LORAL SPACE & COMMUNICATIONS INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

For the quarterly period ended ~~September~~June 30, ~~2017~~

2021

	~~Page~~ ~~No.~~

PART I — FINANCIAL INFORMATION

Item 1:1: Financial Statements (Unaudited)	Page No.

Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016~~2020	3

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~September~~June 30, ~~2016~~2020	4

Condensed Consolidated Statements of Shareholders’ Equity for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017~~2021 and ~~the year ended December 31, 2016~~June 30, 2020	5

Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~September~~June 30, ~~2016~~2020	6

Notes to Condensed Consolidated Financial Statements	7

Item 2:2:Management’s Discussion and Analysis of Financial Condition and Results of Operations	25 27
~~Item 3:~~~~Quantitative and Qualitative Disclosures About Market Risk~~	40
Item 4:4:Disclosure Controls and Procedures	41 43

PART II — OTHER INFORMATION
~~Item 1:~~~~Legal Proceedings~~	43
Item ~~1A:~~1~~Risk Factors~~: Legal Proceedings	43 44
~~Item 6:~~~~Exhibits~~	43
~~Signatures~~Item 1A: Risk Factors	44

44Item 5: Other Information	45

Item 6: Exhibits	46

Signatures	48

Table of Contents

PART I

FINANCIAL INFORMATION

Item 1.Financial Statements

LORAL SPACE & COMMUNICATIONS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)


	June 30,		December 31,
	2021		2020
ASSETS
Current assets:
Cash and cash equivalents	$	23,231	$	31,631
Income tax refund receivable		1,226		1,228
Other current assets		1,654		1,232
Total current assets		26,111		34,091
Right-of-use asset		315		342
Investments in affiliates		248,371		192,664
Deferred tax assets		28,236		27,339
Other assets		33		33
Total assets	$	303,066	$	254,469

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accrued employment costs	$	2,003	$	2,839
Other current liabilities		2,915		2,002
Total current liabilities		4,918		4,841
Pension and other post-retirement liabilities		19,599		20,181
Other liabilities		20,410		19,914
Total liabilities		44,927		44,936
Commitments and contingencies
Shareholders' Equity:
Preferred stock, $0.01 par value; 10,000,000 shares authorized		0		0
Series A junior participating preferred stock, $0.01 par value,
50,000 shares authorized, 0 shares issued and outstanding		0		0
Series B preferred stock, $0.01 par value, 5 shares authorized,
5 issued and outstanding		0		0
Common Stock:
Voting common stock, $0.01 par value; 50,000,000 shares authorized,
21,581,572 issued		216		216
Non-voting common stock, $0.01 par value; 20,000,000 shares authorized
9,505,673 issued and outstanding		95		95
Paid-in capital		1,019,988		1,019,988
Treasury stock (at cost), 154,494 shares of voting common stock		(9,592)		(9,592)
Accumulated deficit		(676,995)		(729,202)
Accumulated other comprehensive loss		(75,573)		(71,972)
Total shareholders' equity		258,139		209,533
Total liabilities and shareholders' equity	$	303,066	$	254,469

September 30, December 31,
2017 2016
ASSETS
Current assets:
Cash and cash equivalents $ 259,263 $ 37,458
Other current assets 3,685 3,483
Total current assets 262,948 40,941
Investments in affiliates 24,117 107,950
Deferred tax assets 101,567 115,285
Other assets 365 55
Total assets $ 388,997 $ 264,231

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accrued employment costs $ 2,026 $ 2,356
Income taxes payable 43,110 —
Other current liabilities 2,298 3,772
Total current liabilities 47,434 6,128
Pension and other postretirement liabilities 16,857 18,433
Long-term liabilities 71,050 69,259
Total liabilities 135,341 93,820
Commitments and contingencies
Shareholders' Equity:
Preferred stock, 0.01 par value; 10,000,000 shares authorized, no shares issued and outstanding — —
Common Stock:
Voting common stock, 0.01 par value; 50,000,000 shares authorized, 21,581,572 issued 216 216
Non-voting common stock, 0.01 par value; 20,000,000 shares authorized 9,505,673 issued and outstanding 95 95
Paid-in capital 1,019,988 1,019,988
Treasury stock (at cost), 154,494 shares of voting common stock (9,592 ) (9,592 )
Accumulated deficit (728,000 ) (826,460 )
Accumulated other comprehensive loss (29,051 ) (13,836 )
Total shareholders' equity 253,656 170,411
Total liabilities and shareholders' equity $ 388,997 $ 264,231

See notes to condensed consolidated financial statements

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LORAL SPACE & COMMUNICATIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
General and administrative expenses	$	(1,900)	$	(1,801)	$	(3,629)	$	(3,449)
Operating loss		(1,900)		(1,801)		(3,629)		(3,449)
Interest and investment income		1		92		3		1,029
Interest expense		(5)		(6)		(11)		(11)
Other expense		(2,097)		(2,703)		(4,472)		(4,140)
Loss before income taxes and equity in net income (loss) of affiliates		(4,001)		(4,418)		(8,109)		(6,571)
Income tax benefit (provision)		201		1,469		423		(647)
Loss before equity in net income (loss) of affiliates		(3,800)		(2,949)		(7,686)		(7,218)
Equity in net income (loss) of affiliates		25,291		76,515		59,893		(40,559)
Net income (loss)		21,491		73,566		52,207		(47,777)
Other comprehensive (loss) income, net of tax		(1,785)		(17,179)		(3,601)		14,111
Comprehensive income (loss)	$	19,706	$	56,387	$	48,606	$	(33,666)

Net income (loss) per share:
Basic	$	0.69	$	2.38	$	1.69	$	(1.54)
Diluted	$	0.64	$	2.36	$	1.62	$	(1.54)

Weighted average common shares outstanding:
Basic		30,933		30,933		30,933		30,933
Diluted		31,032		31,017		31,032		30,933

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
General and administrative expenses $ (2,015 ) $ (1,709 ) $ (6,000 ) $ (4,900 )
Operating loss (2,015 ) (1,709 ) (6,000 ) (4,900 )
Interest and investment income 728 44 1,754 140
Interest expense (11 ) (6 ) (22 ) (15 )
Other expense (985 ) (187 ) (2,858 ) (1,306 )
Loss from continuing operations before income taxes and equity in net income of affiliates (2,283 ) (1,858 ) (7,126 ) (6,081 )
Income tax provision (16,552 ) (8,911 ) (82,236 ) (31,066 )
Loss from continuing operations before equity in net income of affiliates (18,835 ) (10,769 ) (89,362 ) (37,147 )
Equity in net income of affiliates 43,372 6,948 183,086 96,799
Income (loss) from continuing operations 24,537 (3,821 ) 93,724 59,652
Loss from discontinued operations, net of tax — (71 ) (5 ) (306 )
Net income (loss) 24,537 (3,892 ) 93,719 59,346
Other comprehensive (loss) income, net of tax (12,356 ) 1,713 (15,215 ) 11,289
Comprehensive income (loss) $ 12,181 $ (2,179 ) $ 78,504 $ 70,635

Net income (loss) per share:

Basic
Income (loss) from continuing operations $ 0.79 $ (0.12 ) $ 3.03 $ 1.93
Loss from discontinued operations, net of tax — — — (0.01 )
Net income (loss) $ 0.79 $ (0.12 ) $ 3.03 $ 1.92

Diluted
Income (loss) from continuing operations $ 0.77 $ (0.12 ) $ 2.98 $ 1.85
Loss from discontinued operations, net of tax — — — (0.01 )
Net income (loss) $ 0.77 $ (0.12 ) $ 2.98 $ 1.84

Weighted average common shares outstanding:
Basic 30,933 30,933 30,933 30,933
Diluted 31,008 30,933 31,008 31,008

See notes to condensed consolidated financial statements

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LORAL SPACE & COMMUNICATIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands)

(Unaudited)


	Common Stock								Treasury Stock					Accumulated
	Voting			Non-Voting					Voting					Other
	Shares			Shares			Paid-In					Accumulated		Comprehensive		Shareholders'
	Issued	Amount		Issued	Amount		Capital		Shares	Amount		Deficit		Loss		Equity
Balance, January 1, 2020	21,582	$	216	9,506	$	95	$	1,019,988	154	$	(9,592)	$	(605,766)	$	(54,914)	$	350,027
Net loss													(121,343)
Other comprehensive income															31,290
Comprehensive loss																	(90,053)
Balance, March 31, 2020	21,582		216	9,506		95		1,019,988	154		(9,592)		(727,109)		(23,624)		259,974
Net income													73,566
Other comprehensive loss															(17,179)
Comprehensive income																	56,387
Common dividend paid ($5.50 per share)													(170,130)				(170,130)
Balance, June 30, 2020	21,582		216	9,506		95		1,019,988	154		(9,592)		(823,673)		(40,803)		146,231
Net income													140,870
Other comprehensive loss															(31,169)
Comprehensive income																	109,701
Common dividend paid ($1.50 per share)													(46,399)				(46,399)
Balance, December 31, 2020	21,582		216	9,506		95		1,019,988	154		(9,592)		(729,202)		(71,972)		209,533
Net income													30,716
Other comprehensive loss															(1,816)
Comprehensive income																	28,900
Balance, March 31, 2021	21,582		216	9,506		95		1,019,988	154		(9,592)		(698,486)		(73,788)		238,433
Net income													21,491
Other comprehensive loss															(1,785)
Comprehensive income																	19,706
Balance, June 30, 2021	21,582	$	216	9,506	$	95	$	1,019,988	154	$	(9,592)	$	(676,995)	$	(75,573)	$	258,139

Common Stock Treasury Stock Accumulated
Voting Non-Voting Voting Other
Shares Shares Paid-In Accumulated Comprehensive Shareholders'
Issued Amount Issued Amount Capital Shares Amount Deficit Loss Equity
Balance, January 1, 2016 21,582 $ 216 9,506 $ 95 $ 1,020,129 154 $ (9,592 ) $ (873,660 ) $ (28,698 ) $ 108,490
Net income 47,200
Other comprehensive income 14,862
Comprehensive income 62,062
Adjustment to tax benefit associated with stock-based compensation (141 ) (141 )
Balance, December 31, 2016 21,582 216 9,506 95 1,019,988 154 (9,592 ) (826,460 ) (13,836 ) 170,411
Net income 93,719
Other comprehensive loss (15,215 )
Comprehensive income 78,504
Cumulative effect adjustment attributable to previously unrecognized excess tax benefits on stock-based compensation 4,741 4,741
Balance, September 30, 2017 21,582 $ 216 9,506 $ 95 $ 1,019,988 154 $ (9,592 ) $ (728,000 ) $ (29,051 ) $ 253,656

See notes to condensed consolidated financial statements

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LORAL SPACE & COMMUNICATIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Six Months Ended
	June 30,
	2021		2020
Operating activities:
Net income (loss)	$	52,207	$	(47,777)
Adjustments to reconcile net income (loss) to net cash used in operating activities
Non-cash operating items (Note 2)		(60,222)		40,900
Changes in operating assets and liabilities:
Other current assets		(422)		56
Accrued employment costs and other current liabilities		113		(570)
Income tax refund receivable, net of payable		9		(898)
Pension and other post-retirement liabilities		(581)		(948)
Other liabilities		496		1,926
Net cash used in operating activities		(8,400)		(7,311)
Financing activities:
Dividend paid		0		(170,130)
Net cash used in financing activities		0		(170,130)
Cash, cash equivalents and restricted cash — period decrease		(8,400)		(177,441)
Cash, cash equivalents and restricted cash (Note 2) — beginning of year		31,935		259,371
Cash, cash equivalents and restricted cash (Note 2) — end of period	$	23,535	$	81,930

Nine Months Ended
September 30,
2017 2016
Operating activities:
Net income $ 93,719 $ 59,346
Loss from discontinued operations, net of tax 5 306
Adjustments to reconcile net income to net cash used in operating activities:
Non-cash operating items (Note 2) (155,628 ) (67,057 )
Changes in operating assets and liabilities:
Other current assets and other assets (565 ) (107 )
Accrued expenses and other current liabilities 759 (578 )
Income taxes receivable and payable 43,473 88
Pension and other postretirement liabilities (1,576 ) (1,384 )
Long-term liabilities 2,035 1,665
Net cash used in operating activities – continuing operations (17,778 ) (7,721 )
Net cash used in operating activities – discontinued operations (2,809 ) (8,428 )
Net cash used in operating activities (20,587 ) (16,149 )
Investing activities:
Capital expenditures (39 ) (3 )
Distribution received from affiliate 242,735 —
Net cash provided by (used in) investing activities – continuing operations 242,696 (3 )
Net cash provided by investing activities – discontinued operations — —
Net cash provided by (used in) investing activities 242,696 (3 )
Cash, cash equivalents and restricted cash — period increase (decrease) 222,109 (16,152 )
Cash, cash equivalents and restricted cash — beginning of period 37,458 58,853
Cash, cash equivalents and restricted cash — end of period $ 259,567 $ 42,701

See notes to condensed consolidated financial statements

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LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~(Unaudited)~~

(Unaudited)

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, through our ownership interests in affiliates, in satellite-based communications services.

On November 23, 2020, Loral entered into a Transaction Agreement and Plan of Merger (as it may be amended from time to time, the “Transaction Agreement”) with Telesat Canada, a Canadian corporation (“Telesat”), Telesat Partnership LP, a limited partnership formed under the laws of Ontario, Canada (“Telesat Partnership”), Telesat Corporation, a newly formed corporation incorporated under the laws of the Province of British Columbia, Canada and the sole general partner of Telesat Partnership (“Telesat Corporation”), Telesat CanHold Corporation, a corporation incorporated under the laws of British Columbia, Canada and wholly owned subsidiary of Telesat Partnership (“Telesat CanHoldco”), Lion Combination Sub Corporation, a Delaware corporation and wholly owned subsidiary of the Company (“Merger Sub”), Public Sector Pension Investment Board, a Canadian Crown corporation (“PSP”), and Red Isle Private Investments Inc., a Canadian corporation and wholly owned subsidiary of PSP (“Red Isle”), under which Merger Sub will merge with and into Loral, with Loral surviving the merger as a wholly owned subsidiary of Telesat Partnership (the “Merger”), and Loral stockholders receiving common shares of Telesat Corporation and/or units of Telesat Partnership that will be exchangeable for common shares of Telesat Corporation (the “Transaction”).

The Transaction Agreement contains a number of customary conditions that must be fulfilled to complete the Transaction, including (i) approval of (A) a majority of the outstanding Loral voting common stock and (B) a majority of the outstanding Loral voting common stock not held by MHR Fund Management LLC (“MHR”), PSP, any other party to the Transaction Agreement or certain of their respective affiliates; (ii) the parties having obtained certain regulatory consents and approvals; (iii) no legal proceedings having been commenced that would enjoin or prohibit the consummation of the Transaction; (iv) the listing of the Class A and Class B shares of Telesat Corporation on a U.S. securities exchange; (v) no “Material Adverse Effect” (as defined in the Transaction Agreement) having occurred; (vi) Telesat remaining in good standing with respect to its material debt obligations; (vii) the accuracy of certain representations (subject to certain qualifications as to materiality) and material performance of certain covenants by the parties, subject to specified exceptions; (viii) effectiveness of a registration statement on Form F-4 in connection with the Transaction (the “Registration Statement”) and the issuance of a receipt for each of the Canadian preliminary and final prospectuses in respect of the Transaction; (ix) no U.S., Canadian or Spanish governmental agency having commenced civil or criminal proceeding against Loral alleging that any member of the “Loral Group” has criminally violated any law, and no member of the “Loral Group” having been indicted or convicted for, or pled nolo contendere to, any such alleged criminal violation; (x) Loral remaining solvent and not having entered into any bankruptcy or related proceeding; and (xi) the delivery by the parties of certain closing deliverables. If the parties have confirmed that all the conditions are satisfied or waived (other than those conditions that by their terms are to be satisfied at the closing of the Transaction (the “Closing”), but which conditions are capable of being satisfied at the Closing), then PSP and Loral will each have the right to extend the Closing for any number of periods of up to 30 days each and no longer than 120 days in the aggregate, from the date on which the Closing otherwise would have occurred. If the Closing is extended, the Closing will occur on the first two consecutive business days commencing on the fifth business day after the expiration of the final extension period on which the conditions are satisfied or waived (other than the conditions (i) with respect to no “Material Adverse Effect” (as defined in the Transaction Agreement) having occurred, (ii) that by their terms are to be satisfied at the Closing, but subject to the satisfaction or waiver of such conditions at the Closing and (iii) if PSP extends the Closing, with respect to a civil or criminal legal proceeding alleging that Loral or any of its subsidiaries (excluding XTAR, LLC (“XTAR”) and Globalstar de Mexico, S. de R.L. de C.V. (“GdM”) and their subsidiaries), has criminally violated a law). Subject to the satisfaction of the conditions to Closing and any extensions described above, we expect to complete the Transaction in the late third quarter or early fourth quarter of 2021.

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LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

scheduled but was immediately adjourned without conducting any other business in order to provide stockholders with an opportunity to receive and consider additional information that is anticipated to be disclosed with respect to the Potential GoC Investment Transaction before voting on the Transaction. The Special Meeting will be reconvened and held virtually on Monday, August 23, 2021, at 10:00 a.m. eastern time. The record date of the Special Meeting, June 10, 2021, remains unchanged.

On August 6, 2021, Loral was notified that the applications filed with the Federal Communications Commission (the “FCC”) for the transfer of control of Telesat’s and XTAR’s FCC licenses in connection with the Transaction had been approved. The FCC’s approval is conditioned on Telesat’s and certain of its subsidiaries’ compliance with a Letter of Agreement entered into with the Department of Justice (the “DOJ”) to address certain national security and law enforcement risks identified by the DOJ and certain Executive Branch agencies. Certain other regulatory consents and approvals required to consummate the Transaction are still pending.

Upon satisfaction of the terms and subject to the conditions set forth in the Transaction Agreement, the Transaction will result in the current stockholders of Loral, PSP and the other shareholders in Telesat (principally current or former management of Telesat) owning approximately the same percentage of equity in Telesat indirectly through Telesat Corporation and/or Telesat Partnership as they currently hold (indirectly in the case of Loral stockholders and PSP) in Telesat, Telesat Corporation becoming the publicly traded general partner of Telesat Partnership and Telesat Partnership indirectly owning all of the economic interests in Telesat, except to the extent that the other shareholders in Telesat elect to retain their direct interest in Telesat.

The Transaction Agreement provides certain termination rights for both Loral and PSP and further provides that, in certain circumstances, Loral may be required to pay to Red Isle a termination fee of $6.55 million or $22.91 million or to pay to PSP a “breach” fee of $40.0 million, in each case as provided in the Transaction Agreement.

Expenses related to the Transaction included in other expense in our statements of operations were $2.0 million and $2.4 million for the three months ended June 30, 2021 and 2020, respectively, and $4.3 million and $3.8 million for the six months ended June 30, 2021 and 2020, respectively.

Description of Business

Loral has ~~one~~1 operating segment consisting of satellite-based communications services. Loral participates in satellite services operations primarily through its ownership interest in ~~Teleast Canada (“Telesat”),~~Telesat, a leading global satellite ~~services provider. Prior to~~operator. Loral holds a 62.6% economic interest and asa 32.6% voting interest in Telesat. We use the equity method of ~~December 31, 2016, Telesat Canada was a subsidiary of, and Loral held its~~accounting for our ownership interest in Telesat Canada through, Telesat Holdings Inc. Effective January 1, 2017, Telesat Holdings Inc. completed a corporate reorganization of companies under common control, pursuant to which Telesat Holdings Inc. amalgamated with Telesat Interco Inc., a wholly owned subsidiary of Telesat Holdings Inc., and immediately thereafter the newly amalgamated company amalgamated with Telesat Canada. The continuing entity, existing under the laws of Canada, is named Telesat Canada. Telesat has accounted for the reorganization as a continuation of Telesat Holdings Inc.(see Note 5).

Telesat owns and leases a satellite fleet that operates in ~~geosynchronous~~geostationary 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. Telesat is also developing Telesat Lightspeed, a global constellation of ~~low earth orbit (“LEO”)~~LEO satellites. LEO satellites operate in a circular orbit around the earth with an altitude typically between 500 and 870 miles. Unlike ~~geosynchronous~~geostationary orbit satellites that operate in a fixed orbital location above the equator, LEO satellites travel around the earth at high velocities requiring antennas on the ground to track their movement. LEO satellite systems have the potential to offer a number of advantages over ~~geosynchronous~~geostationary orbit satellites to meet growing requirements for broadband services, both consumer and commercial, by providing increased data speeds and capacity, global coverage, and latency on par with, or potentially better than, terrestrial services.

~~Loral holds a 62.7% economic interest and a 32.7% voting interest in Telesat (see Note 5). We use the equity method of accounting for our ownership interest in Telesat.~~

2.Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules of the ~~Securities and Exchange Commission (“SEC”)~~SEC and, in our opinion, include all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of results of operations, financial position and cash flows as of the balance sheet dates presented and for the periods presented. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to SEC rules. We believe that the disclosures made are adequate to keep the information presented from being misleading. The results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 are not necessarily indicative of the results to be expected for the full year.

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LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The December 31, ~~2016~~2020 balance sheet has been derived from the audited consolidated financial statements at that date. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in our latest Annual Report on Form 10-K filed with the SEC.

~~Discontinued Operations~~

~~LORAL SPACE & COMMUNICATIONS INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

Interest expense that is directly related to the Sale is classified as discontinued operations in the statements of operations and cash flows for the nine months ended September 30, 2017 and three and nine months ended September 30, 2016.

Investments in Affiliates

Our ownership interest in Telesat is accounted for using the equity method of ~~accounting.~~accounting under U.S. GAAP. Telesat’s financial statements are prepared in accordance with international financial reporting standards (“IFRS”). To allow our reporting of our investment in Telesat under U.S. GAAP, Telesat provides us with a reconciliation of its financial statements from IFRS to U.S. GAAP. Income and losses of Telesat are recorded based on our economic interest. 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 Telesat fair value adjustments applicable to the Loral Skynet assets and liabilities acquired by Telesat in 2007 is proportionately eliminated in determining our share of the net income of Telesat. Our equity in net income or loss of Telesat also reflects amortization of profits eliminated, to the extent of our economic interest in Telesat, on satellites we constructed for ~~them~~Telesat while we owned ~~SSL~~Space Systems/Loral, LLC (formerly known as Space Systems/Loral, Inc.) (“SSL”) and on Loral’s sale to Telesat in April 2011 of its portion of the payload on the ViaSat-1 satellite and related assets. Non-refundable cash distributions received from Telesat in excess of our initial investment and our share of cumulative equity in comprehensive income of Telesat, net of cash distributions received in prior periods, are recorded as equity in net income of Telesat (“Excess Cash Distribution”) since we have no obligation to provide future financial support to Telesat. WeAfter receiving an Excess Cash Distribution, we do not record additional equity in net income of Telesat until our share of Telesat’s future net income exceeds the Excess Cash Distribution. 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. We had 0 guarantees or other funding obligations for our equity method investments as of June 30, 2021 and December 31, 2020. We use the nature of distribution approach to classify distributions from equity method investments on the statements of cash flows. The Company monitors its equity method investments for factors indicating other-than-temporary impairment. An impairment loss is recognized when there has been a loss in value of the affiliate that is other-than-temporary.

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 amount of income (loss) reported for the period. Actual results could materially differ from estimates.

Significant estimates also included the allowances for doubtful accounts, income taxes, including the valuation of deferred tax assets, the fair value of liabilities indemnified, the dilutive effect of Telesat stock options (see Note 10) and our pension liabilities.

Cash, Cash Equivalents and Restricted Cash

As of ~~September~~June 30, ~~2017,~~2021, the Company had ~~$259.3~~$23.2 million of cash and cash equivalents. Cash and cash equivalents include liquid investments, primarily money market funds, with ~~original~~ maturities of less than 90 days at the time of purchase. Management determines the appropriate classification of its investments at the time of purchase and at each balance sheet date.

On April 30, 2020, the Company’s Board of Directors declared a special dividend of $5.50 per share for an aggregate dividend of approximately $170.1 million. The special dividend was paid on May 28, 2020 to holders of record of Loral voting and non-voting common stock as of the close of business on May 14, 2020.

On November 23, 2020, the Company’s Board of Directors declared a special dividend of $1.50 per share for an aggregate dividend of approximately $46.4 million. The special dividend was paid on December 17, 2020 to holders of record of Loral voting and non-voting common stock as of the close of business on December 4, 2020.

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LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016,~~2020, the Company had restricted cash of $0.3 million, ~~and nil, respectively. The restricted cash of $0.3 million as of September 30, 2017 represents~~representing the amount pledged as collateral to the issuer of a standby letter of credit (the “LC”). The LC, which expires in ~~October 2018 and contains an automatic renewal period of one year,~~February 2022, has been provided as a guaranty to the lessor of our corporate offices.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheet to the condensed consolidated statement of cash flows (in thousands):


	June 30,		December 31,
	2021		2020
Cash and cash equivalents	$	23,231	$	31,631
Restricted cash included in other current assets		304		304
Cash, cash equivalents and restricted cash shown in the statement of cash flows	$	23,535	$	31,935

September 30,
2017
Cash and cash equivalents $ 259,263
Restricted cash included in other assets 304
Cash, cash equivalents and restricted cash shown in the statement of cash flows $ 259,567

Concentration of Credit Risk

Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents and receivables. Our cash and cash equivalents are maintained with high-credit-quality financial institutions. As of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016,~~2020, our cash and cash equivalents were invested primarily in ~~several~~two liquid ~~Prime and Government~~government AAA money market funds. Such funds are not insured by the Federal Deposit Insurance Corporation. The dispersion across funds reduces the exposure of a default at any one fund. As a result, management believes that its potential credit risks are minimal.

~~LORAL SPACE & COMMUNICATIONS INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

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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LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Assets and Liabilities Measured at Fair Value

The following table presents our assets and liabilities measured at fair value ~~at September 30, 2017~~on a recurring and ~~December 31, 2016~~non-recurring basis (in thousands):



	June 30, 2021						December 31, 2020
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents:
Money market funds	$	20,169	$	0	$	0	$	29,166	$	0	$	0
Other current assets:
Indemnification - Sale of SSL		0		0		598		0		0		598
Liabilities
Other liabilities:
Indemnification - Globalstar do Brasil S.A.	$	0	$	0	$	145	$	0	$	0	$	145

September 30, 2017, December 31, 2016,
Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Assets
Cash and cash equivalents:
Money market funds $ 257,547 — — $ 35,514 — —
Other current assets:
Indemnification - Sale of SSL — — $ 2,410 — — $ 2,410
Liabilities
Long-term liabilities:
Indemnification - Globalstar do Brasil S.A. — — $ 323 — — $ 357

The carrying amount of ~~cash equivalents~~money market funds approximates fair value as of each reporting date because of the short maturity of those instruments.

The Company did not have any non-financial assets or non-financial liabilities that were recognized or disclosed at fair value as of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016.~~2020.

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 is recorded when the carrying amount of the investment exceeds its current fair value and is determined to be other-than-temporary.

The asset resulting from the indemnification of SSL is for certain pre-closing taxes and reflects the excess of payments since inception over refunds and the estimated liability, which was originally determined using the fair value objective approach. The estimated liability for indemnifications relating to Globalstar do Brasil S.A. (“GdB”), originally determined using expected value analysis, is net of payments since inception.

~~LORAL SPACE & COMMUNICATIONS INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

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.

Income Taxes

Loral 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 each period any additional U.S. current and deferred tax required on actual or deemed distributions from Telesat, including Global Intangible Low Taxed Income (“GILTI”). 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.

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LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The tax benefit of an uncertain tax position (“UTP”) taken or expected to be taken in income tax returns is 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 benefit recognized in the financial statements from such a position is measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. The Company recognizes interest and penalties related to income taxes in income tax expense on a quarterly basis.

The unrecognized tax benefit of a UTP is recognized in the period when the UTP 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.

Earnings per Share

Basic earnings per share are computed based upon the weighted average number of shares of voting and non-voting common stock outstanding during each period. Shares of non-voting common stock are in all respects identical to and treated equally with shares of voting common stock except for the absence of voting rights (other than as provided in Loral’s Amended and Restated Certificate of Incorporation which was ratified by Loral’s stockholders on May 19, 2009). Diluted earnings per share are based on the weighted average number of shares of voting and non-voting common stock outstanding during each period, adjusted for the effect of unconverted restricted stock units. For diluted earnings per share, earnings are adjusted for the dilutive effect of Telesat stock options and restricted share units.

Recent Accounting Pronouncements

In ~~March 2017,~~December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ~~No. 2017-07,~~2019- 12, ~~Improving~~Income Taxes (Topic 740): Simplifying the ~~Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~Accounting for Income Taxes. ASU ~~No. 2017-07, as it applies~~2019-12 is expected to reduce the ~~Company, amended the presentation of net periodic pension~~cost and ~~postretirement cost (i.e. net benefit cost).~~complexity related to accounting for income taxes. The new guidance ~~requires~~removes certain exceptions to the ~~service cost component~~general principles in Accounting Standards Codification 740 and improves how financial statement preparers will apply certain income tax-related guidance. The ASU is part of the FASB’s simplification initiative to ~~be presented separate from the other components~~make narrow-scope improvements to accounting standards through a series of net benefit cost. While service cost will be presented with other employee compensation costs within operations, the other components of net benefit cost, such as interest cost, amortization of prior service cost, and gains or losses, are required to be separately presented outside of operations, if income or loss from operations is presented.short-term projects. The new guidance, ~~to be applied retrospectively, is~~ effective for the Company on January 1, ~~2018, with earlier application permitted only within the first interim period starting January 1, 2017. The change in presentation of net benefit cost, which will be adopted on January 1, 2018, will~~2021, did not have a material impact on our condensed consolidated financial statements.

~~In November 2016, the FASB issued ASU No. 2016-18,~~~~Statement of Cash Flows (Topic 230): Restricted Cash,~~a consensus of the FASB’s Emerging Issues Task Force (the “Task Force”). The new guidance requires entities to show the changes in total cash including cash equivalents and restricted cash, in the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash in the statement of cash flows. Entities will also be required to reconcile such total to amounts on the balance sheet and disclose the nature of the restrictions. The new guidance is effective for the Company on January 1, 2018, with earlier application permitted in any interim or annual period, using a retrospective transition method. The Company early adopted the new guidance in the third quarter of 2017. As a result of adopting the new guidance, the statements of cash flows for the nine months ended September 30, 2017 and 2016 show changes in total cash including cash equivalents and restricted cash, and the nature of the restrictions are disclosed above under~~Cash, Cash Equivalents and Restricted Cash.~~

~~In August 2016, the FASB issued ASU No. 2016-15,~~~~Statement of Cash Flows (Topic 230)~~, a consensus of the FASB’s Task Force. The new guidance is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The guidance relevant to the Company provides an accounting policy election for classifying distributions received from equity method investments. Such amounts can be classified using (i) a cumulative earnings approach, or (ii) a nature of distribution approach. Under the cumulative earnings approach, an investor compares the distributions received to such investor’s cumulative equity method earnings since inception. Any distributions received up to the amount of cumulative equity earnings are considered a return on investment and classified in operating activities. Any excess distributions are considered a return of investment and classified in investing activities. Alternatively, under the nature of distribution approach, an investor classifies the distributions based on the nature of activities of the investee that generated the distribution. If the necessary information is subsequently not available for an investee to determine the nature of the activities, the entity should use the cumulative earnings approach for that investee and report a change in accounting principle on a retrospective basis. The new guidance is effective for the Company on January 1, 2018, with earlier application permitted in any interim or annual period, using a retrospective transition method. The Company adopted the new guidance on January 1, 2017 and made an accounting policy election to use the nature of distribution approach to classify distributions from equity method investments on its statements of cash flows. As a result of adopting the new guidance, the entire distribution of $242.7 million received from Telesat in the first quarter of 2017 is classified in investing activities on the statement of cash flows for the nine months ended September 30, 2017 (see Note 5).

~~LORAL SPACE & COMMUNICATIONS INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~In March 2016, the FASB issued ASU No. 2016-09,~~~~Improvements to Employee Share-Based Payment Accounting.~~ASU No. 2016-09 simplified several aspects of the accounting for share-based payment transactions, including the income tax consequences. Under the new guidance, all excess tax benefits and tax deficiencies related to share-based payment transactions are recognized in the current period as discrete adjustments to income tax expense or benefit in the income statement. Under previous U.S. GAAP, excess tax benefits were recognized in additional paid-in capital while tax deficiencies were recognized first as an offset to accumulated excess tax benefits, then as additional income tax expense. Also, under previous U.S. GAAP, excess tax benefits were not recognized until the related income tax deduction reduced income taxes payable. The Company adopted the new guidance on January 1, 2017, and upon adoption previously unrecognized excess tax benefits of $4.7 million were recognized as a cumulative-effect adjustment to increase retained earnings and deferred tax assets.

~~In February 2016, the FASB amended the Accounting Standards Codification (“ASC”) by creating ASC Topic 842,~~~~Leases.~~ASC Topic 842 requires a lessee to record a right-of-use asset and a lease liability for all leases with a lease term greater than 12 months. The main difference between previous U.S. GAAP and ASC Topic 842 is the recognition under ASC 842 of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. The new guidance, effective for the Company on January 1, 2019, with earlier application permitted, is not expected to have a material impact on our consolidated financial statements.

Additional Cash Flow Information

The following represents non-cash activities and supplemental information to the condensed consolidated statements of cash flows (in thousands):


	Six Months Ended
	June 30,
	2021		2020
Non-cash operating items:
Equity in net (income) loss of affiliates	$	(59,893)	$	40,559
Deferred taxes		(1,052)		(300)
Depreciation		1		2
Right-of-use asset, net of lease liability		(18)		(3)
Amortization of prior service credit and actuarial loss		740		642
Net non-cash operating items	$	(60,222)	$	40,900
Supplemental information:
Interest paid	$	11	$	11
Income tax refunds	$	2	$	178
Income tax payments	$	125	$	126

Nine Months Ended
September 30,
2017 2016
Non-cash operating items:
Equity in net income of affiliates $ (183,086 ) $ (96,799 )
Deferred taxes 26,655 29,010
Depreciation and amortization 33 45
Amortization of prior service credit and actuarial loss 770 687
Net non-cash operating items – continuing operations $ (155,628 ) $ (67,057 )
Supplemental information:
Interest paid – continuing operations $ 22 $ 15
Interest paid – discontinued operations $ 55 $ 641
Tax payments, net of refunds – continuing operations $ 10,038 $ 194

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LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

3.Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss, net of tax, are as follows (in thousands):


			Equity in
	Pension and		Telesat-related		Accumulated
	Other		Other		Other
	Post-retirement		Comprehensive		Comprehensive
	Benefits		Loss		Loss
Balance, January 1, 2020	$	(16,167)	$	(38,747)	$	(54,914)

Other comprehensive loss before reclassification		(3,852)		(14,232)		(18,084)
Amounts reclassified from accumulated other comprehensive loss		1,026		0		1,026
Net current-period other comprehensive loss		(2,826)		(14,232)		(17,058)
Balance, December 31, 2020		(18,993)		(52,979)		(71,972)

Other comprehensive loss before reclassification		0		(4,185)		(4,185)
Amounts reclassified from accumulated other comprehensive loss		584		0		584
Net current-period other comprehensive loss		584		(4,185)		(3,601)
Balance, June 30, 2021	$	(18,409)	$	(57,164)	$	(75,573)

Equity in Accumulated
Telesat Other Other
Postretirement Comprehensive Comprehensive
Benefits Loss Loss
Balance, January 1, 2016 $ (13,459 ) $ (15,239 ) $ (28,698 )

Other comprehensive (loss) income before reclassification (1,209 ) 15,477 14,268
Amounts reclassified from accumulated other comprehensive loss 594 — 594
Net current-period other comprehensive (loss) income (615 ) 15,477 14,862
Balance, December 31, 2016 (14,074 ) 238 (13,836 )

Other comprehensive loss before reclassification — (15,715 ) (15,715 )
Amounts reclassified from accumulated other comprehensive loss 500 — 500
Net current-period other comprehensive income (loss) 500 (15,715 ) (15,215 )
Balance, September 30, 2017 $ (13,574 ) $ (15,477 ) $ (29,051 )

The components of other comprehensive income (loss) and related tax effects are as follows (in thousands):


	Three Months Ended June 30,
	2021							2020
	Before-Tax			Tax		Net-of-Tax		Before-Tax			Tax (Provision)		Net-of-Tax
	Amount			Provision		Amount		Amount			Benefit		Amount
Amortization of prior service credits
and net actuarial loss	$	341	^(a)	$	(72)	$	269	$	340	^(a)	$	(71)	$	269
Equity in Telesat-related other
comprehensive loss		(2,053)			(1)		(2,054)		(17,454)			6		(17,448)
Other comprehensive income (loss)	$	(1,712)		$	(73)	$	(1,785)	$	(17,114)		$	(65)	$	(17,179)

Three Months Ended September 30,
2017 2016
Before-Tax Tax Benefit Net-of-Tax Before-Tax Tax Net-of-Tax
Amount (Provision) Amount Amount Provision Amount
Amortization of prior service credits and net actuarial loss $ 257 ^(a) $ (90 ) $ 167 $ 229 ^(a) $ (88 ) $ 141
Equity in Telesat other comprehensive (loss) income (19,255 ) 6,732 (12,523 ) 2,580 (1,008 ) 1,572
Other comprehensive (loss) income $ (18,998 ) $ 6,642 $ (12,356 ) $ 2,809 $ (1,096 ) $ 1,713


	Six Months Ended June 30,
	2021							2020
	Before-Tax			Tax (Provision)		Net-of-Tax		Before-Tax			Tax		Net-of-Tax
	Amount			Benefit		Amount		Amount			Provision		Amount
Amortization of prior service credits
and net actuarial loss	$	740	^(a)	$	(156)	$	584	$	642	^(a)	$	(134)	$	508
Equity in Telesat-related other
comprehensive (loss) income		(4,186)			1		(4,185)		13,609			(6)		13,603
Other comprehensive (loss) income	$	(3,446)		$	(155)	$	(3,601)	$	14,251		$	(140)	$	14,111

Nine Months Ended September 30,
2017 2016
Before-Tax Tax Benefit Net-of-Tax Before-Tax Tax Net-of-Tax
Amount (Provision) Amount Amount Provision Amount
Amortization of prior service credits and net actuarial loss $ 770 ^(a) $ (270 ) $ 500 $ 687 ^(a) $ (261 ) $ 426
Equity in Telesat other comprehensive (loss) income (24,184 ) 8,469 (15,715 ) 17,522 ^(b) (6,659 ) 10,863
Other comprehensive (loss) income $ (23,414 ) $ 8,199 $ (15,215 ) $ 18,209 $ (6,920 ) $ 11,289

(a)

Reclassifications are included in ~~general and administrative expenses.~~

~~(b)~~

~~Includes $20.8 million ($13.5 million, net of tax) share in the equity of Telesat’s~~ other ~~comprehensive income that we could not record in 2015 (see Note 5).~~expense.

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LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

4.Other Current Assets

Other current assets consists of (in thousands):


	June 30,		December 31,
	2021		2020
Restricted cash (see Note 2)	$	304	$	304
Indemnification receivable from SSL for pre-closing taxes (see Note 13)		598		598
Due from affiliates		59		88
Prepaid expenses		692		240
Other		1		2
	$	1,654	$	1,232

September 30, December 31,
2017 2016
Indemnification receivable from SSL for pre-closing taxes (see Note 13) $ 2,410 $ 2,410
Due from affiliate 314 225
Prepaid expenses 449 192
Income taxes receivable 181 545
Other 331 111
Total $ 3,685 $ 3,483

5.Investments in Affiliates

Investments in affiliates consist of (in thousands):

September 30, December 31,
2017 2016
Telesat $ 24,117 $ 107,950


	June 30,		December 31,
	2021		2020
Telesat	$	248,371	$	192,664

Equity in net income (loss) of affiliates consists of (in thousands):

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Telesat $ 43,372 $ 6,948 $ 183,086 $ 96,799


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
Telesat	$	25,291	$	76,515	$	59,893	$	(40,559)

Telesat

As of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016,~~2020, we held a ~~62.7%~~62.6% economic interest and a ~~32.7%~~32.6% voting interest in Telesat. Our economic interest decreased from 62.8% to 62.7% in March 2016 when certain Telesat employees exercised share appreciation rights related to a total of 178,642 stock options granted under Telesat’s share-based compensation plan and received 129,400 non-voting participating preferred shares. Also in March 2016, Telesat repurchased a total of 1,253,477 vested stock options at fair value from Telesat management personnel and other employees for total cash consideration of CAD 24.7 million, of which CAD 18.7 million was paid to management personnel.

We use the equity method of accounting for our majority economic interest in Telesat because we own ~~32.7%~~32.6% 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. We have also concluded that Telesat is not a variable interest entity for which we are the primary beneficiary. 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 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.

~~For the three months ended September 30, 2017,~~In addition to recording our share of equity in net income of Telesat, ~~was $81.6 million. In the first quarter of 2017,~~ we ~~received $242.7 million in cash from Telesat, representing~~also recorded our share of an aggregate approximately $400 million distribution from Telesat to its shareholders and stock option holders. As of June 30, 2017 the cash distribution we received from Telesat exceeded our initial investment and our share of cumulative equity in other comprehensive ~~income~~loss of Telesat ~~net~~ of ~~cash distributions received from Telesat in prior periods, by $39.0~~$4.2 million ~~which we recognized as equity income during~~for the six months ended June 30, 2017. In following the equity method of accounting, for the three months ended September 30, 2017, we reduced our share of Telesat’s net income of $81.6 million by the $39.0 million excess cash distribution, resulting in the recognition of equity in net income of Telesat of $43.4 million, including $0.8 million of elimination of affiliate transactions and related amortization.2021.

~~LORAL SPACE & COMMUNICATIONS INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

In the first quarter of 2016, we recognized our $57.9 million share of Telesat’s net loss and our $20.8 million share of Telesat’s other comprehensive income that we were unable to recognize as of December 31, 2015 as our share of Telesat’s cumulative losses, together with cash distributions we received from Telesat, exceeded our recorded cumulative equity in comprehensive income of Telesat and initial investment.

In addition, during the nine months ended September 30, 2016, we recorded an increase in equity in net income of affiliates of $3.0 million ($1.8 million net of tax) that should have been recognized in prior periods. As a result, earnings per share (basic and diluted) increased $0.06 per share. These non-cash adjustments, which were identified and provided by Telesat in connection with its June 30, 2016 closing process, related primarily to an error in mark-to-market accounting for embedded foreign exchange derivatives in a Telesat customer contract. Changes in fair value of these embedded derivatives are required to be recognized under U.S. GAAP, but not under International Financial Reporting Standards, the basis of accounting used by Telesat. The Company has not revised its previous consolidated financial statements for Telesat’s non-cash adjustments based on its belief that the effect of such adjustments is not material to the financial statements taken as a whole.

On November 17, 2016, Telesat entered into amended senior secured credit facilities which provide for term loan borrowings of $2.43 billion maturing on November 17, 2023 and revolving credit borrowings of up to $200 million (or Canadian dollar equivalent) maturing on November 17, 2021. Telesat also issued, through a private placement, $500 million of 8.875% senior notes which mature on November 17, 2024.

~~In connection therewith, on November 17, 2016, Telesat repaid all outstanding amounts under its former senior secured credit facilities and its 6.0% senior notes.~~

~~On February 1, 2017, Telesat amended the senior secured credit facilities to effectively reprice the then outstanding term loan borrowings of $2.424 billion.~~

The ability of Telesat to pay dividends or certain other restricted payments in cash to Loral is governed by applicable covenants in Telesat’s debt and shareholder agreements. Telesat’s credit agreement governing its senior secured credit facilities limits, among other items, Telesat’s ability to incur debt and make dividend payments if the total leverage ratio (“Total Leverage Ratio”) is above 4.50:1.00, with certain exceptions. As of ~~September~~June 30, ~~2017,~~2021, Telesat’s Total Leverage Ratio was ~~4.64:~~5.46:1.00. Telesat is permitted, however, ~~permitted~~ to pay annual consulting fees of $5.0 million to Loral in cash under a consulting agreement which expires in October 2021 (see Note 14).

On April 27, 2021, Telesat issued $500 million in aggregate principal amount of 5.625% senior secured notes maturing on December 6, 2026 (the “5.625% Senior Secured Notes”).

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 recognizedInterest on the ~~contribution. However, the contribution was recorded by Telesat at fair value. Accordingly, the amortization~~5.625% Senior Secured Notes will be payable on June 1 and December 1 of ~~Telesat fair value adjustments applicable~~each year, commencing on December 1, 2021, to ~~the Loral Skynet assets and liabilities is proportionately eliminated in determining our share~~holders of the net income or losses of Telesat. Our equity in net income or loss of Telesat also reflects amortization of profits eliminated, to the extent of our economic interest in Telesat, on satellites we constructed for Telesat while we owned SSL and on Loral’s sale to Telesat in April 2011 of its portion of the payloadrecord on the ~~ViaSat-1 satellite and related assets.~~immediately preceding May 15 or November 15, as the case may be.

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LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The 5.625% Senior Secured Notes indenture includes covenants and terms that restrict Telesat’s ability to, among other things, incur additional indebtedness, incur liens, pay dividends or make certain other restricted payments, investments or acquisitions, enter into certain transactions with affiliates, modify or cancel its satellite insurance, effect mergers with another entity, and redeem the 5.625% Senior Secured Notes, without penalty, before December 6, 2022, in each case subject to exceptions provided in the 5.625% Senior Secured Notes indenture.

In April 2021, Telesat cancelled 6,197,776 issued and outstanding vested and unvested stock options.

In April 2021, Telesat approved the adoption of a restricted share unit (“Telesat RSU”) plan. A total of 3,660,000 non-voting participating preferred shares are reserved for issuance upon vesting of the Telesat RSUs awarded under the Telesat RSU plan, provided that the aggregate number of non-voting participating preferred shares issuable under the Telesat RSU plan (and under all other share compensation arrangements) does not exceed 10% of the total number of non-voting participating preferred shares outstanding from time to time (on a non-diluted basis).

In April 2021, 3,530,000 Telesat RSUs were granted under the Telesat RSU plan with 130,000 Telesat RSUs remaining available for grant under the Telesat RSU plan.

The following table presents summary financial data for Telesat in accordance with U.S. GAAP as of June 30, 2021 and December 31, 2020 and for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016 and as of September 30, 2017 and December 31, 2016~~2020 (in thousands):


	June 30,		December 31,
	2021		2020
Balance Sheet Data:
Current assets	$	1,247,156	$	703,210
Total assets		4,527,918		3,943,875
Current liabilities		130,767		129,849
Long-term debt		2,978,805		2,483,256
Total liabilities		3,606,651		3,140,747
Shareholders’ equity		921,267		803,128

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016

													Three Months Ended				Six Months Ended
													June 30,				June 30,
													2021		2020		2021		2020
Statement of Operations Data:
Revenues	$	170,151		$	172,336		$	514,800		$	522,849		$	153,664	$	149,761	$	303,718	$	308,326
Operating expenses		(33,770	)		(34,626	)		(111,919	)		(102,853	)		(50,955)		(33,465)		(82,495)		(68,781)
Depreciation, amortization and stock-based compensation		(49,741	)		(49,816	)		(145,875	)		(147,207	)
Loss on disposition of long-lived assets		(204	)		(19	)		(220	)		(1,932	)
Depreciation and amortization														(45,854)		(43,031)		(88,567)		(88,448)
Other operating (expense) income														(69)		11		(564)		(156)
Operating income		86,436			87,875			256,786			270,857			56,786		73,276		132,092		150,941
Interest expense		(37,901	)		(34,311	)		(111,765	)		(104,662	)		(37,916)		(36,685)		(71,016)		(78,232)
Foreign exchange gain (loss)		103,099			(33,639	)		193,259			120,632			28,619		98,313		56,046		(123,330)
(Loss) gain on financial instruments		(6,542	)		2,587			(17,471	)		(3,364	)
Other income		1,200			1,518			348			3,301
Gain (loss) on financial instruments														2,209		(4,884)		3,794		(11,889)
Other (loss) income														(279)		799		(1,076)		4,338
Income tax provision		(16,114	)		(13,556	)		(35,571	)		(39,625	)		(10,773)		(10,138)		(27,683)		(9,456)
Net income	$	130,178		$	10,474		$	285,586		$	247,139
Net income (loss)													$	38,646	$	120,681	$	92,157	$	(67,628)

September 30, December 31,
2017 2016
Balance Sheet Data:
Current assets $ 373,975 $ 678,361
Total assets 4,050,520 4,194,006
Current liabilities 128,247 154,173
Long-term debt, including current portion 2,832,685 2,877,950
Total liabilities 3,549,488 3,597,056
Shareholders’ equity 501,032 596,950

Table of Contents

~~XTAR~~LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Other

We own 56% of the ordinary membership interests of XTAR, a joint venture between us and Hisdesat Servicios Estrategicos, S.A. (“Hisdesat”) of Spain. Hisdesat owns the remaining 44% of the ordinary membership interests and all of XTAR’s Class A membership interests, which have liquidation priority over the ordinary membership interests. We account for our ownership interest in XTAR under the equity method of accounting because we do not control certain of its significant operating decisions. We have also concluded that XTAR is not a variable interest entity for which we are the primary beneficiary. As of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016,~~2020, the carrying value of our investment in XTAR was ~~zero.~~0. Beginning January 1, 2016, we discontinued providing for our allocated share of XTAR’s net losses as our investment was reduced to ~~zero~~0 and we have no0 commitment to provide further financial support to XTAR.

Prior to July 1, 2020, XTAR ~~owns~~owned and ~~operates~~operated an X-band satellite, ~~XTAR-EUR,~~XTAR–EUR (the “Satellite”) located at the 29° E.L.~~, which is designed~~ orbital slot (the “Orbital Slot”). In addition, prior 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.~~July 1, 2020, XTAR ~~also leases~~leased from Hisdesat 7.2 72MHz X-band transponders on the Spainsat satellite located at 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.~~

~~LORAL SPACE & COMMUNICATIONS INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~XTAR’s lease obligation to Hisdesat for the XTAR-LANT transponders~~ (the “Transponder ~~Service”~~Lease”) requires payment by XTAR up to a maximum amount of $28 million per year through the end of the useful life of the satellite which is estimated to be in 2021. Under the lease agreement (the “Spainsat Lease Agreement”), Hisdesat may also be entitled under certain circumstances to a share of the revenues generated on the Transponder Service. In September 2016,. On July 1, 2020, Loral, XTAR and Hisdesat ~~amended the Spainsat Lease Agreement to,~~restructured their relationship, including, among other things, ~~reduce for 2016~~the following: (i) Hisdesat purchased the Satellite and ~~2017~~certain assets related to operation of the ~~minimum capacity required~~Satellite (the “Purchased Assets”) from XTAR; (ii) XTAR’s agreement with Hisdesat to ~~be leased by~~operate the Satellite at the Orbital Slot was terminated and the rights and licenses to operate the Satellite at the Orbital Slot reverted to Hisdesat; (iii) the Transponder Lease was terminated; (iv) XTAR and ~~accordingly lease payments by XTAR for 2016 and 2017 were reduced from $26 million to $18.2 million. The 2016 reduction was retroactive to January 1, 2016. In January 2017, XTAR and~~ Hisdesat again amended the Spainsat Lease Agreement to, among other things, reduce the minimum capacity required to be leased by XTAR for 2017, and accordingly lease payments by XTAR for 2017 were reduced to $9.5 million. In March 2009, XTAR entered into an agreement ~~with Hisdesat pursuant~~under which XTAR will continue to market and sell capacity on the Satellite and on the Spainsat satellite; (v) XTAR and Loral terminated the management agreement between them (the “Loral Management Agreement”) under which, ~~the past due balance on XTAR-LANT transponders of $32.3 million as of~~until December 31, ~~2008, together with~~2013, XTAR was charged a deferral of $6.7 million in payments due in 2009, is 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 September 30, 2017 were $29.2 million. As of September 30, 2017 and December 31, 2016, XTAR has deferred payment of liabilities of $31.7 million and $28.8 million, respectively, for its lease obligation and Catch-Up Payments to Hisdesat. 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 Loralquarterly management fee for services provided by ~~them~~Loral; and (vi) Loral granted to Hisdesat an option to acquire for nominal consideration, subject to receipt of all required regulatory approvals, Loral’s membership interests in XTAR. ~~The ability~~As of the date of this report, Hisdesat has not exercised this option. On July 2, 2020, Loral received from XTAR ~~to pay dividends~~$5.9 million from the proceeds of the sale of the Purchased Assets in full and ~~management fees in cash to~~final settlement of the past due receivable outstanding of $6.6 million under the Loral ~~is governed by XTAR’s operating agreement (see Note 14).~~Management Agreement.

~~The following table presents summary financial data for XTAR for the three and nine months ended September~~As of June 30, ~~2017 and 2016 and as of September 30, 2017~~2021 and December 31, ~~2016 (in thousands):~~

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Statement of Operations Data:
Revenues $ 4,236 $ 3,815 $ 11,759 $ 14,115
Operating expenses (3,871 ) (1,882 ) (11,816 ) (18,075 )
Depreciation and amortization (1,658 ) (2,191 ) (4,975 ) (6,575 )
Operating loss (1,293 ) (258 ) (5,032 ) (10,535 )
Net loss (2,786 ) (706 ) (9,488 ) (12,745 )

September 30, December 31,
2017 2016
Balance Sheet Data:
Current assets $ 5,639 $ 6,364
Total assets 30,309 36,008
Current liabilities 59,140 53,795
Total liabilities 76,813 75,395
Members’ deficit (46,504 ) (39,387 )

~~Other~~

~~As of September 30, 2017 and December 31, 2016,~~2020, the Company also held an indirect ownership interest in ~~a foreign company that~~GdM which currently serves as the exclusive service provider for Globalstar service in Mexico. The Company accounts for this ownership interest using the equity method of accounting. As of June 30, 2021 and December 31, 2020, the carrying value of this investment was 0. Loral has written-off its investment in this company and ~~because we have~~has no future funding requirements relating to this ~~investment,~~investment. Accordingly, there is no requirement for us to provide for our allocated share of ~~this company’s~~GdM’s net losses. GdM is currently in the process of dissolution and liquidation in Mexico, and Loral believes that it will not have any liability associated with GdM upon completion of this process.

6. Other Current Liabilities

The Company also previously held an indirect ownership interest in a foreign joint venture company that serves as the exclusive service provider for Globalstar service in Russia. In connection with a settlement agreement entered into in June 2017 with the Russian joint venture partner to settle certain arbitration and legal proceedings relating to the joint venture, the parties released each other from all claims either party had or may have against the other relating to the dispute, our investment and their relationship (see Note 13).Other current liabilities consist of (in thousands):


	June 30,		December 31,
	2021		2020
Operating lease liability	$	301	$	345
Due to affiliate		267		98
Accrued professional fees		1,966		1,287
Pension and other post-retirement liabilities		83		82
Income taxes payable		7		0
Accrued liabilities		291		190
	$	2,915	$	2,002

Table of Contents

LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

6.~~Other Current Liabilities~~

~~Other current liabilities consists of (in thousands):~~

September 30, December 31,
2017 2016
SSL indemnification liability relating to ViaSat Suit settlement (see Note 13) $ — $ 2,801
Due to affiliate 162 —
Accrued professional fees 1,391 665
Pension and other postretirement liabilities 108 108
Accrued liabilities 637 198
Total $ 2,298 $ 3,772

7.Income Taxes
The following summarizes our income tax ~~provision~~benefit (provision) (in thousands):

Three Months Ended

Six Months Ended

June 30,

June 30,

2021

2020

2021

2020
Current income tax provision
$
(289)

$
(400)

$
(629)

$
(947)
Deferred income tax benefit

490

1,869

1,052

300
Income tax benefit (provision)
$
201

$
1,469

$
423

$
(647)
Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Total current income tax provision $ (1,592 ) $ (713 ) $ (55,581 ) $ (2,056 )
Total deferred income tax provision (14,960 ) (8,198 ) (26,655 ) (29,010 )
Income tax provision $ (16,552 ) $ (8,911 ) $ (82,236 ) $ (31,066 )

For the ~~nine months~~six-month periods ended ~~September~~June 30, ~~2017~~2021 and ~~2016,~~2020, our income tax ~~provision for each period~~benefit (provision) is computed by applying an expected effective annual tax rate against the pre-tax results for each period (after adjusting for certain tax items that are discrete to each period). For the ~~three months~~three-month periods ended ~~September~~June 30, ~~2017~~2021 and ~~2016,~~2020, this amount is then reduced by the tax ~~provision~~benefit (provision) recorded for the ~~six~~three months ended ~~June 30, 2017~~March 31, 2021 and 2016. For the nine months ended September 30, 2017, in accordance with authoritative guidance for accounting for income taxes in interim periods, we applied separate expected effective annual tax rates against our pre-tax loss from continuing operations and our equity in net income of Telesat, combining the results of both computations with the tax items discrete to the nine months ended September 30, 2017, such as the income tax provision related to the Telesat distribution. For the nine months ended September 30, 2016, we applied a single expected effective annual tax rate, which included tax expense on the equity income of Telesat, against our pre-tax loss from continuing operations for the nine months. This change in how we calculated the estimate was made to improve the accuracy and consistency of the expected effective annual tax rate calculated in interim periods.
2020. The current income tax provision for ~~the nine months ended September 30, 2017 primarily~~each period includes our anticipated income tax liability related to ~~the cash distribution received~~GILTI from Telesat ~~after use of available benefits from~~and our ~~alternative minimum tax credits and~~provision for UTPs. After utilizing our net operating loss (“NOL”) carryforwards and ~~foreign~~allowable tax credits, federal income tax on GILTI from ~~Telesat. Based upon~~Telesat was 0 for each period. The deferred income tax benefit for each period includes the impact of equity in net income (loss) of affiliates from our ~~analysis,~~condensed consolidated statement of operations and the ~~amount~~periodic effect of ~~foreign tax credits generated from~~our accounting for GILTI. For the cash distribution allowed to be utilized against our current tax liability will be limited, thereby resulting in a carryforward of unused foreign tax credits. Since, at the current time, sufficient positive evidence does not exist to support full recovery of the foreign tax credit carryforward, we recorded a full valuation allowance against this deferred tax asset during the ninethree and six months ended ~~September~~June 30, ~~2017. We will continue to maintain this valuation allowance until sufficient positive evidence exists to support full or partial reversal. Such~~2020, the Coronavirus Aid, Relief, and Economic Security Act, which was signed into law on March 27, 2020, provided a ~~reversal could be material in future periods.~~
~~Effective January 1, 2017, we adopted ASU No. 2016-09,~~deferred income tax benefit of $0.4 million and ~~upon adoption previously unrecognized excess tax benefits of $4.7~~$3.5 million, ~~were recognized as a cumulative-effect adjustment to increase retained earnings and~~respectively. Since our deferred tax assets ~~(see Note 2).~~
~~Subsequent~~related to the ~~Sale, to~~investment in Telesat will be realized from the future recognition of GILTI, the federal portion of these deferred tax assets was valued at 0 as of June 30, 2021 and December 31, 2020.

To the extent that profitability from operations is not sufficient to realize the benefit from our remaining net deferred tax assets, we would generate sufficient taxable income from the appreciated value of our Telesat investment, ~~which currently has a nominal tax basis,~~subject to the provisions of the Transaction Agreement, in order to prevent federal ~~net operating losses~~NOLs from expiring and realize the benefit of all remaining deferred tax assets.
17
~~LORAL SPACE & COMMUNICATIONS INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

The following summarizes amounts for ~~uncertain tax positions (“UTPs”)~~UTPs included in our income tax ~~provision~~benefit (provision) (in thousands):

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016

Three Months Ended

Six Months Ended

June 30,

June 30,

2021

2020

2021

2020
Current provision for UTPs $ (704 ) $ (636 ) $ (2,069 ) $ (1,774 )
$
(251)

$
(332)

$
(496)

$
(808)
Deferred benefit for UTPs 226 289 701 801

54

72

63

172
Tax provision for UTPs $ (478 ) $ (347 ) $ (1,368 ) $ (973 )
$
(197)

$
(260)

$
(433)

$
(636)

As of ~~September~~June 30, ~~2017,~~2021, we had unrecognized tax benefits relating to UTPs of ~~$68~~$43 million. The Company recognizes interest and penalties related to income taxes in income tax expense on a quarterly basis. As of ~~September~~June 30, ~~2017,~~2021, we have accrued 0 penalties and approximately ~~$9.7 million and $6.0~~$3.8 million for the potential payment of ~~potential~~ tax-related ~~interest and penalties, respectively.~~
interest.
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 ~~2012.~~2014. Earlier years related to certain foreign jurisdictions remain subject to examination. ~~Various foreign income tax returns are currently under examination. However, to~~To the extent allowed by law, the tax authorities may have the right to examine prior periods where ~~net operating losses~~NOLs were generated and carried forward, and make adjustments up to the amount of the ~~net operating loss~~NOL 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,~~2021, the statute of limitations for assessment of additional tax will expire with regard to certain UTPs, ~~related to our state income tax returns filed for 2012,~~ potentially resulting in a ~~$14.0~~$16.4 million reduction to our unrecognized tax benefits. Pursuant to the ~~Purchase Agreement~~purchase agreement for the ~~Sale,~~sale of SSL, we are obligated to indemnify SSL for certain taxes related to periods prior to the closing of the transaction.

Table of Contents

~~The following summarizes the changes to our liabilities for UTPs included in long-term liabilities in the condensed consolidated balance sheets (in thousands):~~LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Nine Months Ended
September 30,
2017 2016
Liabilities for UTPs:
Opening balance — January 1 $ 68,658 $ 69,511
Current provision for potential additional interest 2,069 1,779
Statute expirations — (5 )
Ending balance $ 70,727 $ 71,285

As of ~~September~~June 30, ~~2017,~~2021, if our positions are sustained by the taxing authorities, the Company’s income tax provision ~~from continuing operations~~ would be reduced by approximately ~~$31.5~~$8.9 million. Other than as described above, ~~there were~~we anticipate no ~~significant changes to our UTPs during the nine months ended September 30, 2017 and 2016, and we do not anticipate any~~ other significant changes to our unrecognized tax benefits during the next twelve months.

8.~~Long-Term~~ Other Liabilities
~~Long-term~~Other liabilities ~~consists~~consist of (in thousands):

June 30,

December 31,

2021

2020
Indemnification liabilities - other (see Note 13)
$
145

$
145
Liabilities for uncertain tax positions

20,265

19,769

$
20,410

$
19,914
September 30, December 31,
2017 2016
Indemnification liabilities - other (see Note 13) $ 323 $ 357
Liabilities for uncertain tax positions 70,727 68,658
Other — 244
Total $ 71,050 $ 69,259
18

~~LORAL SPACE & COMMUNICATIONS INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

9.Stock-Based Compensation
Stock Plans
The Loral amended and restated 2005 stock incentive plan (the “Stock Incentive Plan”) which allowed 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, had a ten-year term and has expired. ~~The Company granted 75,262~~As of June 30, 2021 and 2020, outstanding and unconverted restricted stock units (“RSUs”) were 98,917 and 92,857, respectively, that are vested and do not expire.

We paid special dividends of $5.50 per share in the second quarter of 2020 (see Note 2) and $1.50 per share in the fourth quarter of 2020 for an aggregate dividend amount of $216.5 million. In accordance with Loral’s Stock Incentive Plan, an equitable adjustment was made to outstanding stock-based awards to reflect the cash dividend. As a result, RSUs outstanding under the Stock Incentive Plan ~~that do not expire~~increased by 17,595 during the second quarter of 2020 and ~~remained unconverted as~~by 6,060 during the fourth quarter of ~~September 30, 2017 and December 31, 2016.~~2020.

10.Earnings Per Share

Telesat has awarded employee stock options, which, if exercised, would result in dilution of Loral’s economic ownership interest in Telesat from ~~62.7%~~62.6% to approximately ~~62.2%~~60.8%.

The following table presents the dilutive impact of Telesat stock options on Loral’s reported net income ~~from continuing operations~~ for the purpose of computing diluted earnings per share (in thousands):

Three Months Ended

Six Months Ended

June 30,

June 30,

2021

2020

2021
Net income — basic
$
21,491

$
73,566

$
52,207
Less: Adjustment for dilutive effect of Telesat stock options

(1,642)

(398)

(1,797)
Net income — diluted
$
19,849

$
73,168

$
50,410

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2017 2016
Income from continuing operations — basic $ 24,537 $ 93,724 $ 59,652
Less: Adjustment for dilutive effect of Telesat stock options (713 ) (1,346 ) (2,302 )
Income from continuing operations — diluted $ 23,824 $ 92,378 $ 57,350

Table of Contents

LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Telesat stock options are excluded from the calculation of diluted loss per share for the ~~three~~six months ended ~~September~~June 30, ~~2016~~2020 as the effect would ~~have been~~be antidilutive.

Basic income per share is computed based upon the weighted average number of share of voting and non-voting common stock outstanding. The following is the computation of common shares outstanding for diluted earnings per share (in thousands):

Three Months Ended
Nine Months Ended

September 30, September 30,
2017 2017 2016

Three Months Ended

Six Months Ended

June 30,

June 30,

2021

2020

2021
Weighted average common shares outstanding 30,933 30,933 30,933

30,933

30,933

30,933
Unconverted restricted stock units 75 75 75

99

84

99
Common shares outstanding for diluted earnings per share 31,008 31,008 31,008

31,032

31,017

31,032

For the ~~three~~six months ended ~~September~~June 30, ~~2016,~~2020, the following unconverted restricted stock units are excluded from the calculation of diluted loss per share as the effect would have been antidilutive (in thousands):

~~Three~~

Six Months Ended

~~September~~
June 30, ~~2016~~
2020
Unconverted restricted stock units

75
84
19

~~LORAL SPACE & COMMUNICATIONS INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~
11.Pensions and Other Employee Benefit Plans
The following tables provide the components of net periodic cost ~~included in general and administrative expenses~~ for our qualified retirement plan (the “Pension Benefits”) and health care and life insurance benefits for retired employees and dependents (the “Other Benefits”) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~2020 (in thousands):

Pension Benefits Other Benefits
Three Months Ended Three Months Ended
September 30, September 30,
2017 2016 2017 2016
Service cost $ 175 $ 167 $ — $ —
Interest cost 490 495 5 6
Expected return on plan assets (531 ) (512 ) — —
Amortization of net actuarial loss 250 223 1 1
Amortization of prior service credits — — 6 5
Net periodic cost $ 384 $ 373 $ 12 $ 12

Pension Benefits

Other Benefits

Three Months Ended

Three Months Ended

June 30,

June 30,

2021

2020

2021

2020
Service cost ⁽¹⁾
$
165

$
171

$
0

$
0
Interest cost ⁽²⁾

378

443

3

4
Expected return on plan assets ⁽²⁾

(679)

(657)

0

0
Amortization of net actuarial loss (gain) ⁽²⁾

341

341

0

(1)
Net periodic cost
$
205

$
298

$
3

$
3

Pension Benefits Other Benefits
Nine Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Service cost $ 526 $ 501 $ 1 $ 1
Interest cost 1,470 1,486 14 16
Expected return on plan assets (1,593 ) (1,535 ) — —
Amortization of net actuarial loss 749 667 3 4
Amortization of prior service credits — — 18 16
Net periodic cost $ 1,152 $ 1,119 $ 36 $ 37

Pension Benefits

Other Benefits

Six Months Ended

Six Months Ended

June 30,

June 30,

2021

2020

2021

2020
Service cost ⁽¹⁾
$
352

$
352

$
0

$
0
Interest cost ⁽²⁾

753

883

6

8
Expected return on plan assets ⁽²⁾

(1,367)

(1,326)

0

0
Amortization of net actuarial loss (gain) ⁽²⁾

740

644

0

(2)
Net periodic cost
$
478

$
553

$
6

$
6

⁽¹⁾
Included in general and administrative expenses.
⁽²⁾
Included in other expense.

Table of Contents

LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

12.Financial Instruments, Derivative Instruments and Hedging

Financial Instruments

The carrying amount of cash equivalents approximates fair value because of the short maturity of those instruments.

Foreign Currency

We are subject to the risks associated with fluctuations in foreign currency exchange rates. To limit this foreign exchange rate exposure, we attempt to denominate all contracts in U.S. dollars. 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.

Derivatives and Hedging Transactions

There were no0 derivative instruments as of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016.~~2020.

13.Commitments and Contingencies

Financial Matters

In ~~the fourth quarter of~~ 2012, we sold our former subsidiary, SSL, to MDA ~~pursuant to the Purchase Agreement.~~Communications Holdings, Inc., a subsidiary of Maxar Technologies Inc. (formerly known as MacDonald, Dettwiler and Associates Ltd.) (“MDA”). Under the terms of the ~~Purchase Agreement,~~purchase agreement, we are obligated to indemnify MDA and its affiliates from ~~(1)~~ liabilities with respect to certain pre-closing ~~taxes; and (2) certain litigation costs and litigation damages relating to the ViaSat Suit.~~taxes. Our condensed consolidated balance sheets include an indemnification refund receivable of ~~$2.4~~$0.6 million as of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016. This~~2020. Certain tax assessments against SSL for 2007 to 2010 have been settled, resulting in our having received during the second and third quarters of 2019 refunds of prior indemnification payments totaling $1.8 million. The remaining receivable as of June 30, 2021 represents payments to date ~~net of~~over the estimated fair value of the remaining liability for our indemnification ~~for our obligation with respect to certain~~of SSL pre-closing ~~taxes. The~~taxes where the final amounts ~~for indemnification claims related to pre-closing taxes~~ have not yet been determined. Where appropriate, we intend vigorously to contest the underlying tax assessments, but there can be no assurance that we will be successful. Although no assurance can be provided, we do not believe that these tax-related matters will have a material adverse effect on our financial position or results of operations. ~~For a discussion of the ViaSat Suit and our indemnification obligations related thereto, see Legal Proceedings, below.~~

~~LORAL SPACE & COMMUNICATIONS INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

In connection with the sale in 2008 by Loral and certain of its subsidiaries and DASA Globalstar LLC to Globalstar Inc. of their respective interests in GdB, the Globalstar Brazilian service provider, Loral agreed to indemnify Globalstar Inc. and GdB for certain GdB pre-closing liabilities, primarily related to Brazilian taxes. Our condensed consolidated balance sheets include liabilities of ~~$0.3 million and $0.4~~$0.1 million as of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016, respectively,~~2020 for indemnification liabilities relating to the sale of GdB.

See Note 14 — Related Party Transactions — Transactions with Affiliates —Telesat for commitments and contingencies relating to our agreement to indemnify Telesat for certain liabilities.

~~Legal Proceedings~~Lease Arrangements

~~ViaSat~~

~~Under~~We lease a facility and certain equipment under agreements expiring at various dates. We may renew, extend or modify the ~~terms~~lease covering our facilities as needed. In March 2021, the operating lease for our corporate offices was modified by extending the lease expiration date from June 30, 2021 to December 31, 2021 and decreasing the rent for the extension period. The facility lease modification was accounted for by remeasuring the lease liability and adjusting the carrying amount of the ~~Purchase Agreement, Loral agreed~~right-of-use asset by the amount of the remeasurement of the lease liability as of March 31, 2021. We have 0 sublease income in any of the periods presented.

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LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Lease costs expensed for the three and six months ended June 30, 2021 and 2020 were as follows (in thousands):

Three Months Ended

Six Months Ended

June 30,

June 30,

2021

2020

2021

2020
Rent Expense
$
160

$
173

$
334

$
347

Lease payments for the six months ended June 30, 2021 were $0.4 million. The remaining lease term as of June 30, 2021 is six months and we used a discount rate of 7.5% to ~~indemnify MDA and its affiliates from certain damages~~compute the lease liability. The right-of-use asset is being amortized over the life of the lease.

The following is a reconciliation of the lease liability to future lease payments as of June 30, 2021 (in thousands):

Operating lease payments - (July 1, 2021 to December 31, 2021)
$
306
Less: Future interest

5
Operating lease liability
$
301

Amounts recognized in Balance Sheet

Other current liabilities
$
301

Legal Proceedings

Litigation Related to the Transaction

Southern District of New York Litigation. On May 5, 2021, Guy Coffman filed a complaint (Civil Action No. 1:21-cv-04007, the ‘‘Coffman Complaint’’) in the ~~ViaSat Suit brought in 2012 by ViaSat~~United States District Court for the Southern District of New York against Loral and ~~SSL. In September 2014,~~the members of the Loral ~~SSL~~Board (the ‘‘Individual Defendants’’). Also on May 5, 2021, Shiva Stein filed a complaint (Civil Action No. 1:21-cv-04018, the “Stein Complaint”) in the United States District Court for the Southern District of New York against Loral and ~~ViaSat entered into~~the Individual Defendants. On May 7, 2021, Julia Marshall filed a ~~settlement agreement (“~~complaint (Civil Action No. 1:21-cv-04128, the ~~Settlement Agreement”~~‘‘Marshall Complaint’’) ~~pursuant to which~~in the ~~ViaSat Suit~~United States District Court for the Southern District of New York against Loral, the Individual Defendants and ~~an additional patent infringement~~Merger Sub (collectively, the ‘‘Loral Defendants’’); the Marshall Complaint also named as defendants Telesat, Telesat Corporation, Telesat Partnership and ~~breach~~Telesat CanHoldco (together, the ‘‘Telesat Defendants’’) and PSP and Red Isle (the ‘‘PSP Defendants’’ and, together with the Loral Defendants and the Telesat Defendants, the ‘‘SDNY Defendants’’). On June 18, 2021, Anthony Morgan filed a complaint (Civil Action No. 1:21-cv-05385, the “Morgan Complaint” and, together with the Coffman Complaint, the Stein Complaint and the Marshall Complaint, the “SDNY Complaints”) in the United States District Court for the Southern District of ~~contract lawsuit brought by ViaSat~~New York against ~~SSL in September 2013 were settled.~~ Loral ~~was also released by MDA, MDA Holdings~~ and ~~SSL from indemnification claims relating to~~ the ~~ViaSat lawsuits under the Purchase Agreement.~~Individual Defendants.

The ~~terms of the Settlement Agreement provide,~~SDNY Complaints alleged, among other things, ~~for payment by Loral and SSL to ViaSat~~that the Registration Statement on ~~a joint and several basis of $100 million, $40 million of which was paid in September 2014 in connection with entering into the Settlement Agreement,~~Form F-4 filed on April 26, 2021 with the ~~remaining $60 million payable with interest~~SEC by Telesat Corporation and Telesat Partnership, and, in ~~ten equal quarterly installments of $6.9 million from October 15, 2014 through January 15, 2017.~~
Following a mediation session held on December 1, 2014, Loral and MDA entered into an agreement titled “MDA/Loral Dispute Resolution” dated December 1, 2014 (the “Allocation Agreement”), pursuant to which Loral and MDA agreed that Loral will be responsible for $45 million, and MDA and SSL will be responsible for $55 million,the case of the ~~$100 million litigation settlement~~Morgan Complaint, such Registration Statement as amended by Amendment No. 1 thereto filed with ~~ViaSat.~~
~~Pursuant to~~ the ~~Allocation Agreement, Loral paid ViaSat the final installment of $2.8 million in January 2017. Our condensed consolidated balance sheets as of September 30, 2017~~SEC by Telesat Corporation and ~~December 31, 2016 include indemnification liabilities related to the ViaSat Settlement Agreement of nil~~Telesat Partnership on May 28, 2021 (the ‘‘2021 Registration Statement’’) contained materially incomplete and ~~$2.8 million, respectively.~~
~~Joint Venture Arbitration~~
In connection with a joint venture that serves as the provider for Globalstar service in Russia in which Loral held an indirect ownership interest, in the fourth quarter of 2016, the Russian joint venture partner (the “Russian JV Partner”) commenced an arbitration against Loral in the London Court of International Arbitration (the “LCIA”). In the arbitration, the Russian JV Partnermisleading information. The SDNY Complaints sought, among other things, to ~~recover (i) losses it~~enjoin the SDNY Defendants from proceeding with, consummating or closing the Transaction, unless and until the SDNY Defendants disclosed the material information that plaintiffs claimed ~~it suffered in defending legal proceedings in Russian state courts brought by Loral (the “Collection Action”)~~had been omitted from the 2021 Registration Statement; awarding plaintiffs the costs and ~~(ii) costs~~disbursements of their actions, including reasonable attorneys’ and expert fees and expenses; and such other and further equitable relief as the court may deem just and proper.

None of the ~~arbitration.~~Complaints have to date been served on the SDNY Defendants. The Stein Complaint was voluntarily dismissed on July 8, 2021, and the Morgan Complaint was voluntarily dismissed on August 3, 2021.

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LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

If plaintiffs Coffman and Marshall do not withdraw their complaints and proceed to litigate their claims, the Loral ~~had brought its Collection Action~~Defendants believe that they have, and intend vigorously to ~~collect a payment owed~~pursue, meritorious defenses to ~~Loral by the Russian JV Partner in connection with its exit from the joint venture. The amount Loralexpected to receive, after legal fees and expenses, would have been less than $1 million, but thepayment was fraudulently diverted,Loral believes, by Russian attorneys retained by Loral’s US counsel to a shell company formed by one~~such claims. There can be no assurance, however, that resolution of the ~~Russian attorneys.In June 2017, Loral entered into a settlement agreement with the Russian JV Partner pursuant to which, among other things,the arbitration and the Collection Action were settled and the parties released each other from all claims either party had or may have against the other relating~~lawsuits will not result in additional unanticipated expense to the ~~dispute, Loral’s investment~~Company or that the Loral Defendants’ defenses will be successful with respect to all or some of plaintiffs’ claims or that the lawsuits filed by plaintiffs will not cause a delay in ~~the joint venture and their relationship.The settlement was conditioned upon the approval by the Russian court~~or impede consummation of the ~~withdrawal of the Collection Action, which approval was obtained in November 2017. The settlement, which Loral expects to~~Transaction. Although no assurance can be ~~completed in the fourth quarter of 2017, and related legal fees~~provided, we do not believe that these claims will ~~not~~ have a material adverse effect on Loral’s financial position or results of ~~operations.The carrying value of~~operations or on Loral’s ~~investment~~ability to consummate the Transaction.

Delaware Class Action Litigation. On June 21, 2021, Mcbreakley Pluviose filed a class action complaint (Civil Action No. 2021-0541-LWW, the “Pluviose Complaint”) in the ~~Russian joint venture~~Court of Chancery of the State of Delaware against Loral, the Individual Defendants, MHR and MHR Holdings LLC (collectively, the “Class Action Defendants”). On July 13, 2021, Diana Butchko filed a class action complaint (Civil Action No. 2021-0597-LWW, the “Butchko Complaint,” and, together with the Pluviose Complaint, the “Delaware Complaints”) in the Court of Chancery of the State of Delaware against the Class Action Defendants.

The Delaware Complaints alleged, among other things, that the Transaction is substantively and procedurally unfair to Loral’s public stockholders. Each of the Delaware Complaints sought, among other things, a judgment declaring that the Transaction violated Section 203 of the Delaware General Corporation Law (the “DGCL”) and that Loral’s shareholder rights plan was ~~zero~~unenforceable; converting into non-voting shares of Telesat Corporation the shares that Dr. Rachesky and MHR receive in the Transaction in exchange for their shares of Loral non-voting common stock; finding the Individual Defendants, and Dr. Rachesky and MHR as controlling stockholders, liable for breaching their fiduciary duties owed to plaintiff and the class; enjoining the Loral stockholder vote on the Transaction unless and until it is subject to a vote under DGCL Section 203; and awarding to plaintiff and the class, damages, together with pre-and post-judgment interest, costs, expenses and disbursements of ~~September 30, 2017~~the action, including all reasonable attorneys’, accountants’ and ~~December 31, 2016.~~experts’ fees, and such other relief as the court deems just and equitable.

~~LORAL SPACE & COMMUNICATIONS INC.~~On July 15, 2021, plaintiffs in the above-described Delaware lawsuits, with court approval, voluntarily dismissed their lawsuits.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

Other and Routine Litigation

WeOther than as set forth above, we are not currently subject to any legal proceedings that, if decided adversely, could have a material adverse effect on our financial position or results of operations. In the future, however, we may become subject to legal proceedings and claims, either asserted or unasserted, that may arise in the ordinary course of business or otherwise.

14.Related Party Transactions

MHR Fund Management LLC

Mark H. Rachesky, President and Chief Investment Officer of MHR, ~~Fund Management LLC (“MHR”),~~ and Janet T. Yeung, a principal and the General Counsel of MHR, are members of Loral’s board of directors. ~~Hal Goldstein, a former managing principal of MHR, was a member of the Loral Board until May 2015.~~

Various funds affiliated with MHR and Dr. Rachesky held, as of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016,~~2020, approximately 39.9% of the outstanding voting common stock and 58.4% of the combined outstanding voting and non-voting common stock of Loral.

Transactions with Affiliates

Telesat

Transaction Agreement. On November 23, 2020, Loral entered into the Transaction Agreement with Telesat, Telesat Partnership, Telesat Corporation, Telesat CanHoldco, Merger Sub, PSP and Red Isle, under which Merger Sub will merge with and into Loral, with Loral surviving the Merger as a wholly owned subsidiary of Telesat Partnership, and Loral stockholders receiving common shares of Telesat Corporation and/or units of Telesat Partnership that will be exchangeable for common shares of Telesat Corporation following the expiration of a six-month lock-up period.

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LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

On June 24, 2021, pursuant to Section 12.8 of the Transaction Agreement, Loral, with the approval of the special committee of the board of directors of Loral, entered into Amendment No. 1 to the Transaction Agreement (“Amendment No. 1”) with the parties thereto, that replaced all references to Colin Watson in the Transaction Agreement with references to Clare Copeland, the transferee of the Transit Director Voting Preferred Shares (as defined in the Transaction Agreement) formerly held by the estate of Colin Watson.

Upon satisfaction of the terms and subject to the conditions set forth in the Transaction Agreement, the Transaction will result in the current stockholders of Loral, PSP and the other shareholders in Telesat (principally current or former management of Telesat) owning approximately the same percentage of equity in Telesat indirectly through Telesat Corporation and/or Telesat Partnership as they currently hold (indirectly in the case of Loral stockholders and PSP) in Telesat, Telesat Corporation becoming the publicly traded general partner of Telesat Partnership and Telesat Partnership indirectly owning all of the economic interests in Telesat, except to the extent that the other shareholders in Telesat elect to retain their direct interest in Telesat.

The Transaction Agreement provides for certain economic adjustments and contractual protections with respect to Loral’s assets and liabilities other than its indirect interest in Telesat. These include among others:
● One Time Payment. To compensate PSP and Red Isle for certain tax inefficiencies for PSP and Red Isle related to the structure of the Transaction, Loral will make a payment of $7 million to Red Isle, subject to the extent of Loral’s available cash; however, if such payment is less than $7 million due to a lack of available cash, Telesat Partnership will be required to pay the balance of such unpaid amount to Red Isle no later than 35 trading days following consummation of the Transaction.

● Absolute Indemnities. Loral, Telesat Corporation and Telesat CanHoldco will indemnify PSP for PSP’s pro rata share of costs relating to: (a) certain losses and litigation proceedings related to the Transaction, (b) certain out-of-pocket expenses of Loral after the Closing and (c) certain tax matters. This indemnification will be (i) independent of the accuracy of the underlying representations and warranties, (ii) in the case of the tax indemnification, subject to a cap of $50 million and (iii) subject to additional, customary limitations.

The Transaction Agreement also provides certain termination rights for both Loral and PSP and further provides that, in certain circumstances, Loral may be required to pay to Red Isle a termination fee of $6.55 million or $22.91 million or to pay to PSP a “breach” fee of $40.0 million in each case as provided in the Transaction Agreement.

In connection with the Transaction, Loral entered into the following agreements with related parties or their subsidiaries:

Subscription Agreement for Series B Preferred Stock. In connection with the Transaction, Loral issued to Telesat Partnership 5 shares of Series B Preferred Stock pursuant to the terms of a subscription agreement entered into between Loral and Telesat Partnership. Such shares of Series B Preferred Stock will remain outstanding following the Merger and will give Telesat Partnership the right to vote such shares once there is no Loral common stock outstanding.
Full and Final Release and Amendment of Tolling Agreement. Loral has asserted certain claims against PSP arising out of PSP’s actions in certain previous transaction processes relating to Telesat. PSP has asserted various counterclaims and Loral, PSP and Telesat have entered into a series of tolling agreements preventing those claims from being terminated due to the passing of the statute of limitations while negotiating the Transaction Agreement. In connection with the signing of the Transaction Agreement, the parties entered into a mutual release that will release those claims on the first to occur of the closing of the Transaction or the termination of the Transaction Agreement due to Loral’s material breach.
Standstill Agreement. Loral and MHR have entered into a standstill agreement (the “MHR Standstill Agreement”) prohibiting MHR and its affiliates from, subject to the terms thereof, acquiring more than an additional 6% of the outstanding Voting Common Stock prior to the conclusion of the Loral stockholder meeting to be held to approve the Transaction. The MHR Standstill Agreement will terminate immediately upon the first to occur of the conclusion of the Loral stockholder meeting and termination of the Transaction Agreement.

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LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

On June 24, 2021, pursuant to Section 12.8 of the Transaction Agreement, Loral (with the approval of the special committee of the board of directors of Loral) and PSP entered into a consent letter agreement with and at the request of Telesat granting a limited waiver of Telesat Corporation’s obligations under Section 8.8(b) of the Transaction Agreement such that (a) Telesat Corporation or any of its subsidiaries may propose the issuance or sale of shares of capital stock or other equity interests of Telesat Corporation or any of its subsidiaries in connection with any private investment the purpose of which is to finance Telesat Lightspeed and (b) Telesat Corporation may privately propose the issuance or sale of shares of capital stock or other equity interests of Telesat Corporation in connection with an underwritten public offering to potential underwriters, applicable regulators and to Loral and PSP, and may furnish a registration statement on Form F-1 and amendments thereto on a confidential basis to the SEC and deliver corresponding documents to applicable Canadian securities regulators in connection with an underwritten offering of securities; provided that Telesat Corporation does not publicly file such registration statement or publicly announce its intention to conduct such offering (except to generally disclose its intention to conduct such an offering pursuant to disclosure to be included in Telesat Corporation’s and Telesat Partnership’s registration statement on Form F-4 filed with the SEC and reasonably acceptable to Loral and PSP); provided, in each case, that such consent does not extend to the authorization or issuance of such shares of capital stock or other equity interests.

Ownership Interest. As described in Note 5, we own ~~62.7% of~~a 62.6% economic interest and a 32.6% voting interest in Telesat and account for our ownership interest under the equity method of accounting.

Shareholders Agreement. 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 co-owner, ~~Public Sector Pension Investment Board (“PSP”)~~PSP and one of its subsidiaries, Telesat ~~Canada~~ 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 and its subsidiaries will be conducted and the relationships among the parties thereto and future shareholders of Telesat. 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 or any of its subsidiaries. Additionally, the Shareholders Agreement details the matters requiring the approval of the shareholders of Telesat (including veto rights for Loral over certain extraordinary actions) and provides for preemptive rights for certain shareholders upon the issuance of certain capital shares of Telesat. The Shareholders Agreement also (i) restricts the ability of holders of certain shares of Telesat to transfer such shares unless certain conditions are met or approval of the transfer is granted by the directors of Telesat, (ii) provides for a right of first offer to certain Telesat shareholders if a holder of equity shares of Telesat wishes to sell any such shares to a third party and (iii) 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 equity securities.

In addition, the Shareholders Agreement provides for either PSP or Loral to initiate the process of conducting an initial public offering of the equity shares of Telesat (a “Telesat IPO”). In connection with our exploration of strategic initiatives to alter the status quo in our ownership of Telesat, in July 2015, we exercised our right under the Shareholders Agreement to require Telesat to conduct a Telesat IPO. Specifically, we requested that Telesat issue not more than 25 million newly issued shares of Telesat voting common stock. We also requested the termination of the Shareholders Agreement and the elimination of certain provisions in Telesat’s Articles of Incorporation, both of which we believe are important for a successful public offering. If those provisions are eliminated, an impediment to the conversion of our non-voting Telesat shares to voting shares would be eliminated. Termination or modification of the Shareholders Agreement and conversion of our non-voting shares to voting shares would enable us, after a Telesat IPO and subject to the receipt of any necessary regulatory approvals, to obtain majority voting control of Telesat. Telesat selected two co-managing underwriters and informed us that it will work to implement a Telesat IPO pending our agreement with PSP on the post-IPO governance matters. To date, no such agreement has been reached. There can be no assurance as to whether, when or on what terms a Telesat IPO, termination or modification of the Shareholders Agreement or any requested changes to Telesat’s Articles of Incorporation may occur or that any particular economic, tax, structural or other objectives or benefits with respect to a Telesat IPO will be achieved. If a Telesat IPO is expected to proceed under unfavorable terms or at an unfavorable price, we may withdraw our demand for a Telesat IPO.

~~LORAL SPACE & COMMUNICATIONS INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

Depending upon the outcome of discussions with PSP relating to Telesat strategic matters, we may assert certain claims against PSP for actions we believe violated our rights relating to the affairs of Telesat under the Telesat Shareholders Agreement and otherwise. In response to our claims, PSP has informed us that it believes that it may have claims against us, although we are not aware of the legal or factual basis for any such claims. We and PSP have agreed that, pending the outcome of our discussions, it would be beneficial to delay the commencement of any action relating to either party’s claims and have entered into an agreement (the “Tolling Agreement”) which preserves the parties’ rights to assert against one another legal claims relating to Telesat. We also included Telesat as a party to the Tolling Agreement because, as a technical matter of Canadian law and for purposes of potentially seeking equitable relief, Telesat may be a necessary party. There can be no assurance that if the Tolling Agreement lapses that we and PSP will not pursue legal claims against one another relating to Telesat. If we pursue claims against PSP, there can be no assurance that our claims will be successful or that the relief we seek will be granted. If PSP pursues claims against us, there can be no assurance that PSP will not prevail on its claims.

Under the Shareholders Agreement, in the event that, except in certain limited circumstances, either (i) ownership or control, directly or indirectly, by Dr. Rachesky of Loral’s voting stock falls below certain levels other than in connection with certain specified circumstances, including an acquisition by a Strategic Competitor (as defined in the Shareholders Agreement) 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 without the approval of the incumbent directors, Loral will lose its veto rights relating to certain extraordinary actions by Telesat 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, 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 Loral’s right to call PSP’s shares at fair market value.

The Shareholders Agreement provides for a board of directors of 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 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~~board of ~~Directors~~directors of Telesat. In addition, Michael B. Targoff, Loral’s Vice Chairman, serves on the board of directors of Telesat.

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LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Consulting Services Agreement. 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 had an initial term of ~~the Consulting Agreement was renewed upon~~seven-years. Upon expiration of ~~its~~the initial term on October 31, 2014, ~~and~~the Consulting Agreement was automatically renewed for the additional seven-year term which expires on October 31, 2021. In exchange for Loral’s services under the Consulting Agreement, Telesat pays Loral an annual fee of $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. Our general and administrative expenses are net of income related to the Consulting Agreement of $1.25 million for each of the three-month periods ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~2020 and ~~$3.8~~$2.5 million for each of the ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2017~~2021 and ~~2016.~~2020. For each of the ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2017~~2021 and ~~2016,~~2020, Loral received payments in cash from Telesat, net of withholding taxes, of ~~$3.6~~$2.4 million for consulting fees.

Tax Indemnification. In connection with the acquisition of our ownership interest in Telesat in 2007, Loral retained the benefit of tax recoveries related to the transferred assets and indemnified Telesat (“Telesat Indemnification”) for certain liabilities, including Loral Skynet’s tax liabilities arising prior to January 1, 2007. The Telesat Indemnification includes certain tax disputes currently under review in various jurisdictions including Brazil. The Brazilian tax authorities challenged Loral Skynet’s historical characterization of its revenue generated in Brazil for the years 2003 to 2006. Telesat received and challenged, on Loral Skynet’s behalf, tax assessments from Brazil totaling approximately ~~$2.4~~$0.7 million. The Company believes that Loral Skynet’s filing position will ultimately be sustained requiring no payment under the Telesat Indemnification.There can be no assurance that there will be no future claims under the Telesat Indemnification related to tax disputes.

Administrative Fee. Loral’s employees and retirees participate in certain welfare plans sponsored or managed by Telesat. Loral pays Telesat an annual administrative fee of $0.1 million and reimburses Telesat for the plan costs attributable to Loral participants. Amounts due to Telesat as of June 30, 2021 and December 31, 2020 were $0.3 million and $0.1 million, respectively.

~~LORAL SPACE & COMMUNICATIONS INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

Grant Agreements. Loral, along with Telesat, PSP and 4440480 Canada Inc., an indirect wholly-owned subsidiary of Loral (the “Special Purchaser”), has entered into (i) a stock option grant agreement dated November 18, 2013 with respect to shares in Telesat with Telesat President and CEO, Daniel Goldberg (the “Goldberg Stock Option Grant Agreement”); (ii) an award agreement for Telesat restricted share units dated November 28, 2018 with Mr. Goldberg (the “Goldberg RSU Grant Agreement”); and (iii) restricted share unit grant agreements dated April 23, 2021 with respect to shares in Telesat (the ~~“Grant~~“2021 RSU Grant Agreements” and, together with the Goldberg RSU Grant Agreement, the “RSU Grant Agreements”) with ~~certain~~the following executives of Telesat: Mr. Goldberg, Andrew Browne, Telesat Chief Financial Officer, Erwin Hudson, Telesat Vice President, LEO, and Michael Schwartz, Telesat Senior Vice President, Corporate and Business Development (each a “Participant” and collectively, the “Participants”). ~~Each of the Participants is or was, at the time, an executive of Telesat.~~

The Goldberg Stock Option Grant ~~Agreements confirm grants~~Agreement documents a grant to Mr. Goldberg of Telesat stock options (including tandem SAR rights) ~~to the Participants~~ and ~~provide~~provides for certain rights, obligations and restrictions related to such stock options, which include, among other things: (w) the possible obligation of the Special Purchaser to purchase the shares in the place of Telesat should Telesat be prohibited by applicable law or under the terms of any credit agreement applicable to Telesat from purchasing such shares, or otherwise default on such purchase obligation, pursuant to the terms of the Goldberg Stock Option Grant ~~Agreements; and~~Agreement; (x) the obligation of the Special Purchaser to purchase shares upon exercise by Telesat of its call right under ~~Telesat's~~Telesat’s Management Stock Incentive Plan in the event of ~~a Participant’s~~Mr. Goldberg’s termination of employment; ~~and, in the case of certain executives,~~ (y) the right of ~~each such Participant~~Mr. Goldberg to require the Special Purchaser or Loral to purchase a portion of the shares in Telesat owned by him in the event of exercise after termination of employment to cover taxes that are greater than the minimum withholding amount; and (z) the right of ~~each such Participant~~Mr. Goldberg to require Telesat to cause the Special Purchaser or Loral to purchase a portion of the shares in Telesat owned by him, or that are issuable to him under ~~Telesat's~~Telesat’s Management Stock Incentive Plan at the relevant time, in the event that more than 90% of ~~Loral's~~Loral’s common stock is acquired by an unaffiliated third party that does not also purchase all of ~~PSP's~~PSP’s and its ~~affiliates'~~affiliates’ interest in Telesat. Under an option cancellation agreement between Telesat and Mr. Goldberg, 220,000 options under the Goldberg Stock Option Agreement were cancelled, with the balance of the options under that agreement remaining outstanding.

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LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The Goldberg RSU Grant Agreement documents a grant to Mr. Goldberg of restricted stock units with respect to shares in Telesat and provides for certain rights, obligations and restrictions related to such restricted stock units, which include, among other things: (x) the possible obligation of the Special Purchaser to purchase the shares in the place of Telesat should Telesat be prohibited by applicable law or under the terms of any credit agreement applicable to Telesat from purchasing such shares, or otherwise default on such purchase obligation, pursuant to the terms of the Goldberg RSU Grant Agreement; and (y) the obligation of the Special Purchaser to purchase shares upon exercise by Telesat of its call right under Telesat’s Management Stock Incentive Plan in the event of the termination of Mr. Goldberg’s employment.
The 2021 RSU Grant Agreements document grants to the Participants of restricted share units with respect to shares in Telesat and provide for certain rights, obligations and restrictions related to such restricted share units, which include, among other things, the obligation of the Special Purchaser, prior to the occurrence of the Transaction, to purchase Telesat shares upon exercise by Telesat of its call right under Telesat’s Restricted Share Unit Plan in the event of the termination of a Participant’s employment.
The Goldberg Stock Option Grant Agreement and the RSU Grant Agreements further provide that, in the event the Special Purchaser is required to purchase Telesat shares pursuant to such agreements, such shares, together with the obligation to pay for such shares, shall be transferred to a subsidiary of the Special Purchaser, which subsidiary shall be wound up into Telesat, with Telesat agreeing to the acquisition of such subsidiary by Telesat from the Special Purchaser for nominal consideration and with the purchase price for the shares being paid by Telesat within ten (10) business days after completion of the winding-up of such subsidiary into Telesat.
Other than the stock options that remain outstanding under the Goldberg Stock Option Grant Agreement as discussed above, stock options to purchase shares in Telesat previously granted by Telesat to certain Telesat executives (Messrs. Goldberg, Browne, Hudson and Schwartz) and a former Telesat executive (Mr. Cayouette) under stock option grant agreements among Telesat, such Telesat executives or former executive, PSP, Loral and the Special Purchaser have been either exercised for Telesat shares or cancelled, and, accordingly, neither Loral nor the Special Purchaser has any further obligations under those agreements.
InOther
We own 56% of the ~~first quarter of 2017, Loral received a $242.7 million cash distribution from Telesat (see Note 5).~~
~~Other~~
~~As described in Note 6, we own 56%~~ ordinary membership interests of XTAR, a joint venture between Loral and Hisdesat and account for our investment in XTAR under the equity method of accounting. ~~SSL constructed XTAR’s satellite, which was successfully launched in February 2005.~~On July 1, 2020, Loral, XTAR and Hisdesat restructured their relationship (see Note 5). As part of the restructuring, XTAR and Loral ~~have entered into a management agreement whereby~~terminated the Loral ~~provides~~Management Agreement pursuant to which Loral provided general and specific services of a technical, financial and administrative nature to XTAR. For the services provided by Loral, XTAR, until December 31, 2013, was charged a quarterly management fee equal to 3.7% of XTAR’s quarterly gross revenues. Amounts due to Loral at the time of the restructuring, primarily due to the ~~management agreement as of September 30, 2017 and December 31, 2016~~ Loral Management Agreement, were ~~$6.9~~$6.6 million and $6.8 million, respectively. Beginning in 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. No cash was received under this agreement for the nine months ended September 30, 2017 and 2016, and we had an allowance of $6.6 million against ~~receivables~~these receivables. On July 2, 2020, Loral received from XTAR as$5.9 million in full and final settlement of ~~September~~the past due receivable outstanding of $6.6 million under the Loral Management Agreement. As of June 30, ~~2017~~2021 and December 31, ~~2016.~~2020, Loral ~~and Hisdesat have agreed to waive future management fees for an indefinite period starting January 1, 2014.~~had a receivable of $0.1 million from XTAR.

Consulting Agreement
On December 14, 2012, Loral entered into a consulting agreement with Michael B. Targoff, Vice Chairman of the Company and former Chief Executive Officer and President. Pursuant to this agreement, Mr. Targoff is engaged as a part-time consultant to the Board to assist the Board with respect to the oversight of strategic matters relating to Telesat and XTAR. Under the agreement, Mr. Targoff receives consulting fees of $120,000 per month and reimburses the Company for certain expenses. For each of the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2017~~2021 and ~~2016,~~2020, Mr. Targoff earned consulting fees of $360,000 and ~~$1,080,000,~~$720,000, respectively, ~~in consulting fees. Mr. Targoff~~and reimbursed Loral net expenses of $11,250 and ~~$42,750 for the three and nine months ended September 30, 2017, respectively, and $15,750 and $47,250 for the three and nine months ended September 30, 2016,~~$22,500, respectively.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements (the “financial statements”) included in Item 1 and our latest Annual Report on Form 10-K filed with the Securities and Exchange ~~Commission.~~Commission (“SEC”).

INDEX

Loral Space & Communications Inc., a Delaware corporation, together with its subsidiaries (“Loral,” the “Company,” “we,” “our,” and “us”) is a leading satellite communications company engaged, through our ownership interests in affiliates, in satellite-based communications services.

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”).~~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

~~Business~~On November 23, 2020, Loral entered into a Transaction Agreement and Plan of Merger (as it may be amended from time to time, the “Transaction Agreement”) with Telesat Canada, a Canadian corporation (“Telesat”), Telesat Partnership LP, a limited partnership formed under the laws of Ontario, Canada (“Telesat Partnership”), Telesat Corporation, a newly formed corporation incorporated under the laws of the Province of British Columbia, Canada and the sole general partner of Telesat Partnership (“Telesat Corporation”), Telesat CanHold Corporation, a corporation incorporated under the laws of British Columbia, Canada and wholly owned subsidiary of Telesat Partnership (“Telesat CanHoldco”), Lion Combination Sub Corporation, a Delaware corporation and wholly owned subsidiary of the Company (“Merger Sub”), Public Sector Pension Investment Board, a Canadian Crown corporation (“PSP”), and Red Isle Private Investments Inc., a Canadian corporation and wholly owned subsidiary of PSP (“Red Isle”), under which Merger Sub will merge with and into Loral, with Loral surviving the merger as a wholly owned subsidiary of Telesat Partnership (the “Merger”), and Loral stockholders receiving common shares of Telesat Corporation and/or units of Telesat Partnership that will be exchangeable for common shares of Telesat Corporation following the expiration of a six-month lock-up period (the “Transaction”).

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On June 30, 2021, the Registration Statement was declared effective by the Securities and Exchange Commission (“SEC”), and a Special Meeting of Stockholders to consider the approval of the Transaction and the Transaction Agreement and related proposals (the “Special Meeting”) was scheduled for August 9, 2021. Prior to the convening of the Special Meeting, however, Loral was informed by Telesat of recent developments regarding the possibility of a potential investment by the government of Canada (the “GoC”) in the development of Telesat Lightspeed, Telesat’s global constellation of low earth orbit (“LEO”) satellites (the “Potential GoC Investment Transaction”). See “Description of Business – Telesat Lightspeed” below. The Potential GoC Investment Transaction, if consummated, would occur following the pending Transaction. In light of the Potential GoC Investment Transaction, the Special Meeting was convened as scheduled but was immediately adjourned without conducting any other business in order to provide stockholders with an opportunity to receive and consider additional information that is anticipated to be disclosed with respect to the Potential GoC Investment Transaction before voting on the Transaction. The Special Meeting will be reconvened and held virtually on Monday, August 23, 2021, at 10:00 a.m. eastern time. The record date of the Special Meeting, June 10, 2021, remains unchanged.

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The Transaction Agreement provides certain termination rights for both Loral and PSP and further provides that, in certain circumstances, Loral may be required to pay to Red Isle a termination fee of $6.55 million or $22.91million or to pay to PSP a “breach” fee of $40 million, in each case as provided in the Transaction Agreement.

Description of Business

Loral has one operating segment consisting of satellite-based communications services. Loral participates in satellite services operations primarily through its 62.7% economic interest in Telesat Canada (“Telesat”), a leading global fixed satellite services operator, with offices and facilities around the world. Prior to and as of December 31, 2016, Telesat Canada was a subsidiary of, and Loral held its ownership interest in Telesat, ~~Canada through,~~a leading global satellite operator. Telesat ~~Holdings Inc. Effective January 1, 2017,~~provides its satellite and communication services from a fleet of geostationary satellites that occupy Canadian and other orbital locations. Telesat ~~Holdings Inc. completed~~is also developing a ~~corporate reorganization~~planned global constellation of ~~companies under common control, pursuant to which Telesat Holdings Inc. amalgamated with Telesat Interco Inc.,~~LEO satellites known as “Telesat Lightspeed.” Loral holds a wholly owned subsidiary of Telesat Holdings Inc., and immediately thereafter the newly amalgamated company amalgamated with Telesat Canada. The continuing entity, existing under the laws of Canada, is named Telesat Canada. Telesat has accounted for the reorganization as a continuation of Telesat Holdings Inc.

~~Our~~62.6% economic interest ~~decreased from 62.8% to 62.7%~~and a 32.6% voting interest in ~~March 2016 when certain~~ Telesat ~~employees exercised share appreciation rights related to a total~~as of ~~178,642 stock options granted under~~ June 30, 2021.

Telesat’s ~~share-based compensation plan and received 129,400 non-voting participating preferred shares.~~ GEO Satellite Business

At September 30, 2017, Telesat, with approximately $3.2 billion of backlog, provided satellite services to customers from its fleet of 15 in-orbit satellites as well as its Canadian payload on the ViaSat-1 satellite. In addition, Telesat had two other geostationary satellites under construction and had an additional two Ka-band satellites under construction for launch into low earth orbit as part of Telesat’s plans to deploy an advanced, global low earth orbit (“LEO”) constellation offering low latency, high throughput broadband services. Telesat also manages the operations of additional satellites for third parties.

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 are relatively low over the life of the satellite, with the exception of in-orbit insurance. Telesat has been able to generate a large ~~contracted~~contractual revenue backlog by entering into long-term contracts with some of its customers, in some cases for all or substantially all of a satellite’s orbital maneuver life. Historically, this has resulted in revenue from the satellite services business being fairly predictable.

As of June 30, 2021, Telesat provided satellite services to customers from its fleet of 15 geostationary satellites, as well as the Canadian payload on the ViaSat-1 satellite. Telesat also manages the operations of additional satellites for third parties. As of June 30, 2021, Telesat’s contracted backlog from its geostationary satellite business was approximately $1.9 billion.

Telesat Lightspeed

Telesat has commenced the development of what it believes will be the world’s most advanced constellation of LEO satellites and integrated terrestrial infrastructure, called “Telesat Lightspeed” – a platform designed to revolutionize the provision of global broadband connectivity. In January 2018, Telesat’s first LEO satellite was successfully launched into orbit. This Phase 1 LEO satellite has demonstrated certain key features of the Telesat Lightspeed system design, specifically the capability of the satellite and customer terminals to deliver a low latency broadband experience. Telesat also installed ground infrastructure at its teleport in Allan Park in Canada to support testing with a variety of existing and prospective customers and potential suppliers of the Telesat Lightspeed system hardware who have been participating in trials since the second half of 2018.

Telesat continues to advance its Telesat Lightspeed plans:

On August 9, 2021, Telesat and the Government of Ontario announced that they have partnered to bridge the digital divide in Ontario by leveraging Telesat’s advanced, state-of-the-art LEO satellite network, Telesat Lightspeed. Under this $109 million, five-year partnership, a dedicated Telesat Lightspeed capacity pool will be made available at substantially reduced rates to Canadian Internet service providers (“ISPs”), including Indigenous owned and operated ISPs, as well as mobile network operators to expand high-speed Internet and LTE/5G networks to Ontario’s unserved and underserved communities. The transaction is subject to the entering into of a further, definitive agreement which Telesat expects to execute in the coming weeks.

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On August 12 2021, Telesat announced that it had entered into a non-binding term sheet (the “Term Sheet”) with the GoC regarding a $1.44 billion investment by the GoC or one of its Crown corporations (“Canada”) to support Telesat Lightspeed. In return, Telesat will commit to make certain minimum capital and operating expenditures in Canada in connection with the program and, in addition, to create hundreds of Canadian high-quality, full-time jobs and co-ops and provide academic scholarships.

The Term Sheet contemplates the following: (i) a CAD 790 million unsecured term loan from Canada to Telesat Leo Inc. (“Telesat LEO”), a wholly owned subsidiary of Telesat organized under the laws of Canada that will develop Telesat Lightspeed (the “Loan”); (ii) the purchase of preferred shares of Telesat Leo by Canada, for an aggregate value of up to CAD 650 million (the “Canada Preferred Shares”); and (iii) warrants issued to Canada to purchase Telesat Corporation Class A common shares (“Telesat Parent Shares”) with an aggregate exercise price of CAD 144 million (the “Warrants” and, together with the Canada Preferred Shares, the “Equity Investments,” and the Equity Investments together with the Loan, the “Investments”).

Under the Loan, Telesat LEO would be the borrower of a CAD 790 million unsecured term loan with an interest rate of 2% per annum, payable semi-annually in arrears or capitalized at the option of Telesat LEO. The proceeds from the Loan must be used exclusively for working capital and operational purposes in connection with the design, construction, delivery, launch, operation and maintenance of Telesat LEO’s low earth orbit satellite constellation of an initial 298 satellites and associated infrastructure. The Loan will require certain affirmative covenants of Telesat and Telesat LEO (collectively, the “Benefit to Canada Clauses”), which include minimum Canadian based operating expenditures, capital expenditures and Canadian control requirements, among others. The Loan would have a 20-year term, would not be subject to voluntary prepayment, but would be subject to reduction in principal amount if certain milestones set forth in the Term Sheet are met. Telesat will not be an obligor under the Loan.

The Canada Preferred Shares would be preferred shares of Telesat LEO with a per share subscription price of CAD 100 and would have a subscription amount of up to CAD 650 million (the “Subscription Amount”). The Canada Preferred Shares include a cumulative and compounding preferred dividend initially at 1% per annum and increasing to 5.5% per annum. The Canada Preferred Shares carry no voting rights except as provided by law and except for certain veto rights set out in Schedule B to the Term Sheet.

The Warrants would permit Canada to purchase a number of Telesat Parent Shares with an aggregate exercise price equal to the aggregate of (i) 10% of the principal amount of the Loan and (ii) 10% of the Subscription Amount of the Canada Preferred Shares. The exercise price of the Warrants would be the 180-day volume weighted average trading price of the Telesat Parent Shares on Nasdaq immediately after the listing of the Telesat Parent Shares, would be exercisable any time after the second anniversary of the listing of the Telesat Parent Shares and would have a term of 10 years.

The Investments all have certain conditions to closing, which include the execution of definitive documentation for the Investments in form and substance acceptable to Canada and the closing of the Transaction.

The Term Sheet is a non-binding agreement, and there can be no assurance that definitive documentation regarding the terms of the Investments will be executed. Telesat will seek to negotiate definitive documentation with the GoC, but there is no guarantee it will be successful in doing so. This summary is qualified by reference to the complete text of the Term Sheet, a copy of which is filed herewith as Exhibit 99.2.

With the investment from the GoC and other financing sources already in place, Telesat now has arrangements for approximately CAD 4 billion in funding for the program. These arrangements, including the GoC Investments, are subject to a number of conditions, including the entering into of further, definitive agreements.

Government Grant

In May 2019, Telesat entered into an agreement with the government of Canada pursuant to which the government of Canada will contribute up to CAD 85 million through July 31, 2023 to support the development of the Telesat Lightspeed constellation. In return for the grant, Telesat made a number of commitments to the government of Canada, including commitments to conduct over CAD 200 million of research and development activities in Canada as well as to expand Telesat’s Canadian workforce. As of June 30, 2021, Telesat claimed CAD 22.1 million against the government grant and incurred CAD 239 million in connection with this program.

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During the six months ended June 30, 2021, Telesat claimed CAD 5.1 million against the government grant and incurred CAD 104.7 million in connection with this program.

Canadian C-band

On August 27, 2020, Innovation, Science and Economic Development Canada (“ISED”) launched a public consultation (the “Consultation”) on repurposing of C-band spectrum in Canada and on May 21, 2021 released its “Decision on the Technical and Policy Framework for the 3650¬4200 MHz Band and Changes to the Frequency Allocation of the 3500-3650 MHz Band.” In the decision, ISED largely adopted the proposal it had set forth in the Consultation which will require satellite operators to cease use of 300 MHz of C-band spectrum (3700-4000 MHz), other than in satellite-dependent areas, by March 31, 2025; ISED plans to auction the spectrum to companies that want to use it to provide terrestrial wireless services, principally 5G, in Canada. ISED did not provide for payments to satellite operators for either clearing expense reimbursement or as an incentive to clear the spectrum. In the decision, ISED rejected a proposal put forward by Telesat Canada, whereby Telesat Canada — the sole C-band licensee in Canada — would accelerate, and be responsible for, the clearing of a portion of the C-band spectrum for 5G and would auction a portion of that spectrum to Canadian wireless operators for 5G services, using the auction proceeds to fund the cost of clearing and to help fund the construction of Telesat Lightspeed.

Telesat Outlook

Telesat’s desirable spectrum rights, commitment to providing the highest level of customer service, deep technical expertise and culture of innovation have enabled it to successfully develop its business to date. Leveraging these strengths and building on its existing contractual revenue backlog, Telesat’s focus is on profitably growing its business by increasing the utilization of its in-orbit satellites and, in a disciplined manner, deploying expansion satellite capacity where strong market demand is anticipated. ~~At September 30, 2017,~~

After decades of developing and successfully operating its geosynchronous orbit-based satellite services business, Telesat ~~had under construction two geostationary~~is now poised to revolutionize the provision of global broadband connectivity by developing Telesat Lightspeed, which Telesat believes will be the world’s most advanced constellation of LEO satellites ~~Telstar 18 VANTAGE~~ and ~~Telstar 19 VANTAGE, and the aforementioned two Ka-band LEO satellites.~~integrated terrestrial infrastructure.

~~We believe~~Telesat believes that ~~Telesat~~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 long-term service agreements prior to the time the satellite construction contract is signed. However, while Telesat regularly pursues these opportunities, it does not procure additional or replacement satellites until it believes there is a demonstrated need and a sound business plan for such satellite capacity.

In 2021, Telesat remains focused on increasing ~~the~~ utilization of its existing satellites, the ~~construction~~development of ~~its new satellites,~~the Telesat Lightspeed constellation and identifying and pursuing opportunities to invest in other expansion of satellite capacity, all while maintaining ~~its~~ operating discipline.

On November 17, 2016, Telesat entered into amended senior secured credit facilities which provide for term loan borrowings of $2.43 billion which mature on November 17, 2023 and revolving credit borrowings of up to $200 million (or Canadian dollar equivalent) which mature on November 17, 2021. Telesat also issued, through a private placement, $500 million of 8.875% senior notes which mature on November 17, 2024.

~~On November 17, 2016, Telesat repaid all outstanding amounts under its former senior secured credit facilities and its 6.0% senior notes.~~

~~On February 1, 2017, Telesat amended the senior secured credit facilities to effectively reprice the then outstanding term loan borrowings of $2.424 billion.~~

Telesat’s operating results are subject to fluctuations as a result of exchange rate variations. For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, approximately ~~51%~~52.5% of Telesat’s revenues, ~~42%~~33.3% of its operating expenses, 100% of its interest expense and ~~the majority~~a significant portion of its 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.~~indebtedness and cash and short-term investments. As of ~~September~~June 30, ~~2017,~~2021, Telesat’s U.S. dollar denominated debt totaled ~~$2.9~~$3.0 billion. As of ~~September~~June 30, ~~2017,~~2021, a five percent increase (decrease) in the Canadian dollar against the U.S. dollar on financial assets and liabilities would have increased (decreased) Telesat’s net income by approximately ~~$133.8~~$119.8 million. This analysis assumes all other variables, in particular interest rates, remain constant.

~~Sale of SSL~~

On November 2, 2012, Loral completed the sale (the “Sale”) of its wholly-owned subsidiary, Space Systems/Loral, LLC (formerly known as Space Systems/Loral, Inc.) (“SSL”), to MDA Communications Holdings, Inc. (“MDA Holdings”), a subsidiary of MacDonald, Dettwiler and Associates Ltd. (“MDA”). Pursuant to the purchase agreement (the “Purchase Agreement”), dated as of June 26, 2012, as amended on October 30, 2012 and March 28, 2013, by and among Loral, SSL, MDA and MDA Holdings, Loral agreed to indemnify MDA and its affiliates from certain damages in a lawsuit (the “ViaSat Suit”) brought in 2012 by ViaSat, Inc. (“ViaSat”) against Loral and SSL. In September 2014, Loral, SSL and ViaSat entered into a settlement agreement (the “Settlement Agreement”) pursuant to which the ViaSat Suit and an additional patent infringement and breach of contract lawsuit brought by ViaSat against SSL in September 2013 were settled. Loral was also released by MDA, MDA Holdings and SSL from indemnification claims relating to the ViaSat lawsuits under the Purchase Agreement. The terms of the Settlement Agreement provided, among other things, for payment by Loral and SSL to ViaSat on a joint and several basis of $100 million, $40 million of which was paid in September 2014 in connection with entering into the Settlement Agreement, with the remaining $60 million payable with interest in ten equal quarterly installments of $6.9 million from October 15, 2014 through January 15, 2017.

Following a mediation session held on December 1, 2014, Loral and MDA entered into an agreement titled “MDA/Loral Dispute Resolution” dated December 1, 2014 (the “Allocation Agreement”), pursuant to which Loral and MDA agreed that Loral was responsible for $45 million, and MDA and SSL were responsible for $55 million, of the $100 million litigation settlement with ViaSat.

Pursuant to the Allocation Agreement, Loral paid ViaSat the final installment of $2.8 million in January 2017. Our condensed consolidated balance sheets as of September 30, 2017 and December 31, 2016 include indemnification liabilities related to the ViaSat Settlement Agreement of nil and $2.8 million, respectively.

~~General~~

Our principal asset is our majority ownership interest in Telesat. In an effort to maximize shareholder value, we have been exploring, and are in discussions with PSP regarding, potential strategic transactions to alter the status quo in our ownership of Telesat. Subject to market conditions and the cooperation of PSP, we continue to explore the combination of Loral and Telesat into one public company and/or the sale of Loral in connection with a sale of Telesat. Also, as described more fully below, we have exercised our right to require that Telesat initiate a public offering, and we may further pursue this right in the event a combination transaction or a sale of Telesat is not likely to be achievable in a timely manner or on satisfactory terms. There can be no assurance as to whether or when we will be able to conclude any strategic transaction or that any strategic initiatives or transaction involving Telesat or Loral may occur, or that any particular economic, tax, structural or other objectives or benefits with respect to any initiative or transaction involving Telesat or Loral’s interest therein will be achieved.

In the first quarter of 2017, we received $242.7 million in cash from Telesat, representing our share of an aggregate approximately $400 million distribution from Telesat to its shareholders and stock option holders. We intend to use the proceeds of such distribution, net of reasonable reserves for working capital and other liabilities, to make a distribution to our stockholders. There can be no assurance as to the amount and timing of any such distribution, and such distribution may be impacted by the outcome of our discussions regarding, and the structure of, the strategic combination transaction that we are pursuing.

~~As mentioned above, we have the right under the Telesat Shareholders Agreement to require Telesat to conduct an initial public offering~~Table of its equity shares (a “Telesat IPO”), and, in July 2015, we exercised this right. Specifically, we requested that Telesat issue not more than 25 million newly issued shares of Telesat voting common stock. We also requested the termination of the Shareholders Agreement and the elimination of certain provisions in Telesat’s Articles of Incorporation, both of which we believe are important for a successful public offering. If those provisions are eliminated, an impediment to the conversion of our non-voting Telesat shares to voting shares would be eliminated. Termination or modification of the Shareholders Agreement and conversion of our non-voting shares to voting shares would enable us, after a Telesat IPO and subject to the receipt of any necessary regulatory approvals, to obtain majority voting control of Telesat. Telesat selected two co-managing underwriters and informed us that it will work to implement a Telesat IPO pending our agreement with PSP on governance matters following a Telesat IPO. To date, no such agreement has been reached. In the event a combination transaction that we are pursuing or a sale of Telesat as described above is not likely to be achievable in a timely manner or on satisfactory terms, we may further pursue our right to a Telesat IPO. There can be no assurance as to whether, when or on what terms a Telesat IPO, termination or modification of the Shareholders Agreement or any requested changes to Telesat’s Articles of Incorporation may occur or that any particular economic, tax, structural or other objectives or benefits with respect to a Telesat IPO will be achieved. If a Telesat IPO is expected to proceed under unfavorable terms or at an unfavorable price, we may withdraw our demand for a Telesat IPO.Contents

Depending upon the outcome of the strategic initiatives discussed above, we may assert certain claims against PSP for actions we believe violated our rights relating to the affairs of Telesat under the Telesat Shareholders Agreement and otherwise. In response to our claims, PSP has informed us that it believes that it may have claims against us, although we are not aware of the legal or factual basis for any such claims. We and PSP have agreed that, pending the outcome of our discussions relating to Telesat, it would be beneficial to delay the commencement of any action relating to either party’s claims and have entered into an agreement (the “Tolling Agreement”) which preserves the parties’ rights to assert against one another legal claims relating to Telesat. We also included Telesat as a party to the Tolling Agreement because, as a technical matter of Canadian law and for purposes of potentially seeking equitable relief, Telesat may be a necessary party. There can be no assurance that if the Tolling Agreement lapses that we and PSP will not pursue legal claims against one another relating to Telesat. If we pursue claims against PSP, there can be no assurance that our claims will be successful or that the relief we seek will be granted. If PSP pursues claims against us, there can be no assurance that PSP will not prevail on its claims.

Loral may, from time to time, explore and evaluate other possible strategic transactions and alliances 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, additional funds are likely to be required. 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 transactions that require additional funds on favorable terms, if at all.

In connection with the acquisition of our ownership interest in Telesat in 2007, Loral has agreed that, subject to certain exceptions described in the 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.

Other

We own 56% of the ordinary membership interests of XTAR, a joint venture between us and Hisdesat Servicios Estrategicos, S.A. (“Hisdesat”) of Spain. Hisdesat owns the remaining 44% of the ordinary membership interests and all of XTAR’s Class A membership interests, which have liquidation priority over the ordinary membership interests. Prior to July 1, 2020, XTAR owned and operated an X-band satellite, XTAR–EUR (the “Satellite”) located at the 29° E.L. orbital slot (the “Orbital Slot”). In addition, prior to July 1, 2020, XTAR leased from Hisdesat 7.2 72MHz X-band transponders on the Spainsat satellite located at 30° W.L. (the “Transponder Lease”). For services provided by Loral, XTAR, until December 31, 2013, was charged a quarterly management fee under a management agreement with Loral (the “Loral Management Agreement”).

On July 1, 2020, Loral, XTAR and Hisdesat restructured their relationship, including, among other things, the following: (i) Hisdesat purchased the Satellite and certain assets related to operation of the Satellite (the “Purchased Assets”) from XTAR; (ii) XTAR’s agreement with Hisdesat to operate the Satellite at the Orbital Slot was terminated and the rights and licenses to operate the Satellite at the Orbital Slot reverted to Hisdesat; (iii) the Transponder Lease was terminated; (iv) XTAR and Hisdesat entered into an agreement under which XTAR will continue to market and sell capacity on the Satellite and on the Spainsat satellite; (v) XTAR and Loral terminated the Loral Management Agreement; and (vi) Loral granted to Hisdesat an option to acquire for nominal consideration, subject to receipt of all required regulatory approvals, Loral’s membership interests in XTAR. As of the date of this report, Hisdesat has not exercised this option. On July 2, 2020, Loral received from XTAR $5.9 million from the proceeds of the sale of the Purchased Assets in full and final settlement of the past due receivable outstanding of $6.6 million under the Loral Management Agreement.

COVID-19

On March 11, 2020, the World Health Organization designated the COVID-19 coronavirus as a global pandemic. Various policies and initiatives have been implemented worldwide to reduce the global transmission of COVID-19, including the promotion of social distancing and the adoption of remote working policies.

Although the COVID-19 pandemic has had a limited impact on Telesat’s and our ability to operate our respective businesses, Telesat’s customers in the maritime and aeronautical markets have been significantly impacted by the pandemic. At the request of some of these customers, Telesat amended the terms of certain of their contracts to mitigate the adverse financial impact that COVID-19 is having on their respective businesses. These arrangements have had an adverse impact on Telesat’s revenues and will continue to adversely impact Telesat’s revenues in the near term. While not sufficient to offset adverse impacts referred to above, Telesat experienced some increased demand for services as a result of COVID-19, primarily from rural broadband connectivity services.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act was signed into law, and on April 24, 2020, the Paycheck Protection Program and Healthcare Enhancement Act was signed into law (collectively, the “COVID-19 Acts”) The COVID-19 Acts provided substantial stimulus and assistance packages intended to address the impact of the COVID-19 pandemic, including tax relief and government loans, grants and investments. The COVID-19 Acts reduced our income tax provision for the three and six months ended June 30, 2020 by approximately $0.4 million and $3.5 million, respectively. We continue to monitor any other effects that may result from the COVID-19 Acts.

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Consolidated Operating Results

SeeCritical Accounting Mattersin our latest Annual Report on Form 10-K filed with the SEC and Note 2 to the financial statements.

Changes in Critical Accounting Policies— There have been no changes in our critical accounting policies during the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2021.

Three Months Ended ~~September~~June 30, ~~2017~~2021 Compared ~~With~~with Three Months Ended ~~September~~June 30, ~~2016~~2020

The following compares our consolidated results for the three months ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~2020 as presented in our financial statements:

General and Administrative Expenses

Three Months Ended

June 30,

2021

2020

(In thousands)
General and administrative expenses
$
1,900

$
1,801
Three Months Ended
September 30,
2017 2016
(In thousands)
General and administrative expenses $ 2,015 $ 1,709

General and administrative expenses ~~increased by $0.3 million~~were comparable for the three months ended ~~September~~June 30, ~~2017 as compared to the three months ended September 30, 2016. No individual components of the change were significant.~~2021 and 2020.

~~Interest and Investment Income~~
Three Months Ended
September 30,
2017 2016
(In thousands)
Interest and investment income $ 728 $ 44
Interest and investment income increased by $0.7 million for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 primarily due to interest income earned on the cash distribution of $242.7 million received from Telesat in the first quarter of 2017.
Other Expense

Three Months Ended
September 30,
2017 2016
(In thousands)
Other expense $ 985 $ 187

Three Months Ended

June 30,

2021

2020

(In thousands)
Other expense
$
2,097

$
2,703
~~Other expense for the three months ended September 30, 2017 and 2016 was primarily related to strategic initiatives.~~
29
~~Income Tax Provision~~
Three Months Ended
September 30,
2017 2016
(In thousands)
Income tax provision $ (16,552 ) $ (8,911 )

For the three months ended ~~September~~June 30, 2021 and 2020, other expense primarily includes Transaction related expenses.

Income Tax Benefit

Three Months Ended

June 30,

2021

2020

(In thousands)
Income tax benefit
$
201

$
1,469

For the three months ended June 30, our income tax ~~provision~~benefit is summarized as follows: (i) for ~~2017,~~2021, we recorded a current ~~tax~~ provision of ~~$1.6~~$0.3 million and a deferred tax ~~provision~~benefit of ~~$15.0~~$0.5 million, resulting in a ~~total provision~~net tax benefit of ~~$16.6~~$0.2 million and (ii) for ~~2016,~~2020, we recorded a current ~~tax~~ provision of ~~$0.7~~$0.4 million and a deferred tax ~~provision~~benefit of ~~$8.2~~$1.9 million, resulting in a ~~total provision~~net tax benefit of ~~$8.9~~$1.5 million. Our deferred income tax benefit for 2020 included a benefit of $0.4 million from the COVID-19 Acts.

Our income tax ~~provision~~benefit for each period is computed by applying an expected effective annual tax rate against the pre-tax results for the ~~nine months~~six-month periods ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~2020 (after adjusting for certain tax items that are discrete to each period). This amount is then reduced by the tax ~~provision~~benefit (provision) recorded for the ~~six~~three months ended ~~June 30, 2017~~March 31, 2021 and ~~2016. For~~2020. The current income tax provision for each period includes our anticipated income tax liability related to Global Intangible Low Taxed Income (“GILTI”) from Telesat and our provision for uncertain tax positions (“UTPs”). After utilizing our net operating loss (“NOL”) carryforwards and allowable tax credits, federal income tax on GILTI from Telesat was zero for each period. The deferred income tax benefit for each period includes the nine months ended September 30, 2017, in accordance with authoritative guidance for accounting for income taxes in interim periods, we applied separate expected effective annual tax rates against our pre-tax loss from continuing operations and ourimpact of equity in net income (loss) of ~~Telesat, combining~~affiliates from our condensed consolidated statement of operations and the ~~results~~periodic effect of ~~both computations with the~~our accounting for GILTI. Since our deferred tax ~~items discrete to the nine months ended September 30, 2017, such as the income tax provision~~assets related to the investment in Telesat ~~distribution. For~~will be realized from the ~~nine months ended September~~future recognition of GILTI, the federal portion of these deferred tax assets was valued at zero as of June 30, ~~2016, we applied a single expected effective annual tax rate, which included tax expense on the equity income~~2021 and December 31, 2020.

Table of Telesat, against our pre-tax loss from continuing operations for the nine months. This change in how we calculated the estimate was made to improve the accuracy and consistency of the expected effective annual tax rate calculated in interim periods.Contents

~~Subsequent to the Sale (see Note 2 to the financial statements), to~~To the extent that profitability from operations is not sufficient to realize the benefit from our remaining net deferred tax assets, we would generate sufficient taxable income from the appreciated value of our Telesat investment, ~~which currently has a nominal tax basis,~~subject to the provisions of the Transaction Agreement, in order to prevent federal net operating losses from expiring and realize the benefit of all remaining deferred tax assets.

Equity in Net Income of Affiliates

Three Months Ended

June 30,

2021

2020

(In thousands)
Telesat
$
25,291

$
76,515

Three Months Ended
September 30,
2017 2016
(In thousands)
Telesat Holdings Inc. $ 43,372 $ 6,948
As of June 30, 2021, we held a 62.6% economic interest and a 32.6% voting interest in Telesat. Loral’s equity in net income (loss) of Telesat is based on our proportionate share of Telesat’s results in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and in U.S. dollars. The amortization of Telesat fair value adjustments applicable to the Loral Skynet assets and liabilities acquired by Telesat in 2007 is proportionately eliminated in determining our share of the net income of Telesat. Our equity in net income of Telesat also reflects amortization of profits eliminated, to the extent of our economic interest in Telesat, on satellites we constructed for Telesat while we owned ~~SSL~~Space Systems/Loral, LLC (formerly known as Space Systems/Loral, Inc.) (“SSL”) and on Loral’s sale to Telesat in April 2011 of its portion of the payload on the ViaSat-1 satellite and related assets.
For the three months ended September 30, 2017, our share of equity in net income of Telesat was $81.6 million. In the first quarter of 2017, we received $242.7 million in cash from Telesat, representing our share of an aggregate approximately $400 million distribution from Telesat to its shareholders and stock option holders. As of June 30, 2017 the cash distribution we received from Telesat exceeded our initial investment and our share of cumulative equity in comprehensive income of Telesat, net of cash distributions received from Telesat in prior periods, by $39.0 million which we recognized as equity income during the six months ended June 30, 2017. In following the equity method of accounting, for the three months ended September 30, 2017, we reduced our share of Telesat’s net income of $81.6 million by the $39.0 million excess cash distribution, resulting in the recognition of equity in net income of Telesat of $43.4 million, including $0.8 million of elimination of affiliate transactions and related amortization.
30

Summary financial information for Telesat in accordance with U.S. GAAP and in Canadian dollars and U.S. dollars for the three months ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~2020 follows (in thousands):

Three Months Ended

Three Months Ended

June 30,

June 30,

2021

2020

2021

2020
Three Months Ended Three Months Ended
September 30, September 30,
2017 2016 2017 2016
(In Canadian dollars) (In U.S. dollars)

(In Canadian dollars)

(In U.S. dollars)
Statement of Operations Data:

Revenues 214,443 224,233 170,151 172,336
188,626

208,610

153,664

149,761
Operating expenses (42,313 ) (45,075 ) (33,770 ) (34,626 )
(62,982)

(46,609)

(50,955)

(33,465)
Depreciation, amortization and stock-based compensation (62,806 ) (64,856 ) (49,741 ) (49,816 )
Loss on disposition of long-lived assets (267 ) (6 ) (204 ) (19 )
Depreciation and amortization
(56,335)

(59,936)

(45,854)

(43,031)
Other operating (expense) income
(74)

9

(69)

11
Operating income 109,057 114,296 86,436 87,875
69,235

102,074

56,786

73,276
Interest expense (47,841 ) (44,637 ) (37,901 ) (34,311 )
(46,637)

(51,195)

(37,916)

(36,685)
Foreign exchange gain (loss) 132,949 (46,005 ) 103,099 (33,639 )
(Loss) gain on financial instruments (8,304 ) 3,479 (6,542 ) 2,587
Other income 1,594 1,988 1,200 1,518
Foreign exchange gain
35,143

125,547

28,619

98,313
Gain (loss) on financial instruments
2,725

(6,867)

2,209

(4,884)
Other (expense) income
(333)

1,204

(279)

799
Income tax provision (20,642 ) (17,653 ) (16,114 ) (13,556 )
(13,071)

(13,721)

(10,773)

(10,138)
Net income 166,813 11,468 130,178 10,474
47,062

157,042

38,646

120,681
Average exchange rate for translating Canadian dollars to
U.S. dollars ( 1 U.S. dollar equals) 1.2642 1.3020
1.2282

1.3929

Telesat’s revenue ~~decreased~~increased by ~~$2.2~~$3.9 million for the three months ended ~~September~~June 30, ~~2017~~2021 as compared to the three months ended ~~September~~June 30, ~~2016~~2020 due primarily to the end of service or service reductions for certain broadcast customers, a decrease in certain international broadcast services and lower revenue from certain international enterprise customers, partially offset by new services for certain enterprise customers and the favorable impact of the change in the U.S. dollar/Canadian dollar exchange rate on Canadian dollar denominated ~~revenue.~~revenue, partially offset by a slight reduction in service for a North American DTH customer as well as non-renewals from certain other enterprise customers and lower consulting activities. The foreign exchange rate change increased Telesat’s revenue ~~excluding foreign exchange impact would have decreased~~ by ~~$4.6~~$8.4 million for the three months ended ~~September~~June 30, ~~2017~~2021 as compared to the three months ended ~~September~~June 30, ~~2016.~~2020.
`

Table of Contents

Telesat’s operating expenses ~~decreased~~increased by ~~$0.9~~$17.5 million for the three months ended ~~September~~June 30, ~~2017~~2021 as compared to the three months ended ~~September~~June 30, ~~2016~~2020 primarily due to ~~lower~~higher share-based compensation expense, ~~on development~~higher wages primarily associated with the hiring of ~~LEO satellites in~~additional employees to support the ~~third quarter of 2017 as compared to the third quarter of 2016, partially offset by higher installation costs on a one-time sale, higher professional fees~~Telesat Lightspeed program and the ~~unfavorable~~ impact of the change in the U.S. dollar/Canadian dollar exchange rate on Canadian dollar denominated ~~expenses.~~expenses, partially offset by higher capitalized engineering costs, lower bad debt expense due to a bad debt provision recorded in the prior year for maritime and aeronautical customers and lower consulting activities. The foreign exchange rate change increased Telesat’s operating ~~expense excluding foreign exchange impact would have decreased~~expenses by ~~$1.5~~$4.2 million for the three months ended ~~September~~June 30, ~~2017~~2021 as compared to the three months ended ~~September~~June 30, ~~2016.~~2020.

~~Nine months ended September~~Six Months Ended June 30, ~~2017~~2021 Compared ~~With Nine months ended September~~with Six Months Ended June 30, ~~2016~~

2020

The following compares our consolidated results for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~2020 as presented in our financial statements:

General and Administrative Expenses

Six Months Ended

June 30,

2021

2020

(In thousands)
General and administrative expenses
$
3,629

$
3,449
Nine Months Ended
September 30,
2017 2016
(In thousands)
General and administrative expenses $ 6,000 $ 4,900

General and administrative expenses ~~increased~~were higher by ~~$1.1~~$0.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 as compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2020 primarily from ~~a $0.4 million~~an increase in ~~professional fees during the nine months ended September 30, 2017~~compensation expense and ~~a one-time pension charge to XTAR of $0.4 million during the nine months ended September 30, 2016.~~annual meeting expenses.

Interest and Investment Income

Six Months Ended

June 30,

2021

2020

(In thousands)
Interest and investment income
$
3

$
1,029
Nine Months Ended
September 30,
2017 2016
(In thousands)
Interest and investment income $ 1,754 $ 140

Interest and investment income ~~increased~~decreased by ~~$1.6~~$1.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 as compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016 primarily~~2020 due to the lower cash balance resulting primarily from payment of cash dividends of $170.1 million and $46.4 million in May 2020 and December 2020, respectively, and lower interest ~~income~~rates earned on the cash ~~distribution of $242.7 million received from Telesat in~~balance during the ~~first quarter of 2017.~~
~~Other Expense~~
Nine Months Ended
September 30,
2017 2016
(In thousands)
Other expense $ 2,858 $ 1,306
~~Other expense for the nine~~six months ended ~~September~~June 30, ~~2017 was primarily related~~2021 as compared to ~~strategic initiatives and litigation expenses for~~ the ~~joint venture arbitration with our Russian joint venture partner. Other expense for the nine~~six months ended ~~September~~June 30, ~~2016 was primarily related to strategic initiatives.~~2020.

~~Income Tax Provision~~Other Expense

Six Months Ended

June 30,

2021

2020

(In thousands)
Other expense
$
4,472

$
4,140

Nine Months Ended
September 30,
2017 2016
(In thousands)
Income tax provision $ (82,236 ) $ (31,066 )

For the ~~nine~~six months ended ~~September~~June 30, 2021 and 2020, other expense primarily includes Transaction related expenses.

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Income Tax Benefit (Provision)

Six Months Ended

June 30,

2021

2020

(In thousands)
Income tax benefit (provision)
$
423

$
(647)

For the six months ended June 30, our income tax ~~provision~~benefit (provision) is summarized as follows: (i) for ~~2017,~~2021, we recorded a current ~~tax~~ provision of ~~$55.6~~$0.6 million and a deferred tax ~~provision~~benefit of ~~$26.6~~$1.0 million, resulting in a ~~total provision~~net tax benefit of ~~$82.2~~$0.4 million and (ii) for ~~2016,~~2020, we recorded a current ~~tax~~ provision of ~~$2.1~~$0.9 million and a deferred tax ~~provision~~benefit of ~~$29.0~~$0.3 million, resulting in a ~~total~~net tax provision of ~~$31.1~~$0.6 million. Our deferred income tax benefit for 2020 included a benefit of $3.5 million from the COVID-19 Acts.
32

Our income tax ~~provision~~benefit (provision) for each period is computed by applying an expected effective annual tax rate against the pre-tax results for the ~~nine months~~six month periods ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~2020 (after adjusting for certain tax items that are discrete to each period). For the nine months ended September 30, 2017, in accordance with authoritative guidance for accounting for income taxes in interim periods, we applied separate expected effective annual tax rates against our pre-tax loss from continuing operations and our equity in net income of Telesat, combining the results of both computations with the tax items discrete to the nine months ended September 30, 2017, such as the income tax provision related to the Telesat distribution. For the nine months ended September 30, 2016, we applied a single expected effective annual tax rate, which included tax expense on the equity income of Telesat, against our pre-tax loss from continuing operations for the nine months. This change in how we calculated the estimate was made to improve the accuracy and consistency of the expected effective annual tax rate calculated in interim periods.
~~For the nine months ended September 30, 2017, the~~The current income tax provision ~~primarily~~for each period includes our anticipated income tax liability related to ~~the cash distribution received~~GILTI from Telesat ~~after use~~and our provision for UTPs. After utilizing our NOL carryforwards and allowable tax credits, federal income tax on GILTI from Telesat was zero for each period. The deferred income tax benefit for each period includes the impact of ~~available benefits~~equity in net income (loss) of affiliates from our ~~alternative minimum~~condensed consolidated statement of operations and the periodic effect of our accounting for GILTI. Since our deferred tax ~~credits and net operating loss carryforwards and foreign tax credits from Telesat. Based upon our analysis,~~assets related to the ~~amount of foreign tax credits generated~~investment in Telesat will be realized from the ~~cash distribution allowed~~future recognition of GILTI, the federal portion of these deferred tax assets was valued at zero as of June 30, 2021 and December 31, 2020.

During 2021, the statute of limitations for assessment of additional tax will expire with regard to ~~be utilized against our current tax liability will be limited, thereby~~certain UTPs, potentially resulting in a ~~carryforward of unused foreign~~$19.5 million reduction to our income tax credits. Since, at the current time, sufficient positive evidence does not exist to support full recovery of the foreign tax credit carryforward, we recorded a full valuation allowance against this deferred tax asset during the nine months ended September 30, 2017. We will continue to maintain this valuation allowance until sufficient positive evidence exists to support full or partial reversal. Such a reversal could be material in future periods.provision.

~~Subsequent to the Sale, to~~To the extent that profitability from operations is not sufficient to realize the benefit from our remaining net deferred tax assets, we would generate sufficient taxable income from the appreciated value of our Telesat investment, ~~which currently has a nominal tax basis,~~subject to the provisions of the Transaction Agreement, in order to prevent federal net operating losses from expiring and realize the benefit of all remaining deferred tax ~~assets.~~assets

Equity in Net Income (Loss) of Affiliates

Six Months Ended

June 30,

2021

2020

(In thousands)
Telesat
$
59,893

$
(40,559)
Nine Months Ended
September 30,
2017 2016
(In thousands)
Telesat $ 183,086 $ 96,799

The following is a reconciliation of the changes in our investment in Telesat for the ~~nine~~six months ended ~~September 30, 2017:~~
Nine Months Ended
September 30, 2017
(In thousands)
Opening Balance, January 1, 2017 $ 107,950
Less: Cash distribution received (242,735 )
Add:
Equity in net income of Telesat $ 179,062
Eliminations of affiliate transactions and related amortization 4,024 183,086
Less: Equity in other comprehensive loss of Telesat (24,184 )
Ending balance, September 30, 2017 $ 24,117
In the first quarter of 2017, we received $242.7 million in cash from Telesat, representing our share of an aggregate approximately $400 million distribution from Telesat to its shareholders and stock option holders.
33
In the first quarter of 2016, we recognized our $57.9 million share of Telesat’s net loss and our $20.8 million share of Telesat’s other comprehensive income that we were unable to recognize as of December 31, 2015 as our share of Telesat’s cumulative losses, together with cash distributions we received from Telesat, exceeded our recorded cumulative equity in comprehensive income of Telesat and initial investment.
Our condensed consolidated statement of operations for the nine months ended September 30, 2016 includes an increase in equity in net income of affiliates of $3.0 million ($1.8 million net of tax) that should have been recognized in prior periods. As a result, earnings per share (basic and diluted) increased $0.06 per share. These non-cash adjustments, which were identified and provided by Telesat in connection with its June 30, ~~2016 closing process, related primarily to an error in mark-to-market accounting for embedded foreign exchange derivatives in a Telesat customer contract. Changes in fair value~~2021:

Six Months Ended

June 30, 2021

(In thousands)
Balance, January 1, 2021

$
192,664
Components of equity in net income of Telesat:

Equity in net income of Telesat
$
57,723

Eliminations of affiliate transactions and related amortization

2,170

59,893
Equity in Telesat-related other comprehensive loss

(4,186)
Balance, June 30, 2021

$
248,371

Table of these embedded derivatives are required to be recognized under U.S.GAAP, but not under IFRS, the basis of accounting used by Telesat. The Company has not revised previous financial statements for these adjustments based on its belief that the effect of such adjustments is not material to the financial statements taken as a whole.Contents

Summary financial information for Telesat in accordance with U.S. GAAP and in Canadian dollars and U.S. dollars ~~for the nine months ended September 30, 2017 and 2016 and~~ as of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016~~2020 and for the six months ended June 30, 2021 and 2020 follows (in thousands):

Nine Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
(In Canadian dollars) (In U.S. dollars)
Statement of Operations Data:
Revenues 675,276 690,976 514,800 522,849
Operating expenses (146,807 ) (135,926 ) (111,919 ) (102,853 )
Depreciation, amortization and stock-based compensation (191,347 ) (194,542 ) (145,875 ) (147,207 )
Loss on disposition of long-lived assets (288 ) (2,553 ) (220 ) (1,932 )
Operating income 336,834 357,955 256,786 270,857
Interest expense (146,605 ) (138,317 ) (111,765 ) (104,662 )
Foreign exchange gain 253,503 159,422 193,259 120,632
Loss on financial instruments (22,917 ) (4,446 ) (17,471 ) (3,364 )
Other income 454 4,362 348 3,301
Income tax provision (46,659 ) (52,367 ) (35,571 ) (39,625 )
Net income 374,610 326,609 285,586 247,139
Average exchange rate for translating Canadian dollars to U.S. dollars (1 U.S. dollar equals) 1.3130 1.3230

June 30,

December 31,

June 30,

December 31,

2021

2020

2021

2020

(In Canadian dollars)

(In U.S. dollars)
Balance Sheet Data:

Current assets
1,546,189

894,835

1,247,156

703,210
Total assets
5,613,586

5,018,579

4,527,918

3,943,875
Current liabilities
162,122

165,233

130,767

129,849
Long-term debt
3,693,039

3,159,944

2,978,805

2,483,256
Total liabilities
4,471,426

3,996,600

3,606,651

3,140,747
Shareholders’ equity
1,142,160

1,021,979

921,267

803,128
Period end exchange rate for translating Canadian

dollars to U.S. dollars (1 U.S. dollar equals)
1.2398

1.2725

September 30, December 31, September 30, December 31,
2017 2016 2017 2016
(In Canadian dollars) (In U.S. dollars)
Balance Sheet Data:
Current assets 466,420 911,785 373,975 678,361
Total assets 5,051,785 5,637,164 4,050,520 4,194,006
Current liabilities 159,948 207,226 128,247 154,173
Long-term debt, including current portion 3,532,907 3,868,252 2,832,685 2,877,950
Total liabilities 4,426,899 4,834,804 3,549,488 3,597,056
Shareholders’ equity 624,886 802,360 501,032 596,950
Period end exchange rate for translating Canadian dollars to U.S. dollars (1 U.S. dollar equals) 1.2472 1.3441

Six Months Ended

Six Months Ended

June 30,

June 30,

2021

2020

2021

2020

(In Canadian dollars)

(In U.S. dollars)
Statement of Operations Data:

Revenues
379,895

418,060

303,718

308,326
Operating expenses
(103,185)

(93,259)

(82,495)

(68,781)
Depreciation and amortization
(110,781)

(119,928)

(88,567)

(88,448)
Other operating expense
(705)

(212)

(564)

(156)
Operating income
165,224

204,661

132,092

150,941
Interest expense
(88,828)

(106,075)

(71,016)

(78,232)
Foreign exchange gain (loss)
70,103

(167,224)

56,046

(123,330)
Gain (loss) on financial instruments
4,745

(16,120)

3,794

(11,889)
Other (loss) income
(1,348)

5,880

(1,076)

4,338
Income tax provision
(34,626)

(12,821)

(27,683)

(9,456)
Net income (loss)
115,270

(91,699)

92,157

(67,628)
Average exchange rate for translating Canadian dollars
to U.S. dollars (1 U.S. dollar equals)
1.2514

1.3570

34

Telesat’s revenue decreased by ~~$8.0~~$4.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 as compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2020 due primarily to decreases in the ~~end of service or service reductions for~~maritime and commercial aviation markets resulting from the COVID-19 pandemic as well as non-renewals from certain other enterprise customers, a slight reduction in ~~revenue from Canadian spectrum license fees, which also resulted in~~service for a ~~corresponding reduction in operating expenses~~North American DTH customer and lower ~~revenue on certain international enterprise customers,~~consulting activities, partially offset by ~~new services to certain enterprise customers, a net increase in short-term enterprise services provided to other satellite operators, higher consulting activity and~~ the ~~favorable~~ impact of the change in the U.S. dollar/Canadian dollar exchange rate on Canadian dollar denominated revenue. The foreign exchange rate change increased Telesat’s revenue ~~excluding foreign exchange impact would have decreased~~ by ~~$10.0~~$11.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 as compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2020.

Telesat’s operating expenses increased by ~~$9.1~~$13.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 as compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2020 primarily due to ~~a special payment made to stock option holders in the first quarter of 2017 in connection~~higher share-based compensation expense, higher wages primarily associated with the ~~cash distribution made~~hiring of additional employees to ~~Telesat’s shareholders, higher professional fees~~support the Telesat Lightspeed program and the ~~unfavorable~~ impact of the change in the U.S. dollar/Canadian dollar exchange rate on Canadian dollar denominated expenses, partially offset by ~~lower expense on development~~higher capitalized engineering costs, reversal of ~~LEO satellites, lower share-based compensation~~a bad debt provision relating to the maritime and aeronautical customers that was recorded during the six months ended June 30, 2020 and lower ~~cost of sales from the reduction in Canadian spectrum license fees.~~consulting activities. The foreign exchange rate change increased Telesat’s operating ~~expense excluding foreign exchange impact would have increased~~expenses by ~~$8.5~~$4.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 as compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2020.

Table of Contents

Backlog

~~Loss from Discontinued Operations, net of tax~~

Interest expense that is directly related to the Sale is classified as discontinued operations in the statements of operations for the nine months ended September 30, 2017 and three and nine months September 30, 2016.

~~Backlog~~

Telesat’s backlog as of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016~~2020 was ~~$3.2 billion.~~$1.9 billion and $2.1 billion, respectively.

Liquidity and Capital Resources

Loral
~~Loral~~

As described above, Loral’s principal asset is a ~~62.7%~~62.6% economic interest in Telesat. ~~We also have a 56% economic interest in XTAR.~~ The operations of Telesat ~~and XTAR~~ are not consolidated but are presented using the equity method of accounting. ~~As of September 30, 2017 and December 31, 2016, the fair value of our investment in XTAR was zero as a result of the decline in its fair value that was determined to be other-than-temporary.~~
Loral has no debt. Telesat has third party debt with financial institutions. XTAR has no external debt other than to its LLC member, Hisdesat, for restructured lease payments on the Spainsat satellite. XTAR is required to make payments of $5 million per year to pay down the outstanding restructured lease balance. As of September 30, 2017 and December 31, 2016, XTAR had deferred payment of liabilities to Hisdesat of $31.7 million and $28.8 million, respectively, for lease payments, including the restructured lease payments. Loral has not provided a guarantee for the debt of Telesat or XTAR.
Cash is maintained at Loral ~~Telesat~~ and ~~XTAR~~Telesat to support the operating needs of each respective entity. The ability of Telesat to pay dividends or certain other restricted payments as well as consulting fees in cash to Loral is governed by applicable covenants relating to its debt and its shareholder agreement. ~~The ability of XTAR to pay dividends and management fees in cash to Loral is governed by its operating agreement.~~

Cash and Available Credit

At ~~September~~June 30, ~~2017,~~2021, Loral had ~~$259.3~~$23.2 million of cash and cash equivalents and no debt. The Company’s cash and cash equivalents as of ~~September~~June 30, ~~2017 increased~~2021 decreased by ~~$221.8~~$8.4 million from December 31, ~~2016~~2020 due primarily to a cash distribution by Telesat of $242.7 million and interest income received of $1.5 million, partially offset by a payment of $10.0 million for income taxes primarily related to the cash distribution, corporate expenses of ~~$5.3~~$4.2 million adjusted for changes in working capital and net of consulting fees from Telesat, ~~a $2.8 million payment to ViaSat pursuant to the Settlement Agreement and Allocation Agreement, litigation expenditures of $0.8 million, postretirement benefits funding of $2.0 million and~~ payments of ~~$1.5~~$3.9 million related to strategic ~~initiatives.~~initiatives and pension and other post-retirement funding of $0.3 million. A discussion of cash changes by activity is set forth in the sections “Net Cash Used in Operating ~~Activities” and “Net Cash Provided by Investing~~ Activities.”

Loral did not have a credit facility as of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016.~~2020.
35

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 primarily in ~~several~~two liquid ~~Prime and Government~~government AAA money market funds. The dispersion across funds reduces the exposure of a default at any one fund.

Liquidity

We believe that our cash and cash equivalents will be sufficient to fund projected expenditures for the next 12 ~~months.~~months or until the Closing of the Transaction, if sooner. We expect that our major ~~operating~~ cash outlays ~~for~~during the next 12 months will include ~~income tax payments, payments under employee benefit programs and~~ general corporate expenses net of consulting fees from ~~Telesat.~~
InTelesat and costs associated with completing the ~~first quarter of 2017, we received $242.7 million in cash~~Transaction, including employee severance costs and professional fees. Loral receives consulting fees from Telesat ~~representing our share~~ of ~~an aggregate approximately $400~~$1.25 million ~~distribution from Telesat to its shareholders and stock option holders. We intend to use~~per quarter under a consulting agreement which expires on October 31, 2021.

Under the ~~proceeds~~terms of ~~such distribution, net of reasonable reserves for working capital and other liabilities,~~the Transaction Agreement, Loral is required to make a ~~distribution~~$7 million payment to ~~our stockholders. There can be no assurance~~Red Isle at Closing. Telesat Corporation is obligated to make this payment as towell as costs associated with completing the ~~amount and timing~~Transaction if Loral does not have sufficient cash at Closing.

Table of ~~any such distribution, and such distribution may be impacted by the outcome of our discussions regarding, and the structure of, the strategic combination transaction that we are pursuing.~~Contents

Risks to Cash Flow

In ~~the fourth quarter of~~ 2012, we sold our former subsidiary, SSL, to ~~MDA pursuant to the Purchase Agreement.~~MDA. Under the terms of the ~~Purchase Agreement,~~purchase agreement, we are obligated to indemnify MDA from liabilities with respect to certain pre-closing taxes the total amount of which has not yet been determined. Where appropriate, we intend vigorously to contest the underlying tax assessments, but there can be no assurance that we will be successful. Although no assurance can be provided, we do not believe that these tax-related matters will have a material adverse effect on our financial position or results of operations.

36

Telesat

Cash and Available Credit

As of ~~September~~June 30, ~~2017,~~2021, Telesat had CAD ~~401 million~~1.47 billion of cash and short-term investments as well as approximately $200 million of borrowing availability under its revolving credit facility.

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 and short-term investments as of ~~September~~June 30, ~~2017,~~2021, cash flows from operating activities, and drawings on the revolving credit facility under its senior secured credit facilities will be adequate to meet Telesat’s expected cash requirements for at least the next 12 months for activities in the normal course of business, including ~~capital requirements and~~ required interest and principal payments on ~~debt.~~debt and Telesat’s capital requirements. This includes the commitments Telesat has made to date for the Telesat Lightspeed program, but does not include the capital that would be required to complete construction of the constellation.

The construction of any satellite replacement or expansion program will require significant capital ~~expenditures.~~expenditures, and in particular Telesat ~~may choose to invest in new~~currently estimates that its planned Telesat Lightspeed constellation will require a capital investment of approximately $5 billion for satellites, ~~to further grow its business.~~launch vehicles, insurance and related ground systems. Cash required for ~~current and~~any future satellite ~~construction~~ programs may be funded from ~~some or all~~a range of ~~the following:~~sources including: cash and short-term ~~investments,~~investments; cash flow from operating ~~activities,~~activities; cash flow from customer ~~prepayments or~~prepayments; through borrowings on the revolving credit facility under Telesat’s senior secured credit ~~facilities.~~facilities; vendor financing; equity investments, including through the issuance of public equity; export credit agency financing; additional secured or unsecured debt financing; proceeds received from repurposing C-band spectrum, and from government sources. In addition, Telesat may sell certain satellite assets and, in accordance with the terms and conditions of Telesat’s senior secured credit facilities, reinvest the proceeds in replacement satellites or pay down indebtedness under Telesat’s senior secured credit facilities. Subject to market conditions and subject to compliance with the terms and conditions of its senior secured credit facilities and the financial leverage covenant tests therein, Telesat may also have the ability to obtain additional secured or unsecured financing to fund current or future satellite construction. Telesat’s ability to access these sources of funding, however, is not guaranteed, and therefore, Telesat may not be able to fully fund additional replacement or new satellite ~~construction~~ programs.

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Debt

Telesat’s debt as of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016~~2020 was as follows:

June 30,

December 31,

Maturity

Currency

2021

2020

(In thousands)
Senior Secured Credit Facilities:

Revolving credit facility
December 2024

USD or CAD equivalent

$
—

$
—
Term Loan B - U.S. facility
December 2026

USD

1,552,815

1,552,815
6.5% Senior notes
October 2027

USD

550,000

550,000
4.875% Senior secured notes
June 2027

USD

400,000

400,000
5.625% Senior secured notes
December 2026

USD

500,000

—

3,002,815

2,502,815
Deferred financing costs and prepayment options

(2,031)

1,824
Total debt under international financial reporting standards

3,000,784

2,504,639
U.S. GAAP adjustments

(21,979)

(21,383)
Total debt under U.S. GAAP

2,978,805

2,483,256
Current portion

—

—
Long term portion

$
2,978,805

$
2,483,256
September 30, December 31,
Maturity Currency 2017 2016
(In CAD thousands)
Senior Secured Credit Facilities:
Revolving credit facility November 2021 USD or CAD equivalent — —
Term Loan B - U.S. facility November 2023 USD 3,000,446 3,257,998
8.875% Senior notes November 2024 USD 623,600 672,050
3,624,046 3,930,048
Less: Deferred financing costs, interest rate floors and prepayment options (105,916 ) (78,410 )
Total debt under international financial reporting standards 3,518,130 3,851,638
U.S. GAAP adjustments 14,777 16,614
Total debt under U.S. GAAP 3,532,907 3,868,252
Current portion 16,672 24,438
Long-term portion 3,516,235 3,843,814

As of June 30, 2021, Telesat was in compliance with the financial covenants of its senior secured credit facilities, the indenture governing its 4.875% Senior Secured Notes, the indenture governing its 5.625% Senior Secured Notes and the indenture governing its senior notes.

Senior Secured Credit Facilities

The obligations under Telesat’s ~~new~~ credit agreement and the guarantees of those obligations are secured, subject to certain exceptions, by a first priority security interest in the assets of Telesat and certain of its subsidiaries (the ~~‘‘Guarantors’’~~“Guarantors”). The credit agreement contains covenants that restrict the ability of Telesat and the Guarantors to take specified actions, including, among other things and subject to certain significant exceptions: creating liens, incurring indebtedness, making investments, engaging in mergers, selling property, paying dividends, entering into sale-leaseback transactions, creating subsidiaries, repaying subordinated debt or amending organizational documents. The credit agreement also requires Telesat and the Guarantors to comply with a maximum first lien leverage ratio and contains customary events of default and affirmative covenants, including an excess cash sweep, that may require Telesat to repay a portion of the outstanding principal under its senior secured credit facilities prior to the stated maturity.
37

Telesat’s senior secured credit facilities are comprised of the following facilities:

i— Revolving Credit Facility

Telesat’s revolving credit facility (“Revolving Facility”) is a $200 million loan facility available in either U.S. dollar or Canadian dollar equivalent, maturing ~~on November 17, 2021.~~in December 2024. Loans under the Revolving Facility bear interest at a floating ~~rate of LIBOR plus~~interest rate. For Canadian Prime Rate and Alternative Base Rate (“ABR”) loans, an applicable margin ranging from ~~1.50%~~0.75% to ~~2.00% for prime rate~~1.25% is applied to the Prime Rate and ~~Alternative Base Rate loans~~ABR as these interest rates are defined in the senior credit facilities. For Bankers’ Acceptance (“BA”) Loans and Eurodollar Loans, an applicable margin ranging from ~~2.50%~~1.75% to ~~3.00% for Bankers Acceptance and Eurodollar loans.~~2.25% is applied to either the BA interest rate or LIBOR. The rates on the Revolving Facility vary depending upon the results of the first lien leverage ratio. ~~The~~Telesat’s Revolving Facility currently has an unused commitment fee that ranges from 25 to 37.5 basis points per annum, depending upon the result of ~~40 basis points.~~the total leverage ratio. As of ~~September~~June 30, ~~2017,~~2021, other than ~~approximately $0.1~~CAD 0.3 million in drawings related to letters of credit, there were no borrowings under this facility.

Table of Contents

ii— Term Loan B — U.S. Facility

Telesat’s term loan B — U.S. facility ~~(‘‘~~(“U.S. TLB ~~Facility’’~~Facility”) is a ~~$2.430 billion loan~~$1,908.5 million facility maturing ~~on November 17, 2023.~~in December 2026. As of ~~September~~June 30, ~~2017, $2.406 billion~~2021, $1,552.8 million of this facility was outstanding, which represents the full amount ~~available following mandatory repayments.~~available. The ~~initial terms had the outstanding~~ borrowings under Telesat’s U.S. TLB Facility bear interest at a floating rate of either: (i) LIBOR ~~but not less than 0.75%, plus an initial applicable margin~~as periodically determined for interest rate periods selected by Telesat in accordance with the terms of ~~3.75%. On February 1, 2017, Telesat amended~~ the senior secured credit facilities ~~to reduce the~~plus an applicable margin ~~to 3.00%~~of 2.75%; or (ii) Alternative Base Rate as determined in accordance with the terms of the senior secured credit facilities plus an applicable margin of 1.75%.

In December 2020, Telesat made a $341.4 million prepayment on ~~the then~~its outstanding ~~$2.424 billion. As of February 1, 2017, the~~term loans under its U.S. TLB Facility. The mandatory principal repayments on ~~the~~Telesat’s U.S. TLB Facility are one quarter of 1.00% of the value of the loan, ~~at the time of amendment,~~ which must be paid on the last day of each quarter. As a result of the prepayment made in December 2020, mandatory quarterly principal repayments will no longer be required.

Senior Secured Notes

Telesat has senior secured notes, in the amount of $400.0 million, which bear interest at an annual rate of 4.875% and are due in June 2027 (the “4.875% Senior Secured Notes”). The 4.875% Senior Secured Notes indenture includes covenants or terms that restrict Telesat’s ability to, among other things, incur additional indebtedness, incur liens, pay dividends or make certain other restricted payments, investments or acquisitions, enter into certain transactions with affiliates, modify or cancel its satellite insurance, effect mergers with another entity, and redeem its 4.875% Senior Secured Notes, without penalty, before December 1, 2024, in each case subject to exceptions provided in the 4.875% Senior Secured Notes indenture.

On April 27, 2021, Telesat issued senior secured notes in the amount of $500 million at an annual rate of 5.625%, which are due in December 2026 (the “5.625% Senior Secured Notes”). The 5.625% Senior Secured Notes indenture includes covenants and terms that restrict Telesat’s ability to, among other things, incur additional indebtedness, incur liens, pay dividends or make certain other restricted payments, investments or acquisitions, enter into certain transactions with affiliates, modify or cancel its satellite insurance, effect mergers with another entity, and redeem the 5.625% Senior Secured Notes, without penalty, before December 6, 2022, in each case subject to exceptions provided in the 5.625% Senior Secured Notes indenture. Telesat incurred debt issuance costs of CAD 6.8 million in connection with the issuance of the 5.625% Senior Secured Notes.

Senior Notes

Telesat’s senior notes, in the amount of ~~$500~~$550 million, bear interest at an annual rate of ~~8.875%~~6.5% and are due ~~November 17, 2024.~~in October 2027. They include covenants or terms that restrict Telesat’s ability to, among other things, incur additional indebtedness, incur liens, pay dividends or make certain other restricted payments, investments or acquisitions, enter into certain transactions with affiliates, modify or cancel ~~Telesat’s~~its satellite insurance, effect mergers with another entity, and redeem ~~Telesat’s~~its senior notes, without penalty, before ~~November~~October 15, ~~2022,~~2024, in each case subject to exceptions provided in the senior notes indenture.

~~As of September 30, 2017, Telesat was in compliance with the financial covenants of its senior secured credit facilities and the indenture governing the senior notes.~~

Debt Service Cost

~~An estimate of~~The interest expense ~~is based upon assumptions of foreign exchange rates, LIBOR and Bankers Acceptance rates and the applicable margins of~~on Telesat’s senior secured credit facilities, senior notes, senior secured notes and ~~senior notes. Interest expense includes~~interest rate swaps, excluding the impact of ~~Telesat’s interest rate swaps which were entered into~~the amortization of deferred financing costs, prepayment options and loss on ~~October 5, 2017. Telesat’s interest expense~~repayment for the year ~~ending~~ended December 31, ~~2017~~2021, is expected to be approximately CAD ~~195~~162.1 million.

Derivatives

Telesat uses, from time to time, interest rate and currency derivatives to manage its exposure to changes in interest rates and foreign exchange rates.

Table of Contents

As of ~~September~~June 30, ~~2017, there was one forward exchange contract with a maturity of October 2017~~2021, Telesat had two outstanding ~~with an insignificant fair value.~~

~~On October 5, 2017, Telesat entered into four~~ interest rate swaps which hedge the interest rate risk associated with the variable interest rate on ~~$1.8 billion~~$900 million of U.S. ~~dollar~~ denominated Term Loan B borrowings. These contracts, which mature ~~between~~in September ~~2019~~2021 and September 2022, are at fixed interest rates ~~ranging from 1.72%~~of 1.95% to 2.04%, respectively, excluding applicable margin.

Telesat also has embedded derivatives that are accounted for separately at fair value. These embedded derivatives are related to the prepayment option included in Telesat’s senior notes, as well as an interest rate floor included in the U.S. TLB Facility. As of ~~September~~June 30, ~~2017,~~2021, the fair value of the ~~embedded derivative related to the prepayment option on Telesat’s senior notes was an asset of CAD 47 million and the fair value of the embedded derivatives related to the~~ interest rate ~~floor~~swaps was a liability of ~~CAD 9~~$8.6 million.

Telesat also has foreign currency embedded derivatives in its purchase contracts with suppliers and sales contracts with customers as a result of some of these contracts being denominated in a currency other than the functional currency of the substantial parties to the respective contract. The fair value of these foreign currency embedded derivatives as of ~~September~~June 30, ~~2017~~2021 was ~~CAD 5.5~~a net liability of $7.9 million.

Capital Expenditures

Telesat has entered into contracts for the ~~construction and launch~~development of ~~satellites~~Telesat Lightspeed constellation and other capital expenditures. The outstanding commitments associated with these contracts were approximately CAD 63203.0 million as of ~~September~~June 30, ~~2017.~~2021. These expenditures may be funded from some or all of the following: cash and short-term ~~investments,~~investments; cash flow from operating ~~activities,~~activities; cash flow from customer ~~prepayments~~prepayments; or funds available under the revolving credit facility.

~~Contractual Obligations~~

~~There have not been any significant changes to Loral’s contractual obligations as previously disclosed in our latest Annual Report on Form 10-K filed with the SEC.~~

Statements of Cash Flows

Net Cash Used in Operating Activities

~~Net cash used in operations was $20.6 million for the nine months ended September 30, 2017.~~

Net cash used in operating activities ~~by continuing operations~~ was ~~$17.8~~$8.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, consisting primarily of a ~~$61.9~~$8.0 million cash use attributable to net income ~~from continuing operations~~ adjusted for non-cash operating items, ~~and~~ a ~~$1.6~~$0.6 million decrease in pension and other ~~postretirement~~post-retirement liabilities and a $0.4 million increase in other current assets, partially offset by a ~~$43.5~~$0.5 million increase in ~~income taxes payable primarily related to the cash distribution received from Telesat in the first quarter of 2017~~other liabilities and a ~~$2.0~~$0.1 million increase in ~~long-term~~accrued employment costs and other current liabilities.

Net cash used by operating activities from discontinued operations was $2.8 million for the nine months ended September 30, 2017 representing the final payment to ViaSat pursuant to the Settlement Agreement and the Allocation Agreement.

~~Net cash used in operations was $16.2 million for the nine months ended September 30, 2016.~~

Net cash used in operating activities ~~by continuing operations~~ was ~~$7.7~~$7.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2020, consisting primarily of a ~~$7.4~~$6.9 million cash use attributable to ~~income from continuing operations~~net loss adjusted for non-cash operating items, a ~~$1.4~~$0.6 million decrease in accrued employment costs and other current liabilities, a $0.9 million decrease in income taxes payable, net of refunds receivable, and a $0.9 million decrease in pension and other ~~postretirement~~post-retirement liabilities, ~~and a $0.6 million decrease in accrued expenses,~~ partially offset by a ~~$1.7~~$1.9 million increase in ~~long-term~~other liabilities.

Net Cash Used in Financing Activities

Net cash used ~~by operating~~in financing activities ~~from discontinued operations~~ was ~~$8.4~~$170.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016 representing the payments to ViaSat pursuant~~2020 attributable to the ~~Settlement Agreement and the Allocation Agreement.~~payment of a cash dividend to common shareholders in May 2020.

~~Net Cash Provided by Investing Activities~~
~~Net cash provided by investing activities by continuing operations for the nine months ended September 30, 2017 was $242.7 million primarily representing the cash distribution received from Telesat.~~
39
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 5 to ~~the~~our financial statements for further information on affiliate matters).

Commitments and Contingencies

Our business and operations are subject to a number of significant risks, the most significant of which are summarized in Part II, Item 1A — Risk Factors and also in Note 13 to our condensed consolidated financial statements.

Other Matters
Recent Accounting Pronouncements
There are no accounting pronouncements that have been issued but not yet adopted that we believe will have a significant impact on our financial statements.

~~Item 3.~~~~Quantitative and Qualitative Disclosures about Market Risk~~
~~Loral~~
~~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.
~~Interest~~
~~During the nine months ended September 30, 2017, our excess cash was invested in money market securities; we did not hold any other marketable securities.~~
~~Derivatives~~
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.
~~Loral had no derivative instruments as of September 30, 2017 and December 31, 2016.~~
~~Telesat~~
~~Foreign Exchange Risk~~
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. The most significant impact of variations in the exchange rate is on Telesat’s U.S. dollar denominated debt and cash and short-term investments. As of September 30, 2017, Telesat’s U.S. dollar denominated debt totaled $2.9 billion. In addition, a portion of Telesat’s revenue and expenses, as well as the majority of its capital expenditures are denominated in U.S. dollars.
For the nine months ended September 30, 2017, approximately 51% of Telesat’s revenues, 42% of its operating expenses, 100% of its interest expense and the majority of its capital expenditures were denominated in U.S. dollars. As a result, the volatility of U.S. currency may expose Telesat to foreign exchange risks.
40
42

AsTable of September 30, 2017, a five percent increase (decrease) in the value of the Canadian dollar against the U.S. dollar would have increased (decreased) Telesat’s net income by approximately $133.8 million. This analysis assumes all other variables, in particular interest rates, remain constant.Contents

~~Interest Rate Risk~~

Telesat is exposed to interest rate risk on its cash and short-term investments and on its indebtedness, a portion of which includes a variable interest rate. Changes in the interest rates could impact the amount of interest that Telesat receives or is required to pay.

~~Derivative Financial Instruments~~

~~Telesat uses derivative instruments to manage its exposure to foreign currency and interest rate risk. Telesat’s policy is that it does not use derivative instruments for speculative purposes.~~

~~Telesat uses the following instruments, as required~~:

	•	~~forward currency contracts to hedge foreign currency risk on anticipated cash flows, mainly related to the construction of satellites and interest payments;~~
	•	~~currency derivative instruments to hedge the foreign exchange risk on its U.S. dollar denominated debt; and~~
	•	~~interest rate swaps to hedge the interest rate risk related to indebtedness, a portion of which includes a variable interest rate.~~

Item 4.Disclosure Controls and Procedures

~~(a)~~~~Disclosure Controls and Procedures.~~Our president and our chief financial officer, after evaluating the effectiveness of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of September 30, 2017, have concluded that our disclosure controls and procedures were not effective due to the identification of a material weakness. In addition, as a result of the identification of the material weakness with respect to the quarter ended September 30, 2017, our president and our chief financial officer reevaluated the effectiveness of our disclosure controls and procedures as of June 30, 2017, and concluded that our disclosure controls and procedures as of June 30, 2017 were not effective due to the same material weakness.

The material weakness related to the absence of satisfactory internal controls requiring timely reporting of any allegation of fraud involving management, regardless of the source of the allegation or its level of credibility, to the Company’s Audit Committee and performance of appropriate due diligence on anyone acting on behalf of the Company. As a result, management did not timely communicate to the Company’s Audit Committee the following allegation of fraud: in July 2017, a Russian attorney, who the Company believes participated in the fraud in Russia that diverted funds due to be paid to the Company in connection with its exit from its joint venture to provide Globalstar service in Russia to a shell company formed by that attorney (see Note 13 to the condensed consolidated financial statements), alleged that an officer of the Company was also involved in the fraud in Russia. The attorney was affiliated with a Russian law firm retained by the Company’s US counsel to pursue the Company’s exit from the joint venture and was not known to the Company at the time of the fraud in Russia. Prior to communicating the allegation to the Audit Committee, management, notwithstanding its view regarding the lack of credibility of the unsubstantiated allegation, retained outside counsel to examine the allegation; following such examination, outside counsel concluded that there was no evidence implicating Loral personnel. Subsequent to receiving the report from outside counsel retained by management, the Audit Committee retained its own independent counsel to perform an investigation, and the Audit Committee’s independent counsel also has determined, based on its substantially completed investigation procedures, that there is no evidence implicating Loral personnel.

We have adopted and are implementing remedial steps designed to address the material weakness and to ensure the fair presentation of our condensed consolidated financial statements. These remedial steps include: 1) employee refresher training on the identification of fraud risks and fraud-related matters, with specific emphasis on the identification and reporting of alleged, suspected or actual fraud; 2) revision of our code of conduct and related controls to require timely reporting of any alleged or suspected fraud involving management regardless of the source of the allegation or its level of credibility; 3) acceleration of employee recertification of our code of conduct; 4) enhancement of the process for preparation of management certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 and management representations provided to the Company’s auditors; and 5) enhancement of our internal controls to add a requirement to perform appropriate due diligence on anyone acting on behalf of the Company. Because we are in the process of implementing these remedial steps, there is no assurance that our disclosure controls and procedures will be effective for future periods.

41(a)

Disclosure Controls and Procedures. Our president 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 of 1934, as amended (the “Exchange Act”)) as of June 30, 2021, 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 and Exchange Commission rules and forms.

(b)

Internal control over financial reporting. There were no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15-d-15(f)) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Our president and our chief financial officer have concluded that, notwithstanding the material weakness discussed above, the condensed consolidated financial statements in this Quarterly Report on Form 10-Q present, and the condensed consolidated financial statements in in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 presented, fairly, in all material respects, our financial position, resultsTable of ~~operations and cash flows for the periods presented.~~Contents

~~(b)~~~~Internal control over financial reporting.~~ There were no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15-d-15(f)) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

As noted above, the Company has adopted and is implementing remedial steps to improve its controls relating to (a) timely reporting to the Company’s Audit Committee of any allegation of fraud involving management regardless of the source of the allegation or its level of credibility and (b) performing appropriate due diligence on anyone acting on behalf of the Company. We are continuing to evaluate the effectiveness of those remedial steps.

PART II.

OTHER INFORMATION

Item 1.Legal Proceedings

~~ViaSat Suit and Joint Venture Arbitration~~

We discuss certain legal proceedings pending against the ~~settlement of the ViaSat Suit and an arbitration against Loral relating to a Russian joint venture~~Company in the notes to ~~the condensed consolidated~~our financial statements and refer ~~the reader~~you to ~~those discussions~~that discussion for important information concerning those ~~matters.~~legal proceedings, including the basis for such actions and relief sought. See Note 13 to our ~~unaudited condensed consolidated~~ financial statements offor this ~~Quarterly Report on Form 10-Q for these discussions.~~discussion.

~~Other Litigation~~

We are not currently subject to any legal proceedings that, if decided adversely, could have a material adverse effect on our financial position or results of operations. In the future, however, we may become subject to legal proceedings and claims, either asserted or unasserted, that may arise in the ordinary course of business or otherwise.

Item 1A.Risk Factors

Our business and operations are subject to a significant number of risks. The most significant of these risks are summarized in, and the reader’s attention is directed to, ~~the section of~~Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2020, our Quarterly Report on Form 10-Q for the three months ended March 31, 2021 and to the Risk Factors in ~~“Item 1A. Risk Factors.” There~~our Proxy Statement dated June 30, 2021. Except as set forth below, there are no material changes to those risk factors.

The risk factor set forth below updates, and should be read together with, the aforementioned risk factors.

Telesat and the Government of Canada may be unable to agree on definitive documentation related to the Investments, and even if definitive documentation is executed, there is no guarantee that the Investments will be advantageous for Telesat or its subsidiaries.

A binding obligation with respect to the Investments will be created only upon completion of definitive documentation that will contain the terms set out in the Term Sheet in addition to such other representations, warranties, covenants, indemnities, defaults and other terms and conditions (including fees and expenses, increased costs, tax (including customary gross-up and indemnity provisions for any non-resident withholding tax) and other provisions) as Canada may reasonably require, which are usual and customary for transactions of this nature. Moreover, the Investments are in all respects subject to, among other things, ongoing due diligence, negotiation of satisfactory binding legal documentation and required governmental approvals. Consequently, due to the foregoing and other factors, some of which are outside of Telesat’s control, the parties may be unable to reach an agreement with respect to definitive documentation, or the terms of definitive documentation may differ from the terms and conditions described in the Term Sheet. Furthermore, there are conditions to the funding of the Investments and the satisfaction of those conditions is not entirely within Telesat’s control. The execution of definitive documentation related to the Investments will require agreement by Telesat and the GoC on various terms, some of which may not be contained in the Term Sheet and some of which may not be contemplated at this time. The definitive documentation with respect to the Investments will contain various affirmative and negative covenants, some of which may restrict Telesat’s ability to conduct its business and which Telesat and Telesat Corporation may find onerous.

The Term Sheet does not contain all of the material terms that would be required for such definitive documentation, and Telesat cannot be assured of the ultimate terms of such definitive documentation and whether they will be less favorable than the terms in the Term Sheet. While Telesat will attempt to negotiate definitive documentation for the Investments within the bounds of the Term Sheet, there is no guarantee it will be successful in doing so. Moreover, various of the terms of the Term Sheet will require further negotiation at a level of specificity beyond the Term Sheet. Telesat cannot be assured whether it will be successful in such negotiations or to what extent such negotiation may reflect a deviation of any term in the Term Sheet from how Telesat understood such term at the time it entered into the Term Sheet. Investors are encouraged to read the complete text of the Term Sheet, a copy of which is filed herewith as Exhibit 99.2.

The risks described in our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q and our Proxy Statement dated June 30, 2021 are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

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Item 5. Other Information

On January 5, 2021, we received a notice from the Listing Qualifications Department of The Nasdaq Stock Market (“Nasdaq”) indicating that the Company is not in compliance with Rule 5620(a) of the Nasdaq Listing Rules (the “Nasdaq Rules”) as a result of the Company not having held an annual meeting of stockholders within 12 months of the end of the Company’s fiscal year on December 31, 2019 (the “2020 Annual Meeting”). The Nasdaq notice is only a notification of deficiency, not of imminent delisting. The Nasdaq notice stated that, under the Nasdaq Rules, the Company had 45 calendar days to submit a plan to regain compliance with the Nasdaq Rules. On February 17, 2021, we submitted to Nasdaq our plan to regain compliance with the Nasdaq Rules by holding an annual meeting of stockholders for 2020. On April 20, 2021, the Company received a notice from the Listing Qualifications Department of Nasdaq that the Nasdaq staff had determined to grant the Company an extension to June 30, 2021 to regain compliance with Rule 5620(a) of the Nasdaq Rules. On June 17, 2021, the Company held its 2020 Annual Meeting and Nasdaq notified the Company that it had regained compliance with Rule 5620(a) of the Nasdaq Rules.

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Item 6.Exhibits

The following exhibits are filed as part of this report:

~~Exhibit~~ 2.1	—	Amendment No. 1 to Integration Agreement, dated as of June 24, 2021, by and among Telesat Canada, Telesat Corporation, Telesat Partnership LP, Telesat CanHoldco Corporation, Loral Space & Communications Inc., Lion Combination Sub Corporation, Public Sector Pension Investment Board, Red Isle Private Investments Inc. and certain funds managed by MHR Fund Management LLC (1)

2.2	—	Consent Letter Agreement, dated as of June 24, 2021, by and among Loral Space & Communications Inc., Public Sector Pension Investment Board and Telesat Canada (2)

3.1	—	Amendment No. 2 to Amended and Restated Bylaws of Loral Space & Communications dated April 22, 2021(3)

10.1	—	Restricted Share Unit Grant Agreement dated April 23, 2021 by and among Telesat Canada, Loral Space & Communications Inc., Public Sector Pension Investment Board, 4440480 Canada Inc. and Daniel Goldberg(3)*

10.2	—	Restricted Share Unit Grant Agreement dated April 23, 2021 by and among Telesat Canada, Loral Space & Communications Inc., Public Sector Pension Investment Board, 4440480 Canada Inc. and Andrew Browne(3)*

10.3	—	Restricted Share Unit Grant Agreement dated April 23, 2021 by and among Telesat Canada, Loral Space & Communications Inc., Public Sector Pension Investment Board, 4440480 Canada Inc. and Erwin Hudson(3)*

10.4	—	Restricted Share Unit Grant Agreement dated April 23, 2021 by and among Telesat Canada, Loral Space & Communications Inc., Public Sector Pension Investment Board, 4440480 Canada Inc. and Michael Schwartz(3)*

31.1	—	Certification of President pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 302 of the Sarbanes-Oxley Act of 2002

~~Exhibit~~ 31.2	—	Certification of Chief Financial Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 302 of the Sarbanes-Oxley Act of 2002

~~Exhibit~~ 32.1	—	Certification of President pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002

~~Exhibit~~ 32.2	—	Certification of Chief Financial Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002

~~Exhibit 101~~ 99.1	— ~~Interactive Data Files~~	Indenture, dated April 27, 2021, with respect to Telesat Canada’s 5.625% Senior Secured Notes due 2026, among Telesat Canada and Telesat LLC, as co-issuers, the guarantors party thereto and The Bank of New York Mellon, as Trustee and as a Notes Collateral Agent and the other Notes Collateral Agents party thereto(4)
~~(101.INS)~~
99.2	—	Summary of Terms and Conditions for Proposed Investment in Telesat Lightspeed LEO Project dated August 11, 2021 among Telesat LEO Inc., Telesat Canada, Telesat Corporation and Her Majesty in Right of Canada, as represented by the Minister of Industry(5)

Table of Contents

101.INS	—	Inline XBRL Instance Document
~~(101.SCH)~~ 101.SCH	—	Inline XBRL Taxonomy Extension Schema Document
~~(101.CAL)~~ 101.CAL	—	Inline XBRL Taxonomy Extension Calculation Linkbase Document
~~(101.DEF)~~ 101.DEF	—	Inline XBRL Taxonomy Extension Definition Linkbase Document
~~(101.LAB)~~ 101.LAB	—	Inline XBRL Taxonomy Extension Label Linkbase Document
~~(101.PRE)~~ 101.PRE	—	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	—	The cover page for the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 has been formatted in Inline XBRL.

43(1)

Incorporated by reference from Annex S of the Registration Statement on Form F-4/A filed by Telesat Corporation and Telesat Partnership on June 24, 2021

(2)

Incorporated by reference from Annex U of the Registration Statement on Form F-4/A filed by Telesat Corporation and Telesat Partnership on June 24, 2021

(3)

Incorporated by reference from the Company’s Current Report on Form 8-K filed on April 26, 2021

(4)

Incorporated by reference from the Report of Foreign Issuer on Form 6-K filed by Telesat Canada on April 27, 2021

(5)

Incorporated by reference from the Report of Foreign Issuer on Form 6-K filed by Telesat Canada on August 12, 2021

Management contract or compensatory plan, contract or arrangement with directors or named executive officers

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SIGNATURES

Pursuant to the requirements 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.

	Registrant

	~~Loral Space~~ LORAL SPACE & ~~Communications Inc.~~COMMUNICATIONS INC.

	/s/ ~~John Capogrossi~~JOHN CAPOGROSSI
	John Capogrossi
	Vice President, Chief Financial Officer and Treasurer
	(Principal Financial Officer) and Registrant’s Authorized Officer

~~Date: November 14, 2017~~

	44
Date: August 13, 2021


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from___________ to _____________


Jurisdiction of incorporation: Delaware
IRS employer identification number: 87-0748324
600 Fifth Avenue,

New York, New York10020


Title of each class	Trading Symbol	Name of each exchange on which registered
Voting Common stock, $.01 par value	LORL	Nasdaq Global Select Market
Preferred Stock Purchase Rights		Nasdaq Global Select Market


Large accelerated filer◻	¨		Accelerated filer	þ ☐
Non-accelerated filer☒	¨	~~(Do not check if a smaller reporting company)~~	Smaller reporting company	¨ ☒
			Emerging growth company	¨ ☐

	September 30,			December 31,
	2017			2016
ASSETS
Current assets:
Cash and cash equivalents	$	259,263		$	37,458
Other current assets		3,685			3,483
Total current assets		262,948			40,941
Investments in affiliates		24,117			107,950
Deferred tax assets		101,567			115,285
Other assets		365			55
Total assets	$	388,997		$	264,231

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accrued employment costs	$	2,026		$	2,356
Income taxes payable		43,110			—
Other current liabilities		2,298			3,772
Total current liabilities		47,434			6,128
Pension and other postretirement liabilities		16,857			18,433
Long-term liabilities		71,050			69,259
Total liabilities		135,341			93,820
Commitments and contingencies
Shareholders' Equity:
Preferred stock, 0.01 par value; 10,000,000 shares authorized, no shares issued and outstanding		—			—
Common Stock:
Voting common stock, 0.01 par value; 50,000,000 shares authorized, 21,581,572 issued		216			216
Non-voting common stock, 0.01 par value; 20,000,000 shares authorized 9,505,673 issued and outstanding		95			95
Paid-in capital		1,019,988			1,019,988
Treasury stock (at cost), 154,494 shares of voting common stock		(9,592	)		(9,592	)
Accumulated deficit		(728,000	)		(826,460	)
Accumulated other comprehensive loss		(29,051	)		(13,836	)
Total shareholders' equity		253,656			170,411
Total liabilities and shareholders' equity	$	388,997		$	264,231

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
General and administrative expenses	$	(2,015	)	$	(1,709	)	$	(6,000	)	$	(4,900	)
Operating loss		(2,015	)		(1,709	)		(6,000	)		(4,900	)
Interest and investment income		728			44			1,754			140
Interest expense		(11	)		(6	)		(22	)		(15	)
Other expense		(985	)		(187	)		(2,858	)		(1,306	)
Loss from continuing operations before income taxes and equity in net income of affiliates		(2,283	)		(1,858	)		(7,126	)		(6,081	)
Income tax provision		(16,552	)		(8,911	)		(82,236	)		(31,066	)
Loss from continuing operations before equity in net income of affiliates		(18,835	)		(10,769	)		(89,362	)		(37,147	)
Equity in net income of affiliates		43,372			6,948			183,086			96,799
Income (loss) from continuing operations		24,537			(3,821	)		93,724			59,652
Loss from discontinued operations, net of tax		—			(71	)		(5	)		(306	)
Net income (loss)		24,537			(3,892	)		93,719			59,346
Other comprehensive (loss) income, net of tax		(12,356	)		1,713			(15,215	)		11,289
Comprehensive income (loss)	$	12,181		$	(2,179	)	$	78,504		$	70,635

Net income (loss) per share:

Basic
Income (loss) from continuing operations	$	0.79		$	(0.12	)	$	3.03		$	1.93
Loss from discontinued operations, net of tax		—			—			—			(0.01	)
Net income (loss)	$	0.79		$	(0.12	)	$	3.03		$	1.92

Diluted
Income (loss) from continuing operations	$	0.77		$	(0.12	)	$	2.98		$	1.85
Loss from discontinued operations, net of tax		—			—			—			(0.01	)
Net income (loss)	$	0.77		$	(0.12	)	$	2.98		$	1.84

Weighted average common shares outstanding:
Basic		30,933			30,933			30,933			30,933
Diluted		31,008			30,933			31,008			31,008

	Common Stock											Treasury Stock								Accumulated
	Voting				Non-Voting							Voting								Other
	Shares				Shares				Paid-In								Accumulated			Comprehensive			Shareholders'
	Issued		Amount		Issued		Amount		Capital			Shares		Amount			Deficit			Loss			Equity
Balance, January 1, 2016		21,582	$	216		9,506	$	95	$	1,020,129			154	$	(9,592	)	$	(873,660	)	$	(28,698	)	$	108,490
Net income																		47,200
Other comprehensive income																					14,862
Comprehensive income																								62,062
Adjustment to tax benefit associated with stock-based compensation										(141	)													(141	)
Balance, December 31, 2016		21,582		216		9,506		95		1,019,988			154		(9,592	)		(826,460	)		(13,836	)		170,411
Net income																		93,719
Other comprehensive loss																					(15,215	)
Comprehensive income																								78,504
Cumulative effect adjustment attributable to previously unrecognized excess tax benefits on stock-based compensation																		4,741						4,741
Balance, September 30, 2017		21,582	$	216		9,506	$	95	$	1,019,988			154	$	(9,592	)	$	(728,000	)	$	(29,051	)	$	253,656

	September 30, 2017,						December 31, 2016,
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents:
Money market funds	$	257,547		—		—	$	35,514		—		—
Other current assets:
Indemnification - Sale of SSL		—		—	$	2,410		—		—	$	2,410
Liabilities
Long-term liabilities:
Indemnification - Globalstar do Brasil S.A.		—		—	$	323		—		—	$	357

				Equity in			Accumulated
				Telesat Other			Other
	Postretirement			Comprehensive			Comprehensive
	Benefits			Loss			Loss
Balance, January 1, 2016	$	(13,459	)	$	(15,239	)	$	(28,698	)

Other comprehensive (loss) income before reclassification		(1,209	)		15,477			14,268
Amounts reclassified from accumulated other comprehensive loss		594			—			594
Net current-period other comprehensive (loss) income		(615	)		15,477			14,862
Balance, December 31, 2016		(14,074	)		238			(13,836	)

Other comprehensive loss before reclassification		—			(15,715	)		(15,715	)
Amounts reclassified from accumulated other comprehensive loss		500			—			500
Net current-period other comprehensive income (loss)		500			(15,715	)		(15,215	)
Balance, September 30, 2017	$	(13,574	)	$	(15,477	)	$	(29,051	)

	Three Months Ended September 30,
	2017									2016
	Before-Tax			Tax Benefit			Net-of-Tax			Before-Tax			Tax			Net-of-Tax
	Amount			(Provision)			Amount			Amount			Provision			Amount
Amortization of prior service credits and net actuarial loss	$	257	^(a)	$	(90	)	$	167		$	229	^(a)	$	(88	)	$	141
Equity in Telesat other comprehensive (loss) income		(19,255	)		6,732			(12,523	)		2,580			(1,008	)		1,572
Other comprehensive (loss) income	$	(18,998	)	$	6,642		$	(12,356	)	$	2,809		$	(1,096	)	$	1,713

	Nine Months Ended September 30,
	2017									2016
	Before-Tax			Tax Benefit			Net-of-Tax			Before-Tax			Tax			Net-of-Tax
	Amount			(Provision)			Amount			Amount			Provision			Amount
Amortization of prior service credits and net actuarial loss	$	770	^(a)	$	(270	)	$	500		$	687	^(a)	$	(261	)	$	426
Equity in Telesat other comprehensive (loss) income		(24,184	)		8,469			(15,715	)		17,522	^(b)		(6,659	)		10,863
Other comprehensive (loss) income	$	(23,414	)	$	8,199		$	(15,215	)	$	18,209		$	(6,920	)	$	11,289

	~~Three~~
	Six Months Ended
	~~September~~ June 30, ~~2016~~	2020
Unconverted restricted stock units		75	84

	Pension Benefits						Other Benefits
	Three Months Ended						Three Months Ended
	September 30,						September 30,
	2017			2016			2017		2016
Service cost	$	175		$	167		$	—	$	—
Interest cost		490			495			5		6
Expected return on plan assets		(531	)		(512	)		—		—
Amortization of net actuarial loss		250			223			1		1
Amortization of prior service credits		—			—			6		5
Net periodic cost	$	384		$	373		$	12	$	12


	Pension Benefits				Other Benefits
	Three Months Ended				Three Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
Service cost ⁽¹⁾	$	165	$	171	$	0	$	0
Interest cost ⁽²⁾		378		443		3		4
Expected return on plan assets ⁽²⁾		(679)		(657)		0		0
Amortization of net actuarial loss (gain) ⁽²⁾		341		341		0		(1)
Net periodic cost	$	205	$	298	$	3	$	3


Operating lease payments - (July 1, 2021 to December 31, 2021)	$	306
Less: Future interest		5
Operating lease liability	$	301

Amounts recognized in Balance Sheet
Other current liabilities	$	301

Topic		Location
Overview		Page 2627
Consolidated Operating Results		Page 2933
Liquidity and Capital ~~Resources:~~Resources:		Page 38
Loral		Page 3538
Telesat		Page 3739
~~Contractual Obligations~~Statements of Cash` Flows		Page 3942
~~Statements of Cash Flows~~Affiliate Matters		Page 3942
~~Affiliate Matters~~		~~Page 40~~
Commitments and Contingencies		Page 4042
Other Matters		Page 4042

	Nine Months Ended
	September 30, 2017
	(In thousands)
Opening Balance, January 1, 2017			$	107,950
Less: Cash distribution received				(242,735	)
Add:
Equity in net income of Telesat	$	179,062
Eliminations of affiliate transactions and related amortization		4,024		183,086
Less: Equity in other comprehensive loss of Telesat				(24,184	)
Ending balance, September 30, 2017			$	24,117


				June 30,		December 31,
	Maturity	Currency		2021		2020

				(In thousands)
Senior Secured Credit Facilities:
Revolving credit facility	December 2024	USD or CAD equivalent	$	—	$	—
Term Loan B - U.S. facility	December 2026	USD		1,552,815		1,552,815
6.5% Senior notes	October 2027	USD		550,000		550,000
4.875% Senior secured notes	June 2027	USD		400,000		400,000
5.625% Senior secured notes	December 2026	USD		500,000		—
				3,002,815		2,502,815
Deferred financing costs and prepayment options				(2,031)		1,824
Total debt under international financial reporting standards				3,000,784		2,504,639
U.S. GAAP adjustments				(21,979)		(21,383)
Total debt under U.S. GAAP				2,978,805		2,483,256
Current portion				—		—
Long term portion			$	2,978,805	$	2,483,256

			September 30,			December 31,
	Maturity	Currency	2017			2016
			(In CAD thousands)
Senior Secured Credit Facilities:
Revolving credit facility	November 2021	USD or CAD equivalent		—			—
Term Loan B - U.S. facility	November 2023	USD		3,000,446			3,257,998
8.875% Senior notes	November 2024	USD		623,600			672,050
				3,624,046			3,930,048
Less: Deferred financing costs, interest rate floors and prepayment options				(105,916	)		(78,410	)
Total debt under international financial reporting standards				3,518,130			3,851,638
U.S. GAAP adjustments				14,777			16,614
Total debt under U.S. GAAP				3,532,907			3,868,252
Current portion				16,672			24,438
Long-term portion				3,516,235			3,843,814