~~LORAL SPACE & COMMUNICATIONS INC.~~

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

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. After receiving an Excess Cash Distribution, we do not record additional equity in net income of Telesat until our share of Telesat’s ~~subsequent~~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 ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~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 30, 2020,~~March 31, 2021, the Company had ~~$83.4~~$25.5 million of cash and cash equivalents. Cash and cash equivalents include liquid investments, primarily money market funds, with 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, ~~our~~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.

As of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the Company had restricted cash of $0.3 million, representing the amount pledged as collateral to the issuer of a standby letter of credit (the “LC”). The LC, which expires in ~~August 2021,~~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):

September 30,

December 31,

2020

2019
Cash and cash equivalents
$
83,386

$
259,067
Restricted cash included in other current assets

304

0
Restricted cash included in other assets

0

304
Cash, cash equivalents and restricted cash shown in the statement of cash flows
$
83,690

$
259,371

Table of Contents

LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)


	March 31,		December 31,
	2021		2020
Cash and cash equivalents	$	25,460	$	31,631
Restricted cash included in other current assets		304		304
Cash, cash equivalents and restricted cash shown in the statement of cash flows	$	25,764	$	31,935

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 30,~~March 31, 2021 and December 31, 2020, our cash and cash equivalents were invested primarily in two liquid ~~Government AAA money market funds. As of December 31, 2019, our cash and cash equivalents were invested primarily in several 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.

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.

Table of Contents

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 on a recurring and non-recurring basis (in thousands):



	September 30, 2020						December 31, 2019						March 31, 2021						December 31, 2020
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3		Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents:
Money market funds	$	80,658	$	0	$	0	$	256,915	$	0	$	0	$	22,167	$	0	$	0	$	29,166	$	0	$	0
Other current assets:
Indemnification - Sale of SSL		0		0		598		0		0		598		0		0		598		0		0		598
Liabilities
Other liabilities:
Indemnification - Globalstar do Brasil S.A.	$	0	$	0	$	145	$	0	$	0	$	145	$	0	$	0	$	145	$	0	$	0	$	145

The carrying amount of 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 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020.

~~Table of Contents~~

~~LORAL SPACE & COMMUNICATIONS INC.~~

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

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.

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.

Table of Contents

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.

~~Table of Contents~~

~~LORAL SPACE & COMMUNICATIONS INC.~~

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

Recent Accounting Pronouncements

In ~~August 2018,~~December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ~~No. 2018-13,~~2019- 12, ~~Fair Value Measurement~~Income Taxes (Topic ~~820)~~740): ~~Disclosure Framework – Changes~~Simplifying the Accounting for Income Taxes. ASU 2019-12 is expected to reduce the ~~Disclosure Requirements~~cost and complexity related to accounting for ~~Fair Value Measurement.~~ ASU No. 2018-13 eliminates, amends, and adds disclosure requirements to improve the effectiveness of fair value measurement disclosures. While certain amendments are to be applied prospectively, all other amendments are to be applied retrospectively to all periods presented.income taxes. The new guidance ~~adopted by~~removes certain exceptions to the 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 make narrow-scope improvements to accounting standards through a series of short-term projects. The new guidance, effective for the Company on January 1, ~~2020,~~2021, did not have a material impact on our condensed consolidated financial statements.

~~In February 2016, the FASB amended the Accounting Standards Codification (“ASC”) by creating ASC Topic 842,~~ ~~Leases~~ (“ASC 842”). 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. We adopted ASC 842 in the first quarter of 2019 utilizing the modified retrospective method with a practical expedient through a cumulative-effect adjustment at the beginning of the first quarter of 2019. As a result, on ~~January 1, 2019, we recognized a right-of-use asset and lease liability for an operating lease of approximately $0.3 million on our condensed consolidated balance sheet.~~

Additional Cash Flow Information

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


	Nine Months Ended				Three Months Ended
	September 30,				March 31,
	2020		2019		2021		2020
Non-cash operating items:
Equity in net income of affiliates	$	(9,086)	$	(92,066)
Equity in net (income) loss of affiliates					$	(34,602)	$	117,074
Deferred taxes		(253)		2,802		(562)		1,569
Depreciation and amortization		3		9		1		1
Right-of-use asset, net of lease liability		(4)		12		(3)		(1)
Recovery of affiliate doubtful receivable		(5,854)		0
Amortization of prior service credit and actuarial loss		963		752		399		302
Net non-cash operating items	$	(14,231)	$	(88,491)	$	(34,767)	$	118,945
Supplemental information:
Interest paid	$	20	$	15	$	6	$	5
Income tax refunds	$	178	$	2,980	$	2	$	178
Income tax payments	$	190	$	226	$	63	$	63

