 —
(45,094 )
322,346
2,798
18,311
1,996
4,123
—
—
(30,006)
344,810
— —
— —
(257,725 )
(2,299 )
—
(1,556 )
—
(111 )
—
—
(257,725 )
(3,966 )
— —
— —
26,782
10,000
144
—
—
—
—
(10,000)
26,926
—
— —
(223,242 )
(1,412 )
(111 )
(10,000)
(234,765)
Cash flows from (used in)
financing activities
Repayment of debt financing
Dividends paid on preferred
shares
Capital lease payments
Satellite performance
incentive payments
Dividends paid
Effect of changes in
exchange rates on cash
and cash equivalents
Increase (decrease) in cash
and cash equivalents
Cash and cash equivalents,
beginning of period
Cash and cash equivalents,
end of period
— —
(34,946 )
(30 ) —
— —
— —
— —
(30 ) —
—
—
—
—
—
(5,099 )
—
(40,045 )
—
(10,000 )
(10,000 )
—
—
(34,946)
—
(3,306 )
—
—
(3,306)
—
—
(30 )
(3,306 )
—
10,000
10,000
(5,099 )
—
(43,381)
— —
—
4
(562 )
—
(558)
— —
59,059
6,903
144
—
66,106
— —
137,623
14,232
2,334
—
154,189
— —
196,682
21,135
2,478
—
220,295
F-103
Table of Contents
Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
25. CONDENSED CONSOLIDATING FINANCIAL INFORMATION — (continued)
Condensed Consolidating Balance Sheet
As at December 31, 2009
Telesat Telesat
Holdings LLC Telesat Canada Subsidiaries Subsidiaries Adjustments Consolidated
Guarantor Non-guarantor
Assets
Current assets
Cash and cash equivalents
Accounts receivable
Current future tax asset
Intercompany receivable
Other current assets
Total current assets
Satellites, property and other
— —
— —
— —
— —
— —
— —
137,623
51,447
1,703
249,103
13,758
453,634
14,232
15,591
350
150,490
8,234
188,897
2,334
3,165
131
120,038
7,026
132,694
—
—
—
(519,631 )
—
(519,631 )
154,189
70,203
2,184
—
29,018
255,594
equipment, net
Other long-term assets
Intangible assets, net
Investment in affiliates
— —
— —
— —
1,063,821 —
1,446,613
50,015
492,435
457,595
6,249
17,854
1,339,307 1,477,582
—
21,982
—
660
386
—
261 (3,880,971)
1,926,190
56,924
510,675
—
Goodwill
Total assets
— —
1,063,821 —
2,078,057
343,876
5,860,061 2,492,053
24,670
—
180,653 (4,400,602)
2,446,603
5,195,986
Liabilities
Current liabilities
Accounts payable and
accrued liabilities
Intercompany payable
— —
— —
32,059
108,346
6,798
411,285
4,556
—
—
(519,631)
43,413
—
Other current liabilities
Debt due within one year
Total current liabilities
Debt financing
Future tax liability
Other long-term liabilities
Senior preferred shares
Total liabilities
— —
— —
— —
— —
— —
25,090 —
141,435 —
166,525 —
121,140
23,601
285,146
3,021,820
262,913
611,568
—
4,181,447
2,397
1
420,481
—
86
16,370
—
436,937
4,167
—
8,723
—
6,194
18,495
—
33,412
—
—
(519,631 )
—
—
—
—
(519,631 )
127,704
23,602
194,719
3,021,820
269,193
671,523
141,435
4,298,690
Shareholders’ equity
Common shares
756,414 —
2,320,730 1,896,596
104,434 (4,321,760)
756,414
Preferred shares
Accumulated deficit
541,764 —
(404,557 ) —
—
(714,253 )
—
230,623
—
39,165
—
444,465
541,764
(404,557)
Accumulated other
comprehensive loss
(7,422 ) —
Contributed surplus
11,097 —
Total shareholders’ equity 897,296 —
Total liabilities and
63
72,074
(11,028 )
(61,075 )
1,678,614 2,055,116
3,544
98
7,421
(11,097 )
147,241 (3,880,971)
(7,422 )
11,097
897,296
shareholders’ equity
1,063,821 —
5,860,061 2,492,053
180,653 (4,400,602)
5,195,986
Reconciliation to U.S.
GAAP of total
shareholders’ equity is
as follows:
Canadian GAAP
Underlying differences in
the income (loss) from
equity investments
Embedded derivatives
897,296 —
1,678,614 2,055,116
147,241 (3,880,971)
897,296
Net actuarial losses
— —
(10,541 )
—
(35,291 ) —
— —
(372 )
(22,420 )
(372 )
—
—
—
—
36,035
—
—
(22,420)
—
(10,541)
Sales type lease — operating
lease for U.S. GAAP
Capital lease — operating
lease for U.S. GAAP
Lease amendments
— —
23,070
— —
— —
(9,229 )
—
—
—
—
—
—
23,070
—
(619)
—
—
(9,229 )
(619)
Tax effect of above
adjustments
Uncertainty in income taxes
U.S. GAAP
— —
— —
862,005 —
1,777
(17,576 )
—
—
1,643,323 2,054,744
247
—
—
—
146,869 (3,844,936)
2,024
(17,576)
862,005
F-104
Table of Contents
Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
25. CONDENSED CONSOLIDATING FINANCIAL INFORMATION — (continued)
Condensed Consolidating Statement of Earnings (Loss)
For the year ended December 31, 2009
Operating revenues
Service revenues
Telesat Telesat
Holdings LLC Telesat Canada subsidiaries subsidiaries Adjustments Consolidated
Guarantor Non-guarantor
— —
704,397
78,559
46,216
(62,034 )
767,138
Equipment sales revenues
Operating revenues
— —
— —
6,696
711,093
13,570
92,129
—
46,216
(206 )
(62,240 )
20,060
787,198
Amortization
Operations and
administration
Cost of equipment sales
Total operating expenses
Earnings from operations
Income (loss) from equity
— —
198,676
47,055
11,136
—
256,867
— —
— —
— —
— —
173,371
5,829
377,876
333,217
80,554
10,552
138,161
(46,032 )
28,004
—
39,140
7,076
(62,239 )
(1)
(62,240 )
—
219,690
16,380
492,937
294,261
investments
Interest expense
444,305 —
(13,540 ) —
(3,153 )
(255,670 )
(5,047)
(1,318)
—
(2,252)
(436,105 )
—
—
(272,780 )
(Loss) gain on financial
instruments
Gain (loss) on foreign
exchange
Other (expense) income
(Loss) earnings before
income taxes
Income tax
(expense) recovery
Net (loss) earnings
Reconciliation to US
GAAP is as follows:
Income (loss) from equity
investments
Embedded derivatives
— —
(116,992 )
—
—
—
(116,992 )
— —
— —
486,507
5,479
29,869
1,321
(17,010 )
25,059
—
—
499,366
31,859
430,765 —
449,388
(21,207 )
12,873
(436,105)
435,714
— —
430,765 —
(5,083 )
444,305
(1,458)
(22,665 )
1,592
14,465
—
(436,105)
(4,949 )
430,765
(49,059 ) —
— —
475
(52,182 )
475
—
—
—
48,109
—
—
(52,182)
Sales type lease — operating
lease for U.S. GAAP
Capital lease — operating
lease for U.S. GAAP
Lease amendments
Dividends on senior
preferred shares
Tax effect of above
adjustments
Uncertainty in income taxes
US GAAP net
— —
1,514
— —
— —
(1,567 )
—
13,540 —
—
— —
— —
10,754
(8,053 )
—
—
—
—
—
—
—
—
1,514
—
719
—
—
(1,567 )
719
—
—
13,540
(244)
—
—
—
10,510
(8,053 )
(loss) earnings
395,246 —
395,246
(22,190 )
14,940
(387,996)
395,246
F-105
Table of Contents
Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
25. CONDENSED CONSOLIDATING FINANCIAL INFORMATION — (continued)
Condensed Consolidating Statement of Cash Flows
For the year ended December 31, 2009
Telesat Telesat
Holdings LLC Telesat Canada subsidiaries subsidiaries Adjustments Consolidated
Guarantor Non-guarantor
Cash flows from operating
activities
Net earnings (loss)
430,765 —
444,305
(22,665 )
14,465
(436,105 )
430,765
Adjustments to reconcile net
earnings (loss) to cash
flows from operating
activities:
Amortization
Future income taxes
Unrealized foreign exchange
loss
Unrealized gain on
derivatives
Dividends on preferred
— —
— —
198,676
6,245
47,055
271
11,136
(1,918)
—
—
256,867
4,598
— —
(508,499 )
(12,769 )
(1,368)
—
(522,636 )
— —
116,992
shares
13,540 —
—
Stock-based compensation
expense
Loss (income) from equity
— —
4,696
854
—
—
—
—
99
—
116,992
—
13,540
—
5,649
investments
(444,305 ) —
3,153
5,047
—
436,105
—
(Gain) loss on disposal of
assets
Other
Customer prepayments on
future satellite services
Customer refunds
Operating assets and
liabilities
Cash flows from investing
activities
Satellite programs
— —
— —
(8,013 )
(49,760 )
590
3,267
(26,007)
(310)
—
—
(33,430)
(46,803)
— —
— —
82,066
(17,459 )
900
(107 )
—
—
—
—
82,966
(17,566)
— —
— —
21,144
293,546
(20,756 )
1,687
6,815
2,912
—
—
7,203
298,145
— —
(258,083 )
—
—
—
(258,083 )
Property additions
— —
(5,130 )
(722 )
(266)
—
(6,118 )
Proceeds on disposal of
assets
Cash flows from financing
activities
Debt financing
Repayment of debt financing
Capitalized debt issuance
costs
Capital lease payments
Satellite performance
incentive payments
Effect of changes in
exchange rates on cash
and cash equivalents
Increase (decrease) in cash
and cash equivalents
Cash and cash equivalents,
beginning of period
Cash and cash equivalents,
end of period
— —
— —
70,942
(192,271 )
458
(264 )
—
(266)
—
—
71,400
(192,801 )
— —
— —
— —
— —
— —
— —
23,880
(53,844 )
—
(11,359 )
(5,418 )
(46,741 )
—
(11 )
—
—
—
(11 )
—
—
—
(3,261 )
—
(3,261)
—
—
—
—
—
—
23,880
(53,855)
—
(14,620)
(5,418 )
(50,013)
— —
—
764
(445)
—
319
— —
54,534
2,176
(1,060)
—
55,650
— —
83,089
12,056
3,394
—
98,539
— —
137,623
14,232
2,334
—
154,189
F-106
Table of Contents
Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
25. CONDENSED CONSOLIDATING FINANCIAL INFORMATION — (continued)
The reconciliation of the condensed consolidating balance sheet captions is as follows:
December 31, 2010
Telesat Canada
Current assets
Other assets
Goodwill
Current liabilities
Debt financing
Future tax liability
Other long-term liabilities
Accumulated deficit
Accumulated other comprehensive income (loss)
Non-guarantor subsidiaries
Current liabilities
Future tax liability
Other long-term liabilities
Accumulated earnings
Accumulated other comprehensive income
Telesat Canada
Current assets
Other assets
Goodwill
Current liabilities
Debt financing
Future tax liability
Other long-term liabilities
Accumulated deficit
Accumulated other comprehensive income (loss)
Non-guarantor subsidiaries
Current liabilities
Future tax liability
Other long-term liabilities
Accumulated earnings
Accumulated other comprehensive income
Canadian GAAP Adjustments US GAAP
456,338
113,697
2,065,364
391,903
2,814,046
300,601
696,734
(562,714)
(20,002)
458,334
107,568
2,078,056
373,163
2,771,802
305,548
649,904
(471,353)
63
(1,996 )
6,129
(12,692 )
18,740
42,244
(4,947 )
46,830
(91,361 )
(20,065 )
Canadian GAAP Adjustments US GAAP
7,771
5,251
14,059
31,280
3,768
7,665
5,092
13,767
31,828
3,777
106
159
292
(548 )
(9 )
December 31, 2009
Canadian GAAP Adjustments US GAAP
462,997
117,758
2,065,365
296,608
3,075,331
263,973
644,375
(738,137)
(10,478)
453,634
50,015
2,078,057
285,146
3,021,820
262,913
611,568
(714,253)
63
9,363
67,743
(12,692 )
11,462
53,511
1,060
32,807
(23,884 )
(10,541 )
Canadian GAAP Adjustments US GAAP
8,853
6,441
18,984
38,405
3,438
8,723
6,194
18,495
39,165
3,544
130
247
489
(760 )
(106 )
F-107
Table of Contents
Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
25. CONDENSED CONSOLIDATING FINANCIAL INFORMATION — (continued)
Condensed Consolidating Statement of Earnings (Loss)
For the year ended December 31, 2008
Operating revenues
Service revenues
Telesat Telesat
Holdings LLC Telesat Canada subsidiaries subsidiaries Adjustments Consolidated
Guarantor Non-guarantor
— —
613,419
98,342
26,700
(57,670 )
680,791
Equipment sales revenues
Operating revenues
— —
— —
12,459
625,878
18,296
116,638
—
26,700
(171 )
(57,841 )
30,584
711,375
Amortization
Operations and
administration
Cost of equipment sales
Impairment loss on long-
lived assets
Impairment loss on
intangible assets
Total operating expenses
Earnings from operations
Income (loss) from equity
— —
179,100
36,218
20,322
—
235,640
— —
— —
197,506
9,944
99,267
14,500
8,438
104
(57,661 )
(180 )
247,550
24,368
— —
2,373
—
—
—
2,373
— —
— —
— —
465,900
854,823
(228,945 )
17,100
167,085
(50,447 )
—
28,864
(2,164)
—
(57,841 )
—
483,000
992,931
(281,556 )
investments
Interest expense
(821,416 ) —
(9,855 ) —
(60,472 )
(245,355 )
(5,130)
25
—
(2,128)
887,018
—
—
(257,313 )
(Loss) gain on financial
instruments
Gain (loss) on foreign
exchange
Other (expense) income
(Loss) earnings before
income taxes
Income tax recovery
(expense)
Net (loss) earnings
Reconciliation to US
GAAP is as follows:
Income (loss) from equity
investments
Embedded derivatives
Sales type lease — operating
lease for U.S. GAAP
Capital lease — operating
lease for U.S. GAAP
Lease amendments
Dividends on senior
preferred shares
Tax effect of above
adjustments
Uncertainty in income taxes
US GAAP net
— —
241,720
—
—
—
241,720
— —
— —
(692,951 )
(3,868 )
(17,106 )
913
12,769
1,242
—
—
(697,288 )
(1,713 )
(831,271 ) —
(989,871 )
(71,745 )
9,719
887,018
(996,150)
— —
(831,271 ) —
168,455
(821,416 )
(2,730)
(74,475 )
(846)
8,873
—
887,018
164,879
(831,271)
23,343 —
— —
(742 )
28,988
— —
18,808
— —
— —
(7,584 )
—
9,855 —
—
— —
— —
(9,252 )
(6,875 )
—
—
—
—
—
—
—
—
—
—
—
(22,601)
—
—
28,988
—
18,808
—
(1,233 )
—
—
(7,584 )
(1,233 )
—
—
9,855
491
—
—
—
(8,761 )
(6,875 )
(loss) earnings
(798,073 ) —
(798,073 )
(74,475 )
8,131
864,417
(798,073)
F-108
Table of Contents
Telesat Holdings Inc.
Notes to the 2010 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except for per share
amounts and where otherwise noted)
25. CONDENSED CONSOLIDATING FINANCIAL INFORMATION — (continued)
Condensed Consolidating Statement of Cash Flows
For the year ended December 31, 2008
Telesat Telesat
Holdings LLC Telesat Canada subsidiaries subsidiaries Adjustments Consolidated
Guarantor Non-guarantor
Cash flows from operating
activities
Net earnings (loss)
(831,271 )
(821,416 )
(74,475 )
8,873
887,018
(831,271)
— —
— —
179,100
(175,744 )
36,218
84
20,322
(291)
—
—
235,640
(175,951 )
— —
697,907
6,172
(9,402)
—
694,677
— —
(237,965 )
9,855 —
—
—
—
— —
5,246
202
— —
— —
827
468,273
(575 )
17,100
—
—
—
—
—
—
(237,965 )
—
9,855
—
5,448
—
—
252
485,373
821,416 —
— —
60,472
(41,820 )
5,130
(742 )
—
(841)
(887,018 )
(1,044 )
—
(44,447)
— —
88,473
114
—
—
88,587
— —
— —
(42,880 )
180,473
107,584
96,812
(16,889)
1,772
1,044
—
48,859
279,057
Property additions
— —
(6,505 )
(2,304)
— —
(194,542 )
(69,221 )
— —
— —
— —
— —
566
4,006
7,477
(188,998 )
4,554
—
—
(66,971 )
—
(53 )
—
—
—
(53 )
—
(263,763 )
—
(8,862 )
—
—
(7,477 )
(7,477 )
5,120
4,006
—
(263,499)
Adjustments to reconcile net
earnings (loss) to cash
flows from operating
activities:
Amortization
Future income taxes
Unrealized foreign exchange
loss
Unrealized gain on
derivatives
Dividends on preferred
shares
Stock-based compensation
expense
(Gain) Loss on disposal of
assets
Impairment losses
Loss (income) from equity
investments
Other
Customer prepayments on
future satellite services
Operating assets and
liabilities
Cash flows from investing
activities
Satellite programs
Proceeds on disposal of
assets
Insurance proceeds
Dividends received
Cash flows from financing
activities
Debt financing and bank
loans
Repayment of bank loans
and debt financing
Capitalized debt issuance
costs
Capital lease payments
Satellite performance
incentive payments
Dividends paid
Effect of changes in
exchange rates on cash
and cash equivalents
Increase (decrease) in cash
and cash equivalents
Cash and cash equivalents,
beginning of period
Cash and cash equivalents,
end of period
— —
186,687
—
— —
(91,528 )
(32 )
—
—
—
186,687
—
(91,560)
— —
— —
(19,131 )
(8,197 )
—
(19,816 )
—
(2,941)
—
—
(19,131)
(30,954)
— —
— —
(3,524 )
—
—
(7,477 )
—
—
—
7,477
(3,524 )
—
— —
64,307
(27,325 )
(2,941)
7,477
41,518
— —
—
(1,660 )
920
—
(740)
— —
55,782
856
(302)
—
56,336
— —
27,308
11,200
3,695
—
42,203
— —
83,090
12,056
3,393
—
98,539
F-109
Exhibit 10.27
[DEFERRED SETTLEMENT]
RESTRICTED STOCK UNIT AGREEMENT
UNDER THE
LORAL SPACE & COMMUNICATIONS INC.
2005 STOCK INCENTIVE PLAN
THIS AGREEMENT (the “Agreement”) is made as of the 5th day of March, 2011 (the “Grant Date”), by and between LORAL
SPACE & COMMUNICATIONS INC. (the “Company”) and Michael B. Targoff (the “Grantee”).
W I T N E S S E T H :
WHEREAS, on March 5, 2009, the Company entered into a Restricted Stock Unit Agreement with Grantee (the “2009 RSU
Agreement”), pursuant to which the Company agreed to grant to Grantee 40,000 restricted stock units on the Grant Date, subject to
Grantee’s continued employment with the Company through the Grant Date, or as otherwise provided in the 2009 RSU Agreement;
WHEREAS, Grantee has satisfied the continued service requirements under the 2009 RSU Agreement and remains currently
employed by the Company in a key capacity, and the Company wishes to fulfill its current obligations under the 2009 RSU Agreement
to grant the Grantee a notional interest in 40,000 shares of the Company’s common stock, par value $0.01 per share (the “Stock”), in
the form of restricted stock units, subject to certain restrictions and on the terms and conditions set forth herein; and
WHEREAS, through the grant of these restricted stock units, the Company hopes to incentivise and retain the services of
Grantee and encourage stock ownership by Grantee in order to give Grantee a proprietary interest in the Company’s success and align
Grantee’s interest with those of the stockholders of the Company;
NOW, THEREFORE, in consideration of the covenants and agreements herein contained, the parties hereto hereby agree as
follows:
1. Grant of Restricted Stock Units. Pursuant to the 2009 RSU Agreement and subject to the restrictions, terms and conditions
set forth herein and in the Company’s 2005 Stock Incentive Plan, as amended from time to time (the “Plan”), the Company hereby
grants to the Grantee 40,000 restricted stock units (the restricted stock units granted hereunder are hereafter referred to as the
“Restricted Stock Units”). Each Restricted Stock Unit shall represent the right to receive upon settlement (i) one share of Stock or
(ii) cash equal to the fair market value of one share of Stock on the settlement date, subject to the terms and conditions set forth herein.
Capitalized terms not defined herein shall have the meaning ascribed to them in the Plan. For the sake of clarity, the Grant of
Restricted Stock Units hereby is pursuant to and consistent with the 2009 RSU Agreement and not in addition to the restricted stock
units referenced in the 2009 RSU Agreement.
2. Vesting. The Restricted Stock Units granted hereunder are fully vested as of the Grant Date.
3. Settlement of Restricted Stock Units.
(a) All outstanding vested Restricted Stock Units shall be settled on the earlier of (a) March 31, 2013, (b) the date of the
Grantee’s death or Disability, (c) the date the Grantee undergoes a Separation from Service (as defined below), and (d) the date of
consummation of a Change in Control that also constitutes a “change in control event” within the meaning of Treasury
Regulation Section 1.409A-3(i)(5) (the first of (a), (b), (c) and (d) to occur shall be the “Settlement Date”); provided , however , that
to the extent that the Grantee is a “specified employee” within the meaning of Treasury Regulation 1.409A-1(i) any settlement of the
Restricted Stock Units on account of the Grantee’s Separation from Service from the Company shall be delayed for such period of
time as may be necessary to meet the requirements of Treasury Regulation Section 1.409A-3(i)(2) (the “Delay Period”) and on the
first business day following the expiration of the Delay Period, all vested Restricted Stock Units shall be settled. On the Settlement
Date, the Company shall deliver to the Grantee (or the Grantee’s estate in the event of Grantee’s death) (x) a certificate or certificates
representing the number of shares of Stock equal to the number of vested Restricted Stock Units or (y) a lump sum payment of cash
having a value equal to the fair market value of one share of Stock as of the Settlement Date multiplied by the number of vested
Restricted Stock Units. The determination as to whether the Restricted Stock Units will be settled in Stock or cash shall be within the
sole discretion of the Company.
(b) For purposes of this Agreement, a “Separation from Service” will be deemed to occur on the date as of which the
Grantee has undergone a “termination of employment” (as that term is specifically defined in Treas. Reg. §1.409A-1(h)(ii) applying
the rules set forth therein) with the Loral Controlled Group (as defined below); provided , however , that the Grantee will be deemed
to undergo a termination of employment (and thus a Separation from Service) on the date that such Grantee’s level of bona fide
services performed decreases to a level less than 50 percent of the average level of services performed by the Grantee during the
immediately preceding 36-month period. For purposes of this Agreement the Loral Controlled Group means Loral and all persons and
entities with respect to which Loral would be considered a single employer under Code §414(b) and (c), provided , however , that in
applying Code §1563(a)(1), (2) and (3) for purposes of determining a controlled group of corporations and in applying Treas. Reg.
§1.414(c)-2 for purposes of determining trades or businesses that are under common control, as provided in Treas. Reg. §1.409A-1(h)
(3), the language “at least 80 percent” is used, instead of the default language “at least 50 percent” as set forth in Treas. Reg. §1.409A-
1(h)(3), each place it appears.
4. Dividends and Dividend Equivalents. No dividends or dividend equivalents shall accrue or be paid with respect to any
outstanding Restricted Stock Units.
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5. Rights of Stockholder. The Grantee will not have any rights as a Stockholder with respect to any Restricted Stock Units until
the Grantee becomes the holder of record of such shares.
6. No Right to Continued Employment. This Agreement does not confer upon the Grantee any right to continuance of
employment with the Company, nor shall it interfere in any way with the right of the Company to terminate his or her employment at
any time.
7. Transferability. The Restricted Stock Units may not, at any time prior to settlement, be assigned, alienated, pledged,
attached, sold or otherwise transferred or encumbered by the Grantee other than by will or the laws of descent and distribution and any
such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable.
8. Tax Withholding. The Grantee agrees as a condition of this Agreement, to pay to the Company, or make arrangements
satisfactory to the Company regarding payment to the Company of, the aggregate amount of federal, state and local income and
payroll taxes that the Company is required to withhold in connection with the vesting and settlement of the Restricted Stock Units.
Alternatively, the Company may, in its sole discretion, withhold cash and/or shares of Stock having a value equal to all or a portion of
the aggregate minimum amount of federal, state and local income and payroll taxes that the Company is required to withhold, and, if
only a portion of the required amount is withheld, the Grantee agrees to pay to the Company, or make arrangements satisfactory to the
Company regarding payment to the Company of, the amount of tax withholding not covered by the withholding of cash and/or shares
of Stock.
9. Notice. Every notice or other communication relating to this Agreement shall be in writing, and shall be mailed to or
delivered to the party for whom it is intended at such address as may from time to time be designated by it in a notice mailed or
delivered to the other party as herein provided; provided that, unless and until some other address be so designated, all notices or
communications by the Grantee to the Company shall be mailed or delivered to the Company at its New York office and all notices or
communications by the Company to the Grantee may be given to the Grantee personally or may be mailed to the Grantee’s home
address as reflected on the books of the Company.
10. Arbitration. All disputes between the parties arising out of, or in connection with the validity, interpretation, construction,
meaning or execution of the Plan or of this Agreement or any settlement thereof, shall be finally settled by arbitration to be held in
New York City and conducted in accordance with the Rules of the American Arbitration Association. Judgment upon the award
rendered may be entered in any court having jurisdiction or application may be made to such court for judicial acceptance of the award
and an order of enforcement, as the case may be.
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11. Governing Law. The validity, interpretation and performance of this Agreement shall be controlled by and construed under
the laws of Delaware, without giving effect to the principles of conflicts of law.
12. Employment Agreement Superseded. This Agreement governs the terms and conditions of the Restricted Stock Units and
supersedes the Employment Agreement and all other agreements and arrangements as they may relate to the Restricted Stock Units.
13. Signature in Counterparts. This Agreement may be signed in counterparts, each of which shall be an original, with the
same effect as if the signatures thereto and hereto were upon the same instrument.
* * *
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written.
LORAL SPACE & COMMUNICATIONS INC.
By: /s/ Avi Katz
Name: Avi Katz
Title: Senior Vice President, General Counsel
and Secretary
/s/ Michael B. Targoff
Grantee: Michael B. Targoff
Mailing Address of Grantee for Delivery of Stock Certificates:
Phone Number of Grantee:
Email Address of Grantee:
Social Security No.:__________—__________—__________
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[NON-EMPLOYEE DIRECTOR GRANT]
Exhibit 10.35
RESTRICTED STOCK UNIT AGREEMENT
UNDER THE
LORAL SPACE & COMMUNICATIONS INC.
2005 STOCK INCENTIVE PLAN
THIS AGREEMENT (the “Agreement”) is made as of the 18th day of May, 2010 (the “Grant Date”), by and between LORAL
SPACE & COMMUNICATIONS INC. (the “Company”) and (the “Grantee”).
W I T N E S S E T H :
WHEREAS, the Grantee is currently a non-employee member of the Board of Directors (the “Board”) of the Company and the
Company desires to have him remain in such capacity and grant to him a notional interest in shares of the Company’s common stock,
par value $0.01 per share (the “Stock”), in the form of restricted stock units, subject to certain restrictions and on the terms and
conditions set forth herein so that he may have a direct proprietary interest in the Company’s success.
NOW, THEREFORE, in consideration of the covenants and agreements herein contained, the parties hereto hereby agree as
follows:
1. Grant of Restricted Stock Units. Subject to the restrictions, terms and conditions set forth herein and in the Company’s
2005 Stock Incentive Plan, as amended from time to time (the “Plan”), the Company hereby grants to the Grantee 2,000 restricted
stock units (the restricted stock units granted hereunder are hereafter referred to as the “Restricted Stock Units”). Each Restricted
Stock Unit shall represent the right to receive upon settlement (i) one share of the Stock or (ii) cash equal to the fair market value of
one share of Stock on the settlement date, subject to the terms and conditions set forth herein. The determination as to whether the
Restricted Stock Units are settled in Stock or cash shall be at the sole discretion of the Company. Capitalized terms not defined herein
shall have the meaning ascribed to them in the Plan.
2. Satisfaction of Vesting Conditions.
(a) General . Except as provided in this Agreement, the Restricted Stock Units are subject to a substantial risk of forfeiture
until vested as set forth in Section 2(b) and are not transferable.
(b) Vesting Schedule . The Restricted Stock Units shall vest in two separate tranches (each, a “Tranche”) as follows.
Subject to earlier forfeiture as provided below, 1,000 Restricted Stock Units shall vest on the first anniversary of the Grant Date and
the remaining 1,000 Restricted Stock Units shall vest on the second anniversary of the Grant Date (each such anniversary, a “Vesting
Date,”), provided the Grantee has remained a member of the Board from the date hereof through each Vesting Date. If the Grantee’s
membership on the Board is terminated for any reason, the unvested portion of the Restricted Stock Units shall be forfeited by the
Grantee without consideration.
3. Settlement of Restricted Stock Units.
(a) All outstanding vested Restricted Stock Units shall be settled on the earlier of (a) the date of the Grantee’s death, (b) the
date the Grantee undergoes a Separation from Service (as defined below), and (c) the date of consummation of a 409A Change in
Control (as defined below), (the first of (a), (b), and (c) to occur shall be the “Settlement Date”); provided , however , that to the extent
that the Grantee is a “specified employee” within the meaning of Treasury Regulation 1.409A-1(i) any settlement of the Restricted
Stock Units on account of the Grantee’s Separation from Service from the Company shall be delayed for such period of time as may
be necessary to meet the requirements of Treasury Regulation Section 1.409A-3(i)(2) (the “Delay Period”) and on the first business
day following the expiration of the Delay Period, all vested Restricted Stock Units shall be settled. On the Settlement Date, the
Company shall deliver to the Grantee (or the Grantee’s estate in the event of Grantee’s death) (x) a certificate or certificates
representing the number of shares of Stock equal to the number of vested Restricted Stock Units or (y) a lump sum payment of cash
having a value equal to the fair market value of one share of Stock as of the Settlement Date multiplied by the number of vested
Restricted Stock Units. The determination as to whether the Restricted Stock Units will be settled in Stock or cash shall be within the
sole discretion of the Company.
(b) For purposes of this Agreement, a “Separation from Service” will be deemed to occur on the date as of which the
Grantee has undergone a “separation from service” (as that term is specifically defined in Treas. Reg. §1.409A-1(h), applying the rules
set forth therein) with the Loral Controlled Group (as defined below); provided , however , that to the extent that the Grantee becomes
employed with Loral or any member of the Loral Controlled Group the Grantee will be deemed to undergo a termination of
employment on the date that such Grantee’s level of bona fide services performed decreases to a level less than 50 percent of the
average level of services performed by the Grantee during the immediately preceding 36-month period. For purposes of this
Agreement the Loral Controlled Group means Loral and all persons and entities with respect to which Loral would be considered a
single employer under Code §414(b) and (c), provided , however , that in applying Code §1563(a)(1), (2) and (3) for purposes of
determining a controlled group of corporations and in applying Treas. Reg. §1.414(c)-2 for purposes of determining trades or
businesses that are under common control, as provided in Treas. Reg. §1.409A-1(h)(3), the language “at least 80 percent” is used,
instead of the default language “at least 50 percent” as set forth in Treas. Reg. §1.409A-1(h)(3), each place it appears.
(c) For purposes of this Agreement, a “409A Change in Control” shall mean a Change in Control that also constitutes a
“change in control event” within the meaning of Treasury Regulation Section 1.409A-3(i)(5).
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4. Dividends and Dividend Equivalents. No dividends or dividend equivalents shall accrue or be paid with respect to any
outstanding Restricted Stock Units.
5. Rights of Stockholder. The Grantee will not have any rights as a Stockholder with respect to any Restricted Stock Units
unless and until the Restricted Stock Units are settled in shares of Stock and Grantee becomes the holder of record of such shares.
6. No Right to Continued Board Membership. This Agreement does not confer upon the Grantee any right to continuance of
membership on the Board, nor shall it interfere in any way with the right of the Company to terminate his Board membership at any
time.
7. Transferability. The Restricted Stock Units may not, at any time prior to settlement, be assigned, alienated, pledged,
attached, sold or otherwise transferred or encumbered by the Grantee and any such purported assignment, alienation, pledge,
attachment, sale, transfer or encumbrance shall be void and unenforceable.
8. Notice. Every notice or other communication relating to this Agreement shall be in writing, and shall be mailed to or
delivered to the party for whom it is intended at such address as may from time to time be designated by it in a notice mailed or
delivered to the other party as herein provided; provided that, unless and until some other address be so designated, all notices or
communications by the Grantee to the Company shall be mailed or delivered to the Company at its New York office and all notices or
communications by the Company to the Grantee may be given to the Grantee personally or may be mailed to the Grantee’s home
address as reflected on the books of the Company.
9. Arbitration. All disputes between the parties arising out of, or in connection with the validity, interpretation, construction,
meaning or execution of the Plan or of this Agreement or any settlement thereof, shall be finally settled by arbitration to be held in
New York City and conducted in accordance with the Rules of the American Arbitration Association. Judgment upon the award
rendered may be entered in any court having jurisdiction or application may be made to such court for judicial acceptance of the award
and an order of enforcement, as the case may be.
10. Governing Law. The validity, interpretation and performance of this Agreement shall be controlled by and construed under
the laws of Delaware, without giving effect to the principles of conflicts of law.
11. Signature in Counterparts. This Agreement may be signed in counterparts, each of which shall be an original, with the
same effect as if the signatures thereto and hereto were upon the same instrument.
* * *
3
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written.
LORAL SPACE & COMMUNICATIONS INC.
By:
Name: Michael B. Targoff
Title: Vice Chairman, Chief Executive Officer
and President
Grantee:
Mailing Address of Grantee for Delivery of Stock Certificates:
Phone Number of Grantee:
Email Address of Grantee:
Social Security No.:__________—__________—__________
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Loral Space & Communications Inc.
CODE OF CONDUCT
Revised
as of November 1, 2010
Exhibit 14.1
Table of Contents
1. INTRODUCTION
A. General Policy
B. Scope
C. Violations of the Code
2. EMPLOYMENT PRACTICES
A. Equal Employment Opportunity; Non-Discrimination; Harassment
B. Environmental Safety
3. BUSINESS CONDUCT OF ASSOCIATES
A. Compliance with Laws, Rules and Regulation
B. Avoidance of Personal Conflicts of Interest
C. Corporate Opportunities
D. Insider Trading
E. Proprietary Information/Trade Secrets
F. Fair Dealing
G. Entertainment, Gifts and Gratuities
H. Marketing Activities
I. Special Requirements When Marketing and Contracting with the Federal Government
J. Proper and Timely Reporting of Public Documents
K. Internal Controls
L. Accuracy of Documentation
M. Producing Quality Products
N. Company Funds and Property
O. Following Security Guidelines
P. Record Retention
4. WAIVERS OF THE CODE
5. ADDITIONAL PROCEDURES FOR THE CEO AND SENIOR FINANCIAL OFFICERS
6. CERTAIN RULES AND REGULATIONS
A. Foreign Corrupt Practices Act
B. Export Control Laws
C. Economic Sanctions Measures
7. REPORTING VIOLATIONS
A. Employees
B. Directors, Officers and Any Other Non-Employees Subject to This Code
C. Reporting Harassment, Discrimination or Retaliation
D. Reporting FCPA, Export Control or OFAC Violations
E. Anonymous Ethics Hotline.
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1.
INTRODUCTION
This Code of Conduct (this “Code”) sets forth the legal and ethical standards to which all directors, officers and employees (the
“associates”) of Loral Space & Communications Inc. and its subsidiaries (“Loral” or the “Company”) are required to adhere.
Associates, as well as temporary employees and consultants, are expected to comply with this Code. This Code serves as a guide
to associates for the proper recognition and resolution of ethical and legal issues encountered in conducting the Company’s
business and in making decisions that conform to ethical and legal standards. This Code may be modified from time to time,
without prior notice, as the Company’s Board of Directors deems appropriate.
A. General Policy
It is the standard of conduct and express policy of Loral that all dealings with our customers, suppliers, competitors,
partners and co-workers are conducted with the highest level of ethical behavior and in complete compliance with the spirit
and the letter of applicable laws and regulations. This is important in our dealings with commercial companies as well as
with the United States government and foreign governments.
Improper activities, or even the appearance of impropriety, could result in serious consequences to the Company and the
associates involved in such activities. An associate’s adherence to this policy is a significant indicator of the individual’s
judgment and competence and will be taken into consideration when evaluating future assignments and promotions.
Insensitivity to, or disregard for, the principles set forth in this Code will be grounds for appropriate disciplinary action,
including dismissal.
Loral’s objective is to excel as a responsible and reputable supplier to our customers. In attaining this objective, no
associate shall, on behalf of Loral or while a Loral associate, engage in any conduct that violates any law or is otherwise
inconsistent with the highest levels of honesty and integrity. Complex laws and regulations govern the environment in
which Loral does business. This Code outlines key aspects of those laws and regulations as well as relevant Loral policy.
Individual associates may require additional training in certain areas to ensure compliance. If, for example, you have
contact with representatives of foreign organizations, you must ensure that you are familiar with import and export
regulations, embargo and trade sanction laws and the provisions of the Anti-Boycott Act and the Foreign Corrupt Practices
Act. If you have any questions about the applicability of any laws to your actions, you should consult with Loral legal
counsel.
B. Scope
Associates with supervisory responsibilities must ensure that employees under their direction or control are acquainted with
this Code. Directors and officers should also be aware that there are special legal requirements not covered by this Code
that apply to corporate fiduciaries. Conduct contrary to these guidelines is outside the scope of any employee’s
employment.
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In addition to compliance with all legal requirements, each Loral associate must adhere to the overriding ethical and
professional standards that generally govern the conduct of business. The Company’s interests are not served by any
unethical practice or activity even though such practice or activity may not be in technical violation of the law. The scope
of this Code may not include all Loral policies and practices to which associates are required to adhere. In instances in
which other such policies and practices appear to conflict with those set forth in this Code, associates must follow the more
restrictive policy or practice.
Associates should consider this Code as a baseline, or a minimum requirement, which must always be followed. If at any
time you are in doubt about whether a particular provision applies to your conduct or about any aspect of your compliance
responsibilities, you should contact your manager or supervisor, or use other resources described in this Code to address
your concern.
C. Violations of the Code
Any violation of the applicable laws and regulations or principles of ethics set forth in this Code will be grounds for
disciplinary action or discharge from employment and may subject the associate or former associate to civil liability and/or
criminal prosecution under applicable law. Disciplinary action may be taken not only against those who authorize or
participate directly in such violation, but also against: (i) any associate who deliberately fails to report a violation as
required by the policy; (ii) any associate who deliberately withholds material and relevant information concerning a
violation; or (iii) the violator’s supervisor and manager, to the extent that there is inadequate leadership, supervision or
diligence.
Please see Section 7 of the Code below for procedures for reporting of violations.
2.
EMPLOYMENT PRACTICES
A. Equal Employment Opportunity; Non-Discrimination; Harassment
Loral is committed to ensuring equal employment opportunity for all associates, including qualified employment
applicants. The company maintains its employment practices and its environment free of discrimination based on race,
color, religion, gender, national origin, ancestry, age, disability, veteran or marital status, sexual orientation, partnership
status, gender identity, alienage or citizenship status, actual or perceived status of a victim of domestic violence, or as a
victim of sex offenses or stalking or any other protected category or characteristics under law.
Any associate who has a question or concern regarding the company’s employment practices policy should direct his or her
inquiry to Daniel Medina at the corporate office or Valerie Jünger at SS/L, his or her direct manager, or any member of the
management or executive management team who will answer or address the question or concern. Any applicant or
associate filing a complaint or assisting in the investigation of a complaint is protected from retaliation, coercion,
intimidation, interference and discrimination.
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Policy against workplace harassment
Loral is committed to maintaining a productive work environment in which all individuals are treated with mutual respect
and dignity. Each associate is required to contribute to a professional atmosphere that promotes equal opportunity and
nondiscriminatory practices. In keeping with this commitment, harassment and inappropriate conduct of any form will not
be tolerated.
Associates are required to exhibit, in their conduct and communications, sound judgment and respect for every other
associate and all other persons (i.e., vendors, customers, building staff) with whom the company does business. Insulting,
degrading, exploitative or discriminatory treatment, whether verbal or physical or written, electronic or otherwise, will not
be tolerated.
Similarly, inappropriate conduct directed to our associates by outside vendors, consultants or customers will not be
tolerated.
Sexual harassment
Loral does not tolerate workplace sexual harassment and considers it to be a serious offense.
Sexual harassment is unwanted sexual attention of a persistent or offensive nature made by a person who knows, or
reasonably should know, that such attention is unwanted. Sexual harassment includes sexually oriented conduct that is
sufficiently pervasive or severe to unreasonably interfere with an employee’s job performance or create an intimidating,
hostile, or offensive work environment. While sexual harassment encompasses a wide range of conduct, some examples of
specifically prohibited conduct include:
•
Promising, directly or indirectly, an employee a reward if the employee complies with a sexually oriented
request
•
Threatening, directly or indirectly, to retaliate against an employee if the employee refuses to comply with a
sexually oriented request
•
Denying, directly or indirectly, an employee an employment-related opportunity if the employee refuses to
comply with a sexually oriented request
•
•
•
•
Engaging in sexually suggestive physical contact or touching another employee in a way that is unwelcome
Displaying, storing, or transmitting pornographic or sexually oriented materials using company equipment or
facilities, including email
Indecent exposure
Making sexual or romantic advances toward an employee and persisting despite the employee’s rejection of the
advances
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Sexual harassment may involve individuals of the same or different genders and is prohibited whether directed toward men
or women. Sexual harassment can be physical and/or psychological in nature.
Other forms of harassment also prohibited
To the same degree as sexual harassment, this policy also prohibits harassment or other inappropriate conduct on the basis
of race, color, religion, gender, national original, ancestry, age, disability, veteran status, marital status, sexual orientation,
citizenship or any other protected category or characteristics.
B. Environmental Safety
Loral is committed to achieving the highest standards of safety, health and environmental performance at all of its facilities.
It is the responsibility of each associate to follow the rules and procedures established at each facility to achieve these
safety, health and environmental goals. Associates must immediately report any incident of non-compliance or any unsafe
condition to the facility’s environmental, health and safety coordinator.
3.
BUSINESS CONDUCT OF ASSOCIATES
It is every associate’s responsibility to read, understand and comply with this Code. Further, each associate is responsible for
knowing his or her job and what it takes to comply with the rules and regulations relating to the performance of that job.
Managers, supervisors and employees jointly share the responsibility of identifying training needs required to assist employees in
job performance and in complying with this Code. If an associate wishes to obtain guidance on the interpretation or application
of this Code or applicable laws and regulations, he or she may contact any one of the sources listed under the heading “Reporting
Violations.”
A. Compliance with Laws, Rules and Regulation
Obeying the law, both in letter and in spirit, is the foundation on which Loral’s ethical standards are built. All associates
must respect and obey the laws of the cities, states and countries in which Loral operates. Although not all associates are
expected to know the details of these laws, it is important to know enough to determine when to seek advice from
supervisors, managers or other appropriate personnel.
Loral will not knowingly assist other persons or entities with which we have business dealings in violating any law or
regulation. For example, we will not misrepresent or confirm facts known to be false to the auditors of a customer or
supplier for the purpose of allowing the customer or supplier to prepare false financial statements or financial information.
We specifically direct the associates’ attention to Section 7, which describes some of the requirements of the Foreign
Corrupt Practices Act, U.S. export control laws and economic sanctions measures that may be applicable to the associates.
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If necessary, Loral will hold information and training sessions to promote compliance with laws, rules and regulations,
including insider-trading laws.
B. Avoidance of Personal Conflicts of Interest
A personal conflict of interest exists when a person’s private interest interferes in any way with the interests of the
Company. A conflict situation can arise when an associate takes actions or has interests that may make it difficult to
perform his or her Company work objectively and effectively. Conflicts of interests may also arise when an associate, or
members of his or her family, receives improper personal benefits as a result of his or her position in the Company. Loans
to, or guarantees of obligations of, associates and their family members may create conflicts of interest.
Loral associates must observe high standards of conduct and integrity in their relationships with outside organizations.
They must refrain from having any financial or other interest in or relationship with an organization that competes with or
does business with Loral. Not only must associates avoid unethical business practices and favoritism, they should also
avoid outside activities and financial interests that might create that perception.
It is Loral’s policy to respect the rights of associates to engage in outside activities that do not conflict with their positions
as associates. However, when an outside activity or financial interest involves an organization with which the Company
does business, good judgment is required to avoid any basis for conflict of interest. No associate may, without being
granted an exception, acquire or retain, either directly or indirectly, the following financial interests in an organization that
competes with, does business with, or seeks to do business with Loral:
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•
•
Any interest as a proprietor or partner in such an organization;
The ownership of, or right to acquire, stock or bonds of such an organization that is a privately held corporation;
or
With respect to a publicly-owned corporation five percent (5%) or more of the revenues of which are derived
from Loral, the ownership of, or right to acquire, stock or bonds in an amount in excess of the lesser of (i)
$25,000 or (ii) 1% of the total securities of such publicly owned corporation.*
•
Associates may not compete with Loral directly or indirectly. Associates owe a duty to Loral to advance its
legitimate interests when the opportunity to do so arises.
Each associate shall report to the operating unit president and the Loral Legal Department the details on any of the financial
interests described above that are held or acquired, directly or indirectly, by himself or herself or any family member, to the
extent known by the associate.
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This restriction does not apply to employees who come to Loral from other companies and who hold shares of those companies’
stock in a savings plan or stock ownership plan. This exception only applies to stock that was owned by the employee prior to his
or her employment with Loral, and that is held in those investment instruments. Subject to the terms of the plan document, such
employees may keep stock that is in those investment instruments and any stock dividends paid from those remaining in those
investment instruments.
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The following restrictions also apply to associates:
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No associate may serve as an officer or director of any firm without prior approval by the chief executive officer
and president of Loral.
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No associate may undertake employment with, or furnish services as a consultant or other representative to
another firm, unless approved in writing by the operating unit president.
•
Employment of an associate’s spouse or other immediate family member by an organization with which Loral
competes or does business could provide the basis for criticism, and any such employment situations should be
reported to the president of the division.
Notwithstanding the foregoing, the provisions of this Section 3.B. shall not apply to Loral’s non-employee directors. A
non-employee director shall, however, promptly notify the Board of Directors if he or she or a member of his or her
immediate family commences (x) service as an officer or director of any Competitor or (y) employment with, or the
furnishing of services as a consultant or other representative to, any Competitor or otherwise enters into an agreement with
a Competitor to do any of the foregoing. For purposes of this paragraph, “Competitor” shall mean any of the following:
(i) Boeing, Lockheed, Thales/Alcatel Space, EADS/Astrium or Orbital Sciences, (ii) SES Global, Intelsat, Eutelsat or
AsiaSat (iii) a business that is principally engaged in the business of fixed satellite services or satellite manufacturing or
(iv) a business other than fixed satellite services or satellite manufacturing in which the Company is principally engaged.
Loral reserves the right to change this list at any time. For the avoidance of doubt, any such non-employee director (i) shall
not be required to obtain any approval from Loral prior to or in connection with, nor shall he or she be prohibited from
engaging in, any of the activities described in this paragraph and (ii) may continue to serve as such non-employee director
of Loral notwithstanding his or her engagement in the activities described in this paragraph subject to his or her compliance
with applicable legal requirements.
C. Corporate Opportunities
Associates are prohibited from taking personal advantage of opportunities that first become known through employment or
association with Loral or are otherwise discovered through the use of Loral property, information or position without the
consent of the Board of Directors. Specifically:
•
Associates should not place themselves in a situation in which they may profit from a business opportunity if the
circumstances indicate that the opportunity should have been made available to Loral. In general, a business
opportunity which might reasonably be expected to be of interest to Loral should be brought to the attention of
management for a determination of whether Loral wishes to pursue it.
•
Associates may not use facilities or equipment of Loral in the pursuit of personal interest or profit. Associates
who are on paid Loral time should be involved only in the business of Loral.
•
Associates may not compete with Loral directly or indirectly. Associates owe a duty to Loral to advance its
legitimate interests when the opportunity to do so arises.
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D. Insider Trading
Loral has adopted an Insider Trading and Confidentiality Policy with respect to the trading by associates of securities issued
by the Company and the receipt and use of material non-public information by associates. Associates should refer to and
must abide by this policy.
E. Proprietary Information/Trade Secrets
Loral proprietary information consists of any information and data possessed by and in the control of the Company that
may be valuable to it in its business. Such information must not be disclosed to others, except as required by law or
permitted by the Company, because doing so could disadvantage Loral competitively or financially; because the
information could hurt or embarrass, customers, suppliers, joint venture partners or the Company; or because the
information belongs to others, and we have agreed to keep it private. When there is a legitimate business need to disclose
proprietary information outside Loral, a non-disclosure agreement may be appropriate. For more information and prior to
disclosure, contact Loral legal counsel.
Proprietary information includes, but is not limited to:
•
Loral research and development, such as inventions, manufacturing processes, patent applications, and
engineering and laboratory notebooks (see below);
Customer and employee lists and records;
Business strategies, business results, unannounced products or services, marketing plans, pricing and financial
data;
Cost information, such as overhead or other indirect rate information, salaries, estimates, etc.;
Non-public information about products or services, including hardware and software specifications and designs;
Confidential organizational information; and
Information disclosed by other parties pursuant to a non-disclosure agreement.
•
•
•
•
•
•
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Proprietary information may exist as reports, manuals, charts, computer disks, drawings, specifications, photographs, films
and correspondence. Hardware, equipment or materials embodying proprietary information and data may also be treated as
proprietary information.
Each associate is responsible for ensuring that proprietary information is protected from theft, damage, unauthorized
disclosure or inappropriate use. Always store such information in a safe place and follow security procedures for the
computer systems used. Remember that you can be overheard in public places and when using portable communications
devices. Do not discuss Loral proprietary information with family or friends; they may not understand its significance and
may inadvertently pass it on to someone who should not have it.
i.
“Patentable” Inventions
A “patentable” invention is one that constitutes a new, useful and unobvious machine process, article of manufacture,
composition of matter, or improvement thereof (including software). All inventions made or conceived by employees
in the course of, or as a result of their employment, are the exclusive property of Loral and are to be promptly
disclosed in writing and assigned to the Company.
Employees are responsible for maintaining a laboratory notebook to record concepts, ideas and related work, together
with the recording of progress on technical efforts, in order to establish priority of invention, provide a basis for patent
coverage and protect future proprietary rights of the Company.
Licenses and copyrights obtained by employees in the course of, or as a result of their employment, are the exclusive
property of Loral and are to be promptly disclosed in writing and assigned to the Company.
ii.
Copyrighted Works
Copyright laws protect the original expression in, among other things, written materials, works of art and music, and
prohibit their unauthorized duplication, distribution, display and performance. This means that we may not reproduce,
distribute or alter copyrighted materials from books, trade journals, computer software or magazines, or play records,
tapes, discs or videotapes, without permission of the copyright owner or its authorized agents. Software used in
connection with Loral’s business must be properly licensed and used only in accordance with that license. Using
unlicensed software could constitute copyright infringement.
F.
Fair Dealing
We believe our reputation for integrity is our most important asset. We must deal fairly with customers, vendors and
competitors and fulfill our obligations even when they are detrimental to our profitability. All estimates and commitments
to both customers and co-workers should be made with the expectation that they will be achieved.
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We seek to outperform our competition fairly and honestly. Stealing proprietary information, possessing trade secret
information that was obtained without the owner’s consent or inducing such disclosures by past or present associates of
other companies is prohibited. Each associate should endeavor to respect the rights of and deal fairly with Loral’s
customers, suppliers, competitors and associates. No associate should take unfair advantage of anyone with respect or
relating to Loral business through manipulation, concealment, abuse of privileged information, misrepresentation of
material facts or any other intentional unfair-dealing practice.
G. Entertainment, Gifts and Gratuities
It is Loral’s policy that all dealings with other organizations be conducted with the highest ethical behavior and in complete
compliance with applicable laws and regulations. Our business transactions should always be free from even a perception
that favorable treatment was sought or received, offered or solicited by gifts, favors, hospitality, entertainment or similar
gratuities. While there are certain circumstances under which it is permissible to furnish or accept such items, every
employee is expected to follow a course of action that complies with the following guidelines.
No associate may solicit, directly or indirectly, for his or her benefit or for the benefit of another person, any gift, favor or
other gratuity from a person or organization with which the Company does business or that seeks to do business with the
Company. Soliciting a gift, favor or other gratuity is strictly prohibited regardless of the nature or value of the item or
service.
No Loral associate may accept any gratuities (monetary or non-monetary), gifts or favors, except for ordinary items of
nominal value, from a person or organization that conducts business with the Company or seeks to do business with the
Company. Items of nominal value are considered to be normal sales promotion, advertising or publicity items, with the
provider’s logo, e.g. , calendars, ball point pens, coffee cups, etc., with a retail value not exceeding $75. Exceptions to this
policy require prior approval of the Legal Department and must be based on a legitimate business interest of the Company
and may not be in violation of the law, regulation or other authority. Loral associates may accept a meal, drink or
entertainment from such persons or organizations only if these courtesies are unsolicited, infrequently provided and
reasonable in amount. Associates should reciprocate if and when appropriate, except with respect to offering things of value
to government personnel, discussed in section 3.I.i below.
Loral associates should never offer any type of business courtesy to a customer for the purpose of, or in exchange for,
obtaining favorable treatment or advantage. Except for restrictions that apply when dealing with government
representatives, associates may pay for reasonable business-related meals, refreshments and/or entertainment expenses for
customers and suppliers that are incurred only occasionally, are not requested or solicited by the customer and are not
intended to or could not reasonably be perceived as affecting business decisions.
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H. Marketing Activities
Loral supports vigorous competition. We believe that enduring customer relationships are built on integrity and trust. We
seek to gain advantage over our competitors only through superior research, engineering, manufacturing and marketing. It
is our intention to win business through excellent products and services, never through unethical or questionable business
practices. The marketplace requires the gathering of a wide range of information in a systematic and legal manner. This
information provides an understanding of the industry structure and customer requirements for existing or potential
products and services of Loral. It is the policy of Loral that its associates, consultants, agents and other representatives will
gather only information to which the Company is legally entitled. Loral will neither seek nor accept any information that is
prohibited from disclosure by law, regulation or policy of the customer. Associates must not:
•
•
•
seek special treatment or data that are otherwise restricted;
attempt to improperly influence specifications to gain unfair advantage or limit competition; or
seek access to classified or officially restricted information.
There must be no exchanges of unauthorized or so-called inside information or attempts to induce competitor or
government employees to violate the laws or their standards of conduct by seeking information they cannot properly release
or provide. There are severe sanctions available to the government when the laws on procurement integrity are violated.
I.
Special Requirements When Marketing and Contracting with the Federal Government
Law forms a foundation for Loral’s business activities. We must conduct business in accordance with the laws of the cities,
states and countries where we operate. In dealings with the United States government, Loral associates and other
representatives who perform legislative liaison, marketing, proposal and/or contract activities should be especially sensitive
to the following requirements:
i.
Gifts and Gratuities to Government Personnel
The Company must comply with special standards of conduct in contracting with the federal government.
Government representatives shall not be offered or given, either directly or indirectly, anything of value that they are
prohibited from receiving by applicable law or agency regulations. Loral associates dealing with representatives of a
particular federal agency are responsible for complying with that agency’s standards of conduct. Where there is a
question as to a particular agency’s requirements under its standards of conduct, associates must contact Loral legal
counsel for guidance.
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Except as otherwise permitted by law or regulation, Loral associates are prohibited from paying for meals,
refreshments, entertainment, travel or lodging expenses for any U.S. government employee or representative. One
exception is that unsolicited items of less than $20 in value may be provided to government employees, such as a meal
provided on-site to accommodate continuing business meetings with government employees, so long as items of value
totaling no more than $50 are given by Loral to any single government employee in a calendar year. Loral associates
doing business with state or local government officials are responsible for knowing and adhering to the rules that may
apply to such state or local government employees.
In certain instances where customs in foreign countries require the exchange of gifts, the Company may provide or
accept the gift with approval of the Legal Department. Any gifts, other than those of nominal value received from
representatives of these countries, will become Company property.
ii.
Lobbying the Federal Government
When engaging in lobbying activities with the federal government, Loral associates must comply with the Lobbying
Disclosure Act of 1995 (“Lobbying Act”), the Byrd Amendment and related regulations. Lobbying activities are
defined as any oral or written communication to certain executive and legislative officials made on behalf of a client
with regard to certain federal matters and efforts in support of such communications, including preparation and
planning activities, research and other background work, with some exceptions.
The Lobbying Act is primarily a registration and reporting statute, which requires lobbyists (individuals or entities) to
register with Congress and to submit quarterly disclosure reports of lobbying activities and semi-annual reports of
certain campaign contributions. When a company registers on behalf of its employees who are lobbyists, the company
completes the required filing.
The Byrd Amendment both prohibits certain lobbying activity and requires reporting of other lobbying activity. The
Byrd Amendment prohibits the use of funds received through government appropriations from being expended on
certain lobbying activities. The Byrd Amendment also requires government contractors to file disclosure reports of
lobbying activity to government agencies when requesting or receiving certain federal contracts, grants, loans or
cooperative agreements.
Finally, certain lobbying costs are unallowable under the Federal Acquisition Regulation.
Loral associates must learn and adhere to these laws and regulations if they intend to engage in any lobbying activity
with the federal government and must maintain complete and accurate records of all lobbying activity. Loral
associates who intend to lobby state or local governments are responsible for knowing and adhering to the laws that
may apply to such activities.
-11-
iii. Restrictions on Obtaining Contractor Bid and Proposal or Government Source Selection Information
Federal law prohibits contractors, their employees, representatives, agents and consultants from obtaining contractor
bid and proposal or government source selection information related to any federal agency procurement before award
of the contract.
A contractor’s bid or proposal information includes any of the following information submitted to a federal agency in
connection with a bid or proposal that has not been made available to the public:
•
•
•
•
•
Cost or pricing data;
Indirect costs and direct labor rates;
Manufacturing or other processes;
Proprietary information;
Information marked “contractor bid or proposal information” in accordance with applicable law or
regulation or marked with any other appropriate restrictive or proprietary language under applicable laws or
regulations.
Government source selection information includes the following information prepared for use by a federal agency for
the purpose of evaluating bids or proposals, if the information has not been publicly disclosed:
•
•
•
•
Bid prices submitted to an agency or lists of those bid prices;
Proposed costs or prices submitted to an agency or lists of those costs or prices;
Source selection plans or technical evaluation plans;
Technical evaluations, cost or price evaluations, competitive range determinations, rankings of bids,
proposals or competitors or reports and evaluations of source selection panels, boards or advisory councils;
•
Other information marked as “Source Selection Information” according to applicable laws and regulations.
If any doubt exists as to whether a particular piece of information can be rightfully obtained, the Loral associates or
representatives who wish to obtain such information that has not been publicly released should first contact Loral’s
legal department. Further, unauthorized offers to provide proprietary or source-selection information must be refused
and immediately reported to Loral legal counsel. Consequences for violations include suspension and debarment and
exclusion from the procurement.
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In addition to the restrictions discussed above, Loral associates should also be aware of the doctrine of “unfair
competitive advantage.” This body of law provides that an offeror, in the context of a federal government
procurement, may not obtain a competitive edge by allowing a former government employee to participate in the
proposal preparation process, if that individual had access while employed by the government to non-public
confidential or proprietary information that bears on the procurement. Such information may include the government’s
procurement planning materials or pricing or other data about a competitor. Moreover, to the extent the former
government employee had access to this type of relevant information, that knowledge may be imputed to the rest of
the Company unless certain formal precautions are taken, such as a firewall. Restrictions on employment discussions
and hiring of government personnel are discussed in detail in the next section. Contact the Loral Legal Department to
discuss appropriate measures concerning the hiring and work assignments of former government personnel.
iv. Employment Discussions and Hiring Government Personnel
Loral associates must comply with two types of restrictions in this complex area of law: (1) restrictions on holding
employment discussions with certain government personnel; and (2) restrictions on the types of tasks or assignments
that current or former government personnel can perform for a private employer. Even if the revolving door laws
permit discussions, no Loral associate should ever make employment discussions or employment contingent upon the
government employee providing information to Loral that the Company is not authorized to receive.
Loral associates are prohibited from holding employment discussions with certain government personnel who are
participating personally and substantially in matters that may affect the Company’s financial interests, including
federal procurements in which Loral is a bidder or offeror. Employment discussions include a broad range of conduct,
such as e-mail correspondence, the exchange of a resume or a conversation over lunch in which the possibility of
employment is discussed. References to salary or other terms of employment are not necessary for a communication
to constitute employment discussions. Loral associates must know and adhere to the relevant laws if they intend to
engage in employment discussions with government personnel.
In addition, even if Loral is permitted to discuss employment with a particular government employee, certain current
or former government personnel are restricted from working on certain matters or contracts on behalf of private
employers. These restrictions may depend on the type of position, grade level or responsibility the government
employee had while working in the government and can last for one year, two years or a lifetime.
The employment discussion and hiring restrictions for federal government personnel are complex; therefore, any
questions should be presented to your supervisor or manager to obtain appropriate advice and guidance.
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Sanctions available to the government for violations in this area include criminal and civil penalties, exclusion from
the procurement competition, cancellation of the contract, and suspension and debarment from doing business with the
government. These sanctions may be applied by the government to the Company, the government employee or the
Company associate involved, as appropriate.
v.
Truth in Negotiations Act
All proposals submitted to the U.S. government must comply with provisions from the Federal Acquisition Regulation
(FAR) that are contained in the solicitation and resulting contract. Some contracts and contract modifications are
subject to the data disclosure requirements under the Truth in Negotiations Act.
Where cost or pricing data are required to be submitted by the Company, such data must be accurate, complete and
current as of the date of final agreement on price. Whether you are the contract negotiator, the cost estimator or the
person responsible for furnishing the data to the cost estimator, you must ensure that the Loral data meet these FAR
requirements:
•
•
•
Accurate means free from error;
Complete data means all facts that a prudent buyer or seller would reasonably expect to have an effect on
price negotiations, e.g. , historic cost data, vendor quotations, “make or buy” decisions and other
management decisions that could have a bearing on cost; and
Current data means data that are up to date. Because many months may pass after the original proposal and
price were submitted, data should be updated, i.e., through disclosure but not necessarily through use of the
newer data, through the close of negotiations to ensure they are current.
If you have any questions as to whether information is cost or pricing data that must be disclosed to the government,
you should seek advice from Loral legal counsel. It is Loral’s intention that all required cost or pricing information
will be disclosed to the government. Falsely certifying facts or data used in government proposals and contracts,
whether unintentionally or deliberately, is a violation of law, regulation and contract requirements and may subject the
Company and involved associates to criminal and civil penalties or administrative action.
vi. Anti-Kickback Act
Associates and representatives must comply with this law which prohibits any individual or company from providing,
attempting to provide or soliciting, accepting or attempting to accept, any kickback. “Kickback” is defined as any
money, fee, commission, credit, gift, gratuity, thing of value (including money, trips, tickets, transportation, beverages
and personal services) or compensation of any kind that is provided directly or indirectly to any individual or
company for the purpose of improperly obtaining or rewarding favorable treatment in connection with a prime
contract or subcontract/supplier relating to a prime contract.
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In addition, certain government contracts contain clauses implementing the Anti-Kickback Act which require
contractors to establish and follow reasonable procedures to prevent and detect possible kickbacks, and to report
possible violations when there are “reasonable grounds” to believe that a violation has occurred.
vii. Organizational Conflicts of Interest
It is Loral’s policy to comply with the letter and spirit of the statutory and regulatory requirements regarding
organizational conflicts of interest. Such a conflict may occur when, because of other activities or relationships, Loral
may be unable or potentially unable to render impartial assistance or advice to the government, Loral’s objectivity in
performing the work is or might be otherwise impaired or the contractor/recipient has an unfair competitive
advantage.
Loral will not pursue a grant or contract that has the appearance of, or presents a conflict of interest and has not been
approved in advance by the Loral Legal Department. All Loral personnel, agents, representatives, and consultants are
responsible for ensuring that this policy is understood and, if any conflicts of interest are suspected, reporting it to
their supervisor or the legal department for resolution.
viii. Purchasing and Subcontracting
Because the value of subcontracts and purchase orders awarded by a U.S. government contractor can be substantial,
the U.S. government has a strong interest and exercises great control over a contractor’s purchasing and
subcontracting processes. Among other things, U.S. government requirements can affect the type of subcontract, the
amount and type of competition required and the terms and conditions required to be included in vendor agreements
and subcontract. It is Company policy to comply with all such restrictions and obligations.
ix. U.S. Government Property
Loral is required to establish and maintain a system in accordance with federal requirements to control, protect,
preserve and maintain all U.S. government property. Loral employees must be able to identify such property and track
it through the Company’s property records. Damage to or misappropriation of U.S. government property can result in
a breach of contract charge or even imposition of civil penalties and criminal charges. More information on protecting
company property is contained in Section N.
x.
Contract Certifications and Representations
The U.S. government requires contractors to make certain written representations and certifications in order to ensure
that prospective contractors meet the qualifications of contract solicitations. In addition, during contract performance,
there are a host of written attestations that a contractor such as Loral is required to make, including conformance
reports, time and material records and other documents supporting our invoices for payment. It is imperative that all
representations or certifications be complete and accurate. It is the duty of anyone making a certification or
representation on behalf of Loral to determine its accuracy in advance. See also Section L, Accuracy of
Documentation.
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J.
Proper and Timely Reporting of Public Documents
As a public company, it is of critical importance that Loral’s filings with, and submissions to, the Securities and Exchange
Commission,and other public communications, be fair, accurate and timely. Depending on his or her position with Loral, an
associate may be called upon to provide information required to assure that Loral’s public reports are complete, fair and
understandable. Loral associates are expected to take this responsibility seriously and to provide prompt and accurate
answers to inquiries related to Loral’s public disclosure requirements.
K. Internal Controls
Loral has a detailed financial control structure and related procedures designed in accordance with Section 404 of the
Sarbanes-Oxley Act of 2002, which requires companies to implement and evaluate internal controls for purposes of
financial statement reporting integrity. Assessing the quality of these internal controls involves a continuous process of
evaluating their design and operation and taking necessary corrective action to improve them as required. Through
discussions with supervisors and review of Loral’s documented practices and procedures, each associate must understand
his or her role with regard to Loral’s overall control structure and related procedures. An associate should report as soon as
possible to his or her supervisor or other appropriate person in accordance with Section 5 of this Code any potential
concerns he or she may have with respect to either his or her own role or performance or otherwise relating to Loral’s
control structure and related procedures. Early identification of problems is critical to the strength of the Company’s
controls, as well as maintaining compliance with the law.
L. Accuracy of Documentation
Loral associates create various forms of records including reports and correspondence, which may be in hard copy or
electronic media. Business records should include objective and verifiable factual information and should be free from
speculation and rumor, and from ambiguous or misleading statements. Particular care must be taken to ensure that
statements made to the government and claims submitted to the government are accurate. The government may impose
severe penalties for false statements or false claims.
i.
Reporting Expense Reimbursements
Those who submit expense reports and other forms requesting reimbursement must follow their division procedures.
Expense reports should contain only charges actually incurred by the employee in furtherance of Loral business.
Expenses should be accurately described so that unallowable expenses can be excluded from billings to the
government. The finance department will provide guidance if you have any questions.
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ii.
Reporting Labor Charges
The accurate reporting of labor at Loral is both essential and mandatory because it is the source for the charging of
direct labor and the distribution of overhead cost to a contract. You will accomplish this by either completing a labor
timecard or voucher or by entering your time through an electronic labor reporting system.
When you report time being charged to a specific contract, the following are some general “musts” to help you follow
proper labor charging practices. You MUST:
•
•
•
•
•
Prepare your own voucher/timecard;
Record time as work is performed;
Obtain the charge number for the job(s) you are working on from your immediate supervisor or his or her
representative;
Record time only for the job(s) on which you are working;
If you need to make a correction on a non-electronic labor reporting system, draw a line through the error
and write the proper entry on the next line. You and your supervisor must initial each correction. For
electronic labor reporting, notify your supervisor promptly of any corrections to incorrect entries; and
•
Check and follow your division’s specific guidelines for labor reporting.
M. Producing Quality Products
Loral is committed to delivering products with the highest levels of quality and reliability consistent with each customer’s
requirements. To achieve this goal, each associate must follow these guidelines:
•
•
•
Make achievement of quality and excellence your personal goal;
Strive to do each job right the first time;
Comply with all contract requirements, including:
•
•
•
•
•
Design requirements;
Performing all inspections and tests specified in each contract;
Preparing all required reports accurately and completely;
Using only materials conforming to quality levels specified in each contract; and
Using only substitute materials that have been approved in writing by the customer’s
representative.
By providing quality products and services, not only do we meet our customers’ requirements, but also we make the
Company more competitive and stronger in the marketplace.
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N. Company Funds and Property
All employees are responsible for safeguarding and making proper and efficient use of Company funds and property by
following procedures to prevent their loss, theft or unauthorized use. Company funds and property include Company time;
cash, checks, drafts and charge cards; land and buildings; records; vehicles; equipment, including fax machines, copiers and
telephones; computer hardware and software; scrap and obsolete equipment; and all funds and property.
The following are ways to protect company funds and property:
•
•
•
•
•
•
Make sure expenditures are for legitimate business purposes;
Keep accurate and complete records of funds spent;
Use corporate charge cards only for business purposes or as specified in Company instructions;
Make sure computer and communications equipment and systems, including passwords or other methods used to
access or transmit data, and the information they contain are protected against unauthorized access, use,
modification, destruction or disclosure;
Use Loral’s trademarks and service marks in accordance with Company instructions; and
Report actual or suspected loss, damage, misuse, theft, embezzlement or destruction of Company funds or
property immediately to Tim Perry, Corporate Director of Security, by calling (650) 852-4345.
O. Following Security Guidelines
While Loral’s customer base is now primarily commercial companies, Loral continues to contract with the United States
government or its prime contractors. These contracts require the Company to implement and maintain a system of security
controls. As associates of Loral, we all are individually responsible for safeguarding classified information. The following
are some of the key rules that associates must follow:
•
•
Wear your badge prominently.
Notify your supervisor of any circumstances that might embarrass or damage the Company.
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•
•
Establish a system to ensure that unattended classified files are always locked.
Safeguard and transmit all classified material in accordance with government and Loral requirements.
You are also prohibited from sending classified information via regular mail. Additionally, you should never discuss
classified information, company plans or related information with family, friends or other unauthorized persons.
You should be particularly careful when using phones of any type, especially cellular phones, for sensitive or classified
conversations. This also applies to use of computer terminals, facsimile machines, cell phone cameras and other equipment
used to transmit information or data.
If you have any questions about security matters, contact your immediate supervisor, security representative or Tim Perry,
Corporate Director of Security, at (650) 852-4345.
P.
Record Retention
It is Loral policy to comply with all statutory and regulatory requirements for retention of records, including those relating
to U.S. government contracts and subcontracts. All Loral personnel, agents, vendors, representatives and consultants are
responsible for ensuring that this policy is understood and is implemented consistently with these requirements. The
Company has many records retention requirements imposed on it, such as those relating to federal and state tax returns and
environmental compliance. It is Company policy to comply with all records retention requirements, whether or not related
specifically to government contracts.
4.
WAIVERS OF THE CODE
Except as otherwise provided herein or in any other document adopted or acknowledged by the Company, any waiver of this
Code for officers or directors may be made only by the Board of Directors or a Board committee and will be promptly disclosed
to stockholders if and to the extent required by law or stock exchange regulation. Any waiver of this Code by employees may be
made only with the consent of the Company’s General Counsel.
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5.
ADDITIONAL PROCEDURES FOR THE CEO AND SENIOR FINANCIAL OFFICERS
All provisions of the Code bind the CEO, the CFO, the principal accounting officer or controller and all persons performing
similar functions (the “senior financial officers”). In addition to the Code, the senior financial officers are subject to the
following additional specific policies:
A. All senior financial officers are responsible for full, fair, accurate, timely and understandable disclosure in the periodic reports
that are required to be filed by the Company with the SEC and in the Company’s other public communications. Accordingly, it is
the responsibility of each senior financial officer to promptly bring to the attention of the management any material information
of which he or she may become aware that affects the disclosures made by the Company in its public filings or public
communications or otherwise assist the management in fulfilling its responsibilities.
B. Each senior financial officer shall promptly bring to the attention of the management and the Audit Committee any
information he or she may have concerning (a) significant deficiencies in the design or operation of internal controls which could
adversely affect the Company’s ability to record, process, summarize and report financial data or (b) any fraud, whether or not
material, that involves management or other associates who have a significant role in the Company’s financial reporting,
disclosures or internal controls.
C. Each senior financial officer shall promptly bring to the attention of the management and to the Audit Committee any
information he or she may have concerning any violation of the Company’s Code, including any actual or apparent conflicts of
interest between personal and professional relationships, involving any members of management or other associates who have a
significant role in the Company’s financial reporting, disclosures or internal controls.
D. Each senior financial officer shall promptly bring to the attention of the management and to the Audit Committee any
information he or she may have concerning evidence of a material violation of the securities or other laws, rules or regulations
applicable to the Company and the operation of its business, by the Company or any agent thereof, or of violation of the Code or
of these additional procedures.
E. The Board of Directors shall determine, or designate appropriate persons to determine, appropriate actions to be taken in the
event of violations of the Code or of these additional procedures by the senior financial officers. Such actions shall be reasonably
designed to deter wrongdoing and to promote accountability for adherence to the Code and to these additional procedures and
shall include written notices to the individual involved that the Board has determined that there has been a violation, censure by
the Board, demotion or re-assignment of the individual involved, suspension with or without pay or benefits (as determined by
the Board) and termination of the individual’s employment. In determining what action is appropriate in a particular case, the
Board of Directors or such designee shall take into account all relevant information, including the nature and severity of the
violation, whether the violation was a single occurrence or repeated occurrences, whether the violation appears to have been
intentional or inadvertent, whether the individual in question had been advised prior to the violation as to the proper course of
action and whether or not the individual in question had committed other violations in the past.
-20-
6.
CERTAIN RULES AND REGULATIONS
A. Foreign Corrupt Practices Act
Loral complies, and requires that all its associates worldwide and its joint ventures, agents, distributors and other
representatives comply with the letter and the spirit of the Foreign Corrupt Practices Act (“FPCA”).
The primary purpose of the FCPA is to prohibit the payment of bribes, in any form, to foreign officials in order to secure or
retain business. Specifically, the FCPA prohibits the giving or offering of anything of value (hereinafter referred to as
“bribes”) to foreign officials, foreign political parties or candidates for foreign political office in order to obtain, keep or
direct business or otherwise obtain a business advantage. It is important to note that the FCPA’s prohibitions are not limited
to monetary payments but can include a wide range of non-monetary benefits as well. Also prohibited are indirect bribes
made through an intermediary (such as an agent, representative or consultant) knowing that there is a high probability that
the intermediary will use all or a portion of the bribe for a prohibited purpose.
In addition, the FCPA includes certain requirements with respect to accounting records that are designed, among other
things, to prevent concealment of bribes. The FCPA requires that Loral’s books, records and accounts be kept accurately to
reflect all transactions and disposition of Company assets. The following are specifically prohibited: maintaining secret or
unrecorded funds or assets; falsifying records; and providing misleading or incomplete financial information for audit.
Violation of the FCPA may result in civil and criminal prosecution. Loral may be fined up to $2 million or twice the gross
gain or loss from the offense, whichever is greater. An individual may be fined $250,000 or twice the gain or loss from the
offense, whichever is greater, and may be subject to imprisonment for up to five years. Loral will not pay fines imposed on
individuals. Loral will take all necessary disciplinary action, including possible dismissal, against associates violating these
policies.
There are three types of payments that may be permissible under the FCPA. The first is a payment to facilitate or expedite
performance of routine governmental action. “Facilitating or expediting payments” are those that relate to the performance
of non-discretionary action. Examples include obtaining permits, licenses or other official documents; processing
governmental papers, such as visas and work orders; providing police protection and mail pick-up and delivery; providing
phone service; power and water supply; loading and unloading cargo or protecting perishable products; and scheduling
inspections associated with contract performance or transit of goods across country. The second is a payment that is
reasonable in amount and is directly related to the promotion, demonstration or explanation of a product or the execution of
a government contract. These payments may include travel and lodging expenses. The third is a payment that is lawful
under the written laws or regulations of a foreign country. The application of these exceptions to a particular situation
involves a legal determination, and associates should consult with their legal department prior to authorizing any
payments under one of these exceptions.
-21-
Loral has established procedures to reduce the likelihood of prohibited bribes by intermediaries, i.e., joint venture partners
or agents, distributors or consultants. First, it is Loral’s policy to obtain background information on the intermediary to
assess the potential for violation. Second, it is Loral’s policy to enter into a written agreement with respect to intended
disposition of fees and compliance with the FCPA. All such agreements must be approved by the legal department prior
to execution.
Additional and more detailed information, guidelines and policies are available from your division’s legal office, and
associates are expected to comply with their division’s requirements and guidelines. Because the status of certain types of
payments may be unclear, associates must review with the legal department of their division the nature of any payments
that raise potential FCPA concerns.
Any violations of the FCPA must be reported immediately to each division’s legal department or to the corporate legal
office. Because the immediate reporting of violations or potential violations is a critical component of Loral’s efforts to
ensure compliance with the FCPA, failure to report such violations could raise potential questions about an associate’s
knowledge of, or complicity in, a prohibited transaction. Violations or potential violations may be reported without fear of
retaliation for making such a report.
B. Export Control Laws
The Company complies, and all of its associates are required to comply, scrupulously with United States export control
laws and regulations, including the Arms Export Control Act and International Traffic in Arms Regulations; the
International Emergency Economics Powers Act; the Export Administration Act and the Export Administration
Regulations; embargo and trade sanctions laws and regulations (see 7.C. below); Anti-Boycott laws and regulations; and
Executive Orders pertaining to U.S. export control laws and regulations.
The Company and all of its associates are required to comply scrupulously with the conditions, limitations, provisos,
requirements and terms of all licenses and other United States government authorizations (including, without limitation,
export licenses, technical assistance agreements and manufacturing licensing agreements) in connection with any export,
import, re-export, transfer, sale, marketing activity or proposal by the Company.
Failure to comply with United States export control laws and regulations, or any licenses or other United States government
authorizations, can result in severe penalties for the Company and the individuals involved. Any associate who violates
export control requirements would be subject to disciplinary action, including termination of employment, and may be
subject to civil and/or criminal penalties imposed by the United States government.
-22-
Many of the Company’s products (hardware, software and technical data) and activities (including certain marketing
activities and proposals) are defined as “defense articles” and “defense services” under the Arms Export Control Act and
the International Traffic in Arms Regulations (ITAR).
Associates should be aware that an export occurs under the ITAR by sending or taking a defense article out of the United
States in any manner (except by mere travel outside of the United States by a person whose personal knowledge includes
technical data); disclosing (including oral or visual disclosure) or transferring technical data to a foreign person, whether in
the United States or abroad; performing a defense service on behalf of, or for the benefit of, a foreign person, whether in the
United States or abroad; disclosing (including oral or visual disclosure) or transferring in the United States any defense
article to an embassy, or any agency or subdivision of a foreign government (e.g., diplomatic missions); or transferring
registration, control or ownership to a foreign person of any aircraft, vessel or satellite covered by the U.S. Munitions List,
whether in the United States or abroad. Lawful permanent residents of the United States (“green card” holders) and certain
protected individuals (certain refugees, asylees, etc.) are not considered “foreign persons” under the ITAR.
The export of defense articles and defense services requires the prior written authorization of the United States Department
of State, unless a specific statutory or regulatory exemption applies. In certain instances, the prior written authorization of
the United States Department of State is required before making a sale or transfer, or even a proposal to sell or transfer,
defense articles, defense services and technical data to certain countries, or to any persons acting on behalf of these
countries, or that is intended for use by the armed forces of certain foreign countries.
In addition, the ITAR place significant restrictions on “brokers” and “brokering activities” concerning ITAR-controlled
defense articles and defense services. The term “brokers” is defined as any person who acts as an agent for another in
negotiating or arranging contracts, purchases, sales or transfers of defense articles or defense services in return for a fee,
commission or other consideration. The term “brokering activities” is broadly defined to mean acting as a “broker” and
includes taking any action to facilitate the manufacture, export or import of a defense article or a defense services. Note that
international marketing representatives and other individuals or entities retained by Loral or any of its associates may be
deemed a “broker” and engaged in “brokering activities.” With rare exceptions, the use of a broker or engaging in brokering
activities requires registration and prior notice to or prior approval by the United States Department of State. In addition,
brokers and brokering activities are flatly prohibited for matters involving a country embargoed or otherwise proscribed by
the United States Department of State, including the People’s Republic of China.
The export of other Company commodities, software and technology (including technical data) is governed by the Export
Administration Regulations (EAR), and the export of such products and technology may require the prior written
authorization of the United States Department of Commerce. When economic sanctions are imposed against a foreign
country, the Company’s exports and imports of commodities, software and technology to or from that country may also
require a license from the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC). Associates should
be aware that an export occurs under the EAR and OFAC regulations by an actual shipment or transmission of items
(commodities, software or technology) out of the United States, or the release of technology or software subject to the EAR
to a foreign national in the United States. Permanent resident aliens of the United States and certain protected persons are
not considered “foreign persons” under the EAR.
-23-
To ensure full compliance with United States export control laws and regulations, all associates should be aware of the
following:
•
Associates are responsible for complying scrupulously with United States export control laws and regulations,
including all applicable export licenses and other export authorizations issued by the United States government.
•
Associates are responsible for seeking guidance and/or direction from the Company’s Export Control personnel
regarding export control issues before engaging in any exports.
•
Associates should be especially aware of the potential for exports in any dealings with foreign persons, such as going
on foreign travel, hosting foreign visitors, having technical interactions with foreign persons or engaging in marketing
activities that address technical issues.
C. Economic Sanctions Measures
OFAC administers United States economic sanctions against foreign countries, entities and individuals to counter external
threats to the United States national security, foreign policy or economy. Loral complies, and all of its associates are
required to comply, scrupulously with the more than 20 OFAC-administered sanctions programs. By law, “U.S. Persons”
are required to comply with these sanctions. U.S. Persons include: United States citizens and permanent residents of the
United States, wherever they are located; all entities organized in the United States (including their foreign branches); and
all individuals, entities and organizations (collectively, “Persons”) actually located in the United States. For the sanctions
against Cuba only, all entities owned or controlled by U.S. Persons, wherever organized or doing business (including
foreign subsidiaries of United States firms), are also required by United States law to comply. Loral is a U.S. Person. Any
associates of Loral, wherever located, who are United States citizens or permanent residents are U.S. Persons. All Loral
associates when in the United States (for business or pleasure) are U.S. Persons. As a matter of Loral policy, associates of
the Company who are not U.S. Persons are also required to comply with OFAC-administered sanctions at all times, as
though they were U.S. Persons.
-24-
The Company and all of its associates are required to comply scrupulously with the conditions, limitations, provisos,
requirements and terms of all “specific licenses” issued to Loral by OFAC and of all “general licenses” contained in
OFAC’s regulations implementing the individual sanctions programs in connection with any export, import, re-export,
transfer, sale, marketing activity or proposal by the Company.
Violations of United States economic sanctions may result in the imposition of civil or criminal penalties on individuals
and, in certain cases, the entity for which they act. Any associate who violates United States economics sanctions (or causes
the Company to violate such sanctions) would be subject to disciplinary action, including potential termination of
employment, in addition to any civil and/or criminal penalties imposed by the United States government.
As of July 15, 2010, the countries covered by the most comprehensive United States territorial sanctions are Cuba, Iran and
Sudan. Less comprehensive territorial sanctions are in force for Burma (Myanmar) and North Korea (the five countries
collectively, “Target Countries”). The sanctions apply not only to the territories of those countries but, in the cases of Cuba,
Iran, Burma and Sudan, also to entities controlled by their governments, agents of such governments and, in most cases,
residents of and Persons in those countries. Although OFAC administers only a limited blocking program (see below), the
near-total export prohibition in place against Syria under the EAR and ITAR is in many ways equivalent to a territorial
sanctions program. Associates must review with, and obtain the prior clearance of the legal department of their division
for, any proposed activities involving or benefiting the governments, government agencies, or government-controlled
entities of these countries (wherever located), or Persons or service areas in these countries.
In addition, OFAC maintains, and frequently updates, its list of “Specially Designated Nationals and Blocked Persons” (the
“SDN List”), which contains the names of Persons whose property and property interests are blocked pursuant to one of the
sanctions programs (“Target Persons”). 1 Target Countries and Target Persons (including Persons located in a Target
Country with whom transactions are generally prohibited by sanctions) are referred to collectively as “Sanctions Targets.”
U.S. Persons, including Loral and all of its associates are prohibited from engaging in transactions or dealings with these
Sanctions Targets — directly or indirectly — without a license from OFAC or an applicable exemption. The SDN List can
be found on OFAC’s website at www.treas.gov/ofac . The OFAC website also keeps current the description of Target
Countries and other programs comprising the United States sanctions regime. OFAC-administered sanctions programs are
dynamic and are subject to change at any time.
1
The SDN List covers “specially designated nationals” of the Target Countries, designated Persons in or related to, at July 15,
2010, former regimes in the Balkans, Iraq and Liberia, and current regimes in Belarus, Côte d’Ivoire (Ivory Coast), the
Democratic Republic of the Congo and Zimbabwe, as well as designated terrorists and terrorist groups, designated narcotics
traffickers, designated proliferators of weapons of mass destruction and other Persons related to UN Security Council sanctions
(for example, in Lebanon, Syria and Somalia), their respective designated financiers and certain designated property (including
entities) of these Persons.
-25-
Each sanctions program is different and responds to a different foreign policy context. Associates must check on each
program’s scope separately with the legal department of their division. Elements found in many of OFAC’s sanctions
programs include prohibitions on (1) dealing in a Sanctions Target’s “property and property interests,” defined very broadly
to include assets, debts, contracts, contingent rights, patents, etc., including interests involving only partial ownership
(referred to as “blocking” or “freezing” the property); (2) trade (exports, re-exports or imports) in goods, services and
technology with a Target Country or its government; (3) investment in a Target Country; (4) performance of contracts with
or in a Target Country; (5) transportation to or from a Target Country; and (6) facilitation (financing, guaranteeing,
approving, etc.) by a U.S. person of a transaction with or benefiting a Sanctions Target where OFAC sanctions would
prohibit the transaction if done directly by a U.S. Person or from the United States.
The blocking, exportation of services and facilitation prohibitions are interpreted by OFAC very broadly. OFAC-
administered sanctions affect Loral’s ability to enter into contracts with or benefiting Target Countries, or with Persons on
the SDN List. For example, a satellite sale to a consortium that includes the Government of Sudan is likely to require an
OFAC license, and adequate time (at least 90 days and often three to six months) must be allowed for this purpose. If new
sanctions are imposed that block the property of Persons with whom Loral has uncompleted contractual commitments, the
Company may be unable to perform under its contract, or may be required to obtain a license from OFAC before resuming
any activities under the contract. When sanctions prohibit exportation of technology to a Target Country, an OFAC license
may be required in addition to a license under the EAR or ITAR. The sale of a satellite to a foreign Person with the
knowledge that this Person intends to lease substantial transponder capacity to, for example, the Government of Iran or any
other Target Country is likely to require an OFAC license, under the facilitation prohibition in the Iran sanctions.
Most OFAC sanctions programs include a statutory exemption for trade in “information and informational materials” in
existence when the trade transaction is done, and not controlled for national security, nonproliferation or terrorism purposes
under the EAR. OFAC distinguishes between the information itself and the equipment needed to transmit the information.
For example, OFAC’s Iranian Transactions Regulations state that the exemption “does not exempt ... or authorize ... the
sale or leasing of telecommunications transmission facilities (such as satellite links or dedicated lines) where such ... sale or
leasing is for use in the transmission of any data.” (31 C.F.R. § 560.210(c)(4).) Associates should not attempt to interpret
the exemption except in consultation with their legal department.
-26-
To ensure full compliance with United States economic sanctions, all associates should be aware of the following:
•
Associates are responsible for complying scrupulously with United States economic sanctions, including the
terms and conditions of any licenses, whether obtained by the Company for specific transactions or included in
OFAC regulations.
•
Prior to entering into a contract with foreign entities, Loral associates are required to know their proposed
customers — who they are, what they do, where they are based and how they will use the goods, technology or
software.
Associates must seek advice from their legal department regarding economic sanctions issues if a proposed transaction
involves, directly or indirectly, a Sanctions Target.
7.
REPORTING VIOLATIONS
Loral is committed to maintaining an environment in which associates may raise questions or report violations or suspected
violations of this Code and applicable governmental laws and regulations without fear of retribution. Associates are encouraged
to report all violations or suspected violations of this Code or applicable government laws and regulations and to talk to
supervisors, managers or other appropriate personnel when in doubt about the best course of action in a particular situation, using
the methods outlined below.
Associates are expected to cooperate in internal investigations of misconduct. An associate who reports his or her own violation
may still be subject to disciplinary action. Voluntary reporting of an associate’s own violation, however, will be taken into
account by the Company as a mitigating factor in determining the nature and extent of any disciplinary action to which the
associate may be subject.
Loral will not allow retaliation for good faith reports of misconduct by others made by associates. Any person who believes that
he or she has been subject to retaliation for reporting a violation or possible violation may contact anyone designated below, and
a prompt investigation will be conducted.
Employment Practices . Violations or suspected violations relating to Loral’s Employment Practices policy (Section 2 of the
Code) shall be reported as set forth below in Section 7.C.
FCPA, Export Control or OFAC . Violations or suspected violations relating to Loral’s FCPA, Export Control or OFAC policy
(Section 6 of the Code) shall be reported as set forth below in Section 7.D.
All Other Code Provisions . Violations or suspected violations relating to all provisions of the Code of Conduct (other than
Employment Practices or FCPA, Export Control or OFAC provision) shall be reported as set forth below in Section 7.A or 7.B,
as applicable.
-27-
All associate reports will be forwarded to a specially assigned investigator, who will review them and, if appropriate, commence
an immediate investigation. Depending on the nature of and personnel involved in the report, the investigator may be a member
of Loral’s audit committee, corporate or division internal audit staff or the Company’s legal department or another appropriate
individual. Communications between the associate and the investigator will be kept confidential to the fullest extent possible.
A. Employees.
With respect to violations or suspected violations relating to all provisions of the Code of Conduct (other than Employment
Practices or FCPA, Export Control or OFAC provision), in the case of an employee, such employee may contact:
•
•
•
The employee’s immediate supervisor; or
The supervisor’s immediate supervisor; or
Avi Katz, Senior Vice President, General Counsel and Secretary of Loral Space & Communications Inc. The
report may be made by calling (212) 338-5340, by fax to (212) 338-5320, by email to avi.katz@hq.loral.com or
by mail to the following address:
Avi Katz
Loral Space & Communications Inc.
600 Third Avenue
New York, New York 10016
B. Directors, Officers and Any Other Non-Employees Subject to This Code.
With respect to violations or suspected violations relating to all provisions of the Code of Conduct (other than Employment
Practices or FCPA, Export Control or OFAC provision), in the case of a director, officer or any other non-employee subject
to this Code, such person may contact:
•
Avi Katz, Senior Vice President, General Counsel and Secretary of Loral Space & Communications Inc. The
report may be made by calling (212) 338-5340, by fax to (212) 338-5320, by email to avi.katz@hq.loral.com or
by mail to the following address:
Avi Katz
Loral Space & Communications Inc.
600 Third Avenue
New York, New York 10016
-28-
C. Reporting Harassment, Discrimination or Retaliation
Associates who believe that they have been the subject of unlawful discrimination or harassment of any kind are required to
promptly report the matter to their direct manager or supervisor. If an associate is not comfortable bringing a complaint to
his or her immediate manager or supervisor, please immediately report the complaint as follows:
Corporate Office
Contact:
Daniel Medina
Director of Administrative Services
Telephone #: (212) 338-5282
daniel.medina@hq.loral.com
Space Systems/Loral
Contact:
Valerie Jünger
Vice President, Human Resources
Telephone #: (650) 852-4988
junger.valerie@ssd.loral.com
Any manager or supervisor who becomes aware of unlawful discrimination or harassment of any kind, including sexual
harassment, has an obligation to report it promptly to Daniel Medina at the corporate office or Valerie Jünger at SS/L, his
or her direct manager, or any member of the management or executive management team.
Investigation of complaint
Loral is committed to promptly investigating every complaint and effectively resolving any instance of harassment or
discrimination. Each person making a complaint, the alleged harasser/discriminator and all knowledgeable employees have
an obligation to cooperate fully with an investigation. The investigation may include individual interviews with those
involved and, when necessary, with individuals who may have observed the alleged conduct or may have relevant
knowledge. The complaint and investigation will be handled with sensitivity, under the direction of the Human Resources
department and in some cases, one or more members of the Executive management team, or an outside investigator.
Confidentiality will be maintained throughout the investigation to the extent practical and appropriate under the
circumstances, considering the sensitivities of all concerned.
Protection against retaliation for making a complaint
No one who objects to prohibited harassment or conduct, makes a good faith complaint, or assists in an investigation will
be subjected to punishment, coercion, intimidation or retaliation. Retaliation is a serious violation of this policy and will be
treated with the same corrective action as would the harassment or discriminatory conduct itself. Acts of retaliation must be
reported immediately and will be investigated promptly.
Responsive action
Any person found to have committed prohibited discrimination, harassment or retaliation will be subjected to disciplinary
action up to and including termination.
-29-
D. Reporting FCPA, Export Control or OFAC Violations
Associates shall report any suspected violations of export laws and regulations, economic sanctions or export or other
transactional authorizations issued by the United States government, as follows:
Corporate Office
Contact:
Avi Katz
Senior Vice President, General Counsel and Secretary
Telephone #: (212) 338-5340
avi.katz@hq.loral.com
Space Systems/Loral
Contact:
John W. Rakow
Senior Vice President, Business and Legal Affairs
Telephone #: (650) 852-7008
rakow.john@ssd.loral.com
Paul Munninghoff
Executive Director, Export Control and Administration
Telephone #: (650) 852-6702
munninghoff.paul@ssd.loral.com
Export Compliance Hotline
Telephone #: (650) 852-7319
E. Anonymous Ethics Hotline.
Any illegal or unethical action can put a company in an awkward situation. Sometimes, the unethical actions of a few
people can destroy an entire company and can result in loss of business, fines, penalties and ultimately debarment from
government contracting. If you are ever faced with an unethical situation, we need you to speak up. Silence never helps,
and, in fact, it can make an already bad situation much worse. Your voice, however, can make a difference. Speak up if you
have concerns about workplace issues such as the following:
• Theft
• Conflicts of interest
• Fraudulent or inaccurate financial reporting
• Improper contact with government officials
• Abuse of company resources
• Harassment or discrimination
• Antitrust laws
• Copyright laws
• Disclosure of confidential information
• Environmental, health and safety laws
• Import/export laws
• Improper gifts or gratuities
• Alcohol or drug abuse
• Bribery or kickbacks
-30-
To report any of the above, speak with your immediate supervisor or other manager. If you have already spoken with a
member of management or if you simply prefer to remain anonymous, call the Ethics Hotline.
How to Use the Ethics Hotline
Loral’s Ethics Hotline is a simple, effective way to register your concerns about any potentially unethical situation in your
workplace. The toll-free Ethics Hotline is available 24-hours a day, every day of the week, so you can even call from the
privacy of your own home. By calling the Ethics Hotline, you can remain completely anonymous throughout the reporting
process. No call-tracing or recording devices are ever used at the Ethics Hotline. Even if you do choose to give your name,
your call will be handled with the utmost confidentiality.
When you call the Ethics Hotline, a Communication Specialist employed by an outside compliance firm will ask you a
series of questions to better understand the nature of your concern. The Specialist then prepares a report that is forwarded
for review and, if appropriate, investigation, to an independent, non-employee compliance officer who handles these
matters for Loral. At the end of your call, you are given a report number, a personal identification number (PIN), and a call-
back date, after which you may follow-up on your report. Simply reference the identification number when you call. If
additional information is needed from you before your concern can be resolved, you will be asked for it when you call back.
Call the Ethics Hotline even if you don’t have all of the facts. The independent compliance officer will look into the
information you can provide, attempt to verify it and then take appropriate action.
The Ethics Hotline is not intended to be a substitute for meaningful communication between you and your immediate
supervisor. If you have questions or concerns regarding normal operating procedures or suggestions for making your
workplace more comfortable or efficient, please bring them directly to him or her.
Ethics Hotline:
888-301-8628
Toll-free, anonymous, all day, everyday of the week
-31-
LORAL SPACE & COMMUNICATIONS INC.
SIGNIFICANT SUBSIDIARIES
Exhibit 21.1
The active subsidiaries owned directly or indirectly by Loral Space & Communications Inc. as of March 1, 2011, all 100%
owned (except as noted below), consist of the following:
Loral Space & Communications Holdings Corporation
Loral Skynet Corporation
Loral Satellite Broadband LLC
Loral Satmex LLC
Space Systems/Loral, Inc.
International Space Technology, Inc. (1)
Cosmotech (1)
SS/L Isle of Man Limited
Loral General Partner, Inc.
LGP (Bermuda) Ltd.
Loral Holdings LLC
Mexico Satellite, LLC (2)
Loral Global Services N.V.
Loral Global Services B.V.i.l.
Loral Holdings Corporation
4440480 Canada Inc.
4440498 Canada Inc.
SS/L Holdings, Inc.
Loral Canadian Gateway Corporation
NOTES
(1)
(2)
Only 57.1% voting and 47.7% economic interests owned directly or indirectly
Only 77.78% owned directly or indirectly
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Russian Federation
Isle of Man
Delaware
Bermuda
Delaware
Delaware
Netherlands Antilles
Netherlands
Delaware
Canada
Canada
Delaware
Canada
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-132795 and 333-143274 on Form S-8 and
Registration Statement Nos. 333-159656 and 333-138652 on Form S-3 of our reports dated March 15, 2011, relating to the
consolidated financial statements and financial statement schedule of Loral Space & Communications Inc. and subsidiaries and the
effectiveness of the Company’s internal control over financial reporting, appearing in this Annual Report on Form 10-K of Loral
Space & Communications Inc. for the year ended December 31, 2010.
Exhibit 23.1
/s/ DELOITTE & TOUCHE LLP
New York, NY
March 15, 2011
CONSENT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS
We consent to the incorporation by reference in Registration Statement Nos. 333-132795 and 333-143274 on Form S-8 and
Registration Statement Nos. 333-159656 and 333-138652 on Form S-3 of our report dated March 1, 2011, relating to the consolidated
financial statements of Telesat Holdings Inc. and subsidiaries appearing in the Annual Report on Form 10-K of Loral Space &
Communications Inc. for the year ended December 31, 2010.
Exhibit 23.2
/s/ DELOITTE & TOUCHE LLP
Independent Registered Chartered Accountants
Licensed Public Accountants
Toronto, Canada
March 15, 2011
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, Michael B. Targoff, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Loral Space & Communications Inc.;
2.
3.
4.
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;
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;
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, 2011
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, Harvey B. Rein, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Loral Space & Communications Inc.;
2.
3.
4.
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;
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;
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/ HARVEY B. REIN
Harvey B. Rein
Senior Vice President and Chief Financial Officer
March 15, 2011
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Loral Space & Communications Inc. (the “Company”) on Form 10-K for the period
ending December 31, 2010 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, 2011
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of Loral Space & Communications Inc. (the “Company”) on Form 10-K for the period
ending December 31, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Harvey B.
Rein, 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/ HARVEY B. REIN
Harvey B. Rein
Senior Vice President and Chief Financial Officer
March 15, 2011