1112

Table of Contents

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						Equity in
	Pension and		Telesat-related		Accumulated		Pension and		Telesat-related		Accumulated
	Other		Other		Other		Other		Other		Other
	Post-retirement		Comprehensive		Comprehensive		Post-retirement		Comprehensive		Comprehensive
	Benefits		Loss		Loss		Benefits		Loss		Loss
Balance, January 1, 2019	$	(14,656)	$	(2,964)	$	(17,620)
Balance, January 1, 2020							$	(16,167)	$	(38,747)	$	(54,914)

Other comprehensive loss before reclassification		(2,307)		(35,783)		(38,090)		(3,852)		(14,232)		(18,084)
Amounts reclassified from accumulated other comprehensive loss		796		0		796		1,026		0		1,026
Net current-period other comprehensive loss		(1,511)		(35,783)	��	(37,294)		(2,826)		(14,232)		(17,058)
Balance, December 31, 2019		(16,167)		(38,747)		(54,914)
Balance, December 31, 2020								(18,993)		(52,979)		(71,972)

Other comprehensive income before reclassification		0		6,130		6,130
Other comprehensive loss before reclassification								0		(2,131)		(2,131)
Amounts reclassified from accumulated other comprehensive loss		761		0		761		315		0		315
Net current-period other comprehensive income		761		6,130		6,891
Balance, September 30, 2020	$	(15,406)	$	(32,617)	$	(48,023)
Net current-period other comprehensive loss								315		(2,131)		(1,816)
Balance, March 31, 2021							$	(18,678)	$	(55,110)	$	(73,788)

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

Three Months Ended September 30,

2020

2019

Before-Tax

Tax (Provision)

Net-of-Tax

Before-Tax

Tax (Provision)

Net-of-Tax

Amount

Benefit

Amount

Amount

Benefit

Amount
Amortization of prior service credits

and net actuarial loss
$
321
^(a)
$
(68)

$
253

$
251
^(a)
$
(52)

$
199
Equity in Telesat-related other

comprehensive loss

(7,477)

4

(7,473)

(16,465)

5

(16,460)
Other comprehensive loss
$
(7,156)

$
(64)

$
(7,220)

$
(16,214)

$
(47)

$
(16,261)


	Nine Months Ended September 30,														Three Months Ended March 31,
	2020							2019							2021							2020
	Before-Tax			Tax		Net-of-Tax		Before-Tax			Tax (Provision)		Net-of-Tax		Before-Tax			Tax (Provision)		Net-of-Tax		Before-Tax			Tax		Net-of-Tax
	Amount			Provision		Amount		Amount			Benefit		Amount		Amount			Benefit		Amount		Amount			Provision		Amount
Amortization of prior service credits
and net actuarial loss	$	963	^(a)	$	(202)	$	761	$	752	^(a)	$	(158)	$	594	$	399	^(a)	$	(84)	$	315	$	302	^(a)	$	(63)	$	239
Equity in Telesat-related other
comprehensive income (loss)		6,132			(2)		6,130		(29,915)			8		(29,907)
Other comprehensive income (loss)	$	7,095		$	(204)	$	6,891	$	(29,163)		$	(150)	$	(29,313)
comprehensive (loss) income																(2,133)			2		(2,131)		31,063			(12)		31,051
Other comprehensive (loss) income															$	(1,734)		$	(82)	$	(1,816)	$	31,365		$	(75)	$	31,290

(a)

Reclassifications are included in other expense.

4. Other Current Assets

Other current assets consists of (in thousands):


	March 31,		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		838		240
Other		2		2
	$	1,801	$	1,232

1213

Table of Contents

LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

~~4. Other Current Assets~~

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

September 30,

December 31,

2020

2019
Restricted cash (see Note 2)
$
304

$
0
Indemnification receivable from SSL for pre-closing taxes (see Note 13)

598

598
Due from affiliates

111

186
Prepaid expenses

454

164
Other

3

374

$
1,470

$
1,322

5. Investments in Affiliates

Investments in affiliates consist of (in thousands):


	September 30,		December 31,		March 31,		December 31,
	2020		2019		2021		2020
Telesat	$	105,402	$	90,184	$	225,133	$	192,664

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


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2020		2019		2020		2019		2021		2020
Telesat	$	49,645	$	8,784	$	9,086	$	92,066	$	34,602	$	(117,074)

Telesat

As of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, we held a ~~62.7%~~62.6% economic interest and a 32.6% voting interest in Telesat. We use the equity method of accounting for our majority economic interest in Telesat because we own 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.

In addition to recording our share of equity in net income of Telesat, ~~for the three and nine months ended September 30, 2020,~~ we also recorded our share of equity in other comprehensive ~~(loss) income~~loss of Telesat of ~~$(7.5) million and $6.1~~$2.1 million for the three ~~and nine~~ months ended ~~September 30, 2020, respectively.~~

In the third quarter of 2019, we recorded an out-of-period correction to decrease our investment in Telesat and increase other comprehensive loss by $22.1 million. This non-cash adjustment was made to record the cumulative translation adjustment on our investment in Telesat from November 2007, when we first acquired our ownership interest in Telesat, to DecemberMarch 31, ~~2018. The adjustment resulted from translating our share of Telesat’s equity from Canadian dollars to U.S. dollars at historical foreign exchange rates in accordance with ASC 830,~~ ~~Foreign Currency Matters,~~ ~~as required by ASC 323,~~ ~~Investments~~ – ~~Equity Method and Joint Ventures~~. Previously, we translated our share of Telesat’s equity from Canadian dollars to U.S. dollars at current foreign exchange rates at each balance sheet date. This adjustment had no effect on our equity in net income (loss) of Telesat for any current or prior reporting period. The Company has not revised its financial statements for prior periods for this adjustment based on its belief that the effect of such adjustment is not material to the financial statements taken as a whole.

~~Table of Contents~~

~~LORAL SPACE & COMMUNICATIONS INC.~~

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

~~On January 1, 2019, Telesat adopted ASC 842,~~ ~~Leases,~~ for its U.S. GAAP reporting which we use to record our equity income in Telesat. Telesat adopted the new guidance using the modified retrospective approach with the cumulative effect of initially applying the standard being recorded on the balance sheet. As a result, on January 1, 2019, Telesat recognized a right-of-use asset of $19.6 million and lease liability of $20.0 million on its condensed consolidated balance sheet.

~~On October 11, 2019, Telesat issued $550.0 million of 6.5% senior notes maturing in~~ ~~October 2027. The 6.5% senior notes are effectively subordinated to Telesat’s secured indebtedness, including the obligations under its senior secured credit facilities and its 4.875% senior secured notes.~~

On October 11, 2019, Telesat used the net proceeds from the 6.5% senior notes offering together with available cash on hand to redeem its $500 million 8.875% senior notes due November 15, 2024 by repaying all outstanding amounts, including principal, redemption premium and discounted interest to November 15, 2019.

~~On December 6, 2019, Telesat entered into amended senior secured credit facilities which provide for term loan borrowings of $1,908.5 million which mature in~~ ~~December 2026~~ ~~and revolving credit facilities of up to $200 million (or Canadian dollar equivalent) which mature in~~ ~~December 2024. Telesat also issued, through a private placement, $400 million of 4.875% senior secured notes which mature in~~ ~~June 2027~~.

~~On December 6, 2019, Telesat repaid all~~ ~~outstanding~~ ~~amounts, including related fees and expenses, under its former senior secured credit facilities.~~

2021.

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 30, 2020,~~March 31, 2021, Telesat’s Total Leverage Ratio was ~~5.07:~~4.38:1.00. Telesat is ~~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).

~~The following tables present summary financial data for~~On April 27, 2021, Telesat issued $500 million in ~~accordance with U.S. GAAP as~~aggregate principal amount of ~~September 30, 2020~~5.625% senior secured notes maturing on December 6, 2026 (the “5.625% Senior Secured Notes”).

Interest on the 5.625% Senior Secured Notes will be payable on June 1 and December ~~31, 2019~~1 of each year, commencing on December 1, 2021, to holders of record on the immediately preceding May 15 or November 15, as the case may be.

The 5.625% Senior Secured Notes indenture includes covenants and ~~for~~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 ~~three~~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 ~~nine months ended September 30, 2020~~outstanding vested and ~~2019 (in thousands):~~unvested stock options.

September 30,

December 31,

2020

2019
Balance Sheet Data:

Current assets
$
990,985

$
877,294
Total assets

4,094,795

4,130,337
Current liabilities

151,645

124,217
Long-term debt, including current portion

2,824,838

2,836,700
Total liabilities

3,448,067

3,504,594
Shareholders’ equity

646,728

625,743

Table of Contents

LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019
Statement of Operations Data:

Revenues
$
152,081

$
180,180

$
460,407

$
520,819
Operating expenses

(33,322)

(29,038)

(103,717)

(102,536)
Depreciation and amortization

(44,888)

(52,259)

(133,336)

(155,036)
Other operating expense

(26)

(45)

(182)

(110)
Operating income

73,845

98,838

223,172

263,137
Interest expense

(37,715)

(46,239)

(115,947)

(139,574)
Foreign exchange gain (loss)

48,943

(24,702)

(74,387)

73,713
Gain (loss) on financial instruments

246

(4,244)

(11,643)

(40,619)
Other income

1,524

4,497

7,476

12,603
Income tax provision

(9,053)

(15,548)

(18,509)

(26,584)
Net income
$
77,790

$
12,602

$
10,162

$
142,676

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 March 31, 2021 and December 31, 2020 and for the three months ended March 31, 2021 and 2020 (in thousands):


	March 31,		December 31,
	2021		2020
Balance Sheet Data:
Current assets	$	759,747	$	703,210
Total assets		4,018,684		3,943,875
Current liabilities		157,117		129,849
Long-term debt		2,483,716		2,483,256
Total liabilities		3,158,126		3,140,747
Shareholders’ equity		860,558		803,128


	Three Months Ended
	March 31,
	2021		2020
Statement of Operations Data:
Revenues	$	150,054	$	158,565
Operating expenses		(31,540)		(35,316)
Depreciation and amortization		(42,713)		(45,417)
Other operating expense		(495)		(167)
Operating income		75,306		77,665
Interest expense		(33,100)		(41,547)
Foreign exchange gain (loss)		27,427		(221,643)
Gain (loss) on financial instruments		1,585		(7,005)
Other (loss) income		(797)		3,539
Income tax (provision) benefit		(16,910)		682
Net income (loss)	$	53,511	$	(188,309)

Other

We own 56% of the ordinary membership interests of XTAR, ~~LLC (“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 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the carrying value of our investment in XTAR was 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.

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LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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~~(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”). As of December 31, 2019, the amount due to Loral under the Loral Management Agreement was $6.6 million, and we had an allowance of $6.6 million against this receivable.

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 between them (the “Loral Management ~~Agreement;~~Agreement”) under which, until December 31, 2013, XTAR was charged a quarterly management fee for services provided by 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. ~~This option~~As of the date of this report, Hisdesat has not ~~yet been~~ exercised ~~by Hisdesat.~~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. As a result, the Company recorded a $5.9 million recovery of an affiliate doubtful receivable and a corresponding reduction in its allowance for doubtful accounts for the three and nine month periods ended September 30, 2020.

As of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~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 ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the carrying value of this investment was 0. Loral has written-off its investment in this company and has no future funding requirements relating to this investment. Accordingly, there is no requirement for us to provide for our allocated share of ~~this company’s~~GdM’s net losses. ~~This company~~GdM is currently in the process of dissolution and liquidation in Mexico, and Loral believes that it will not have any liability associated with ~~this company~~GdM upon completion of this process.

6. Other Current Liabilities

Other current liabilities consists of (in thousands):


	March 31,		December 31,
	2021		2020
Operating lease liability	$	470	$	345
Due to affiliate		198		98
Accrued professional fees		1,163		1,287
Pension and other post-retirement liabilities		83		82
Income tax payable		34		0
Accrued liabilities		232		190
	$	2,180	$	2,002

7. Income Taxes

The following summarizes our income tax benefit (provision) (in thousands):


	Three Months Ended
	March 31,
	2021		2020
Current income tax provision	$	(340)	$	(547)
Deferred income tax benefit (provision)		562		(1,569)
Income tax benefit (provision)	$	222	$	(2,116)

For the three-month periods ended March 31, 2021 and 2020, our income tax 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). The current income tax provision for each period includes our anticipated income tax liability related to GILTI from Telesat and our provision for UTPs. After utilizing our net operating loss (“NOL”) carryforwards and allowable tax credits, federal income tax on GILTI from Telesat was 0 for each period. The deferred income tax benefit (provision)

1516

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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,

2020

2019
Operating lease liability
$
513

$
652
Due to affiliate

0

5
Accrued professional fees

1,420

1,419
Pension and other post-retirement liabilities

77

77
Income taxes payable

0

673
Accrued liabilities

194

57

$
2,204

$
2,883

~~7. Income Taxes~~

~~The following summarizes our income tax provision (in thousands):~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019
Current income tax provision
$
(262)

$
(1,781)

$
(1,209)

$
(2,699)
Deferred income tax (provision) benefit

(47)

506

253

(2,802)
Income tax provision
$
(309)

$
(1,275)

$
(956)

$
(5,501)

For the nine month periods ended September 30, 2020 and 2019, our income tax 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 month periods ended September 30, 2020 and 2019, this amount is then reduced by the tax recorded for the six month periods ended June 30, 2020 and 2019. The current income tax provision for each period includes our anticipated income tax liability related to GILTI from Telesat and our provision for UTPs. The deferred income tax provision for each period includes the impact of equity in net income (loss) of affiliates from our condensed consolidated statement of operations and the periodic effect of our accounting for GILTI. ~~The deferred income tax (provision) benefit for~~For the three ~~and nine~~ months ended ~~September 30,~~March 31. 2020, ~~also include benefits~~our deferred provision included a benefit of ~~$2.2~~$3.1 million ~~and $5.7 million, respectively,~~ from the Coronavirus Aid, Relief, and Economic Security Act which was signed into law on March 27, 2020. Since our deferred tax assets related to the 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 March 31, 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, 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.

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


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2020		2019		2020		2019		2021		2020
Current provision for UTPs	$	(244)	$	(1,751)	$	(1,052)	$	(2,488)	$	(245)	$	(476)
Deferred benefit for UTPs		50		86		222		239		9		100
Tax provision for UTPs	$	(194)	$	(1,665)	$	(830)	$	(2,249)	$	(236)	$	(376)

As of ~~September 30, 2020,~~March 31, 2021, we had unrecognized tax benefits relating to UTPs of $43 million. The Company recognizes interest and penalties related to income taxes in income tax expense on a quarterly basis. As of ~~September 30, 2020,~~March 31, 2021, we have accrued 0 penalties and approximately ~~$3.1~~$3.6 million for the potential payment of tax-related interest.

~~Table of Contents~~

~~LORAL SPACE & COMMUNICATIONS INC.~~

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

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 2014. Earlier years related to certain foreign jurisdictions remain subject to examination. 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 2021, the statute of limitations for assessment of additional tax will expire with regard to certain UTPs, potentially resulting in a $16.4 million reduction to our unrecognized tax benefits. Pursuant to the purchase agreement for the sale of SSL, we are obligated to indemnify SSL for certain taxes related to periods prior to the closing of the transaction.

As of ~~September 30, 2020,~~March 31, 2021, if our positions are sustained by the taxing authorities, the Company’s income tax provision would be reduced by approximately ~~$8.1~~$8.7 million. ~~We do not~~Other than as described above, we anticipate ~~any~~no other significant ~~change~~changes to our unrecognized tax benefits during the next twelve months.

8. Other Liabilities

Other liabilities consists of (in thousands):


	September 30,		December 31,		March 31,		December 31,
	2020		2019		2021		2020
Operating lease liability	$	0	$	345
Indemnification liabilities - other (see Note 13)		145		145	$	145	$	145
Liabilities for uncertain tax positions		19,522		17,352		20,014		19,769
	$	19,667	$	17,842	$	20,159	$	19,914

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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. As of ~~September 30,~~March 31, 2021 and 2020, ~~and December 31, 2019,~~ outstanding and unconverted restricted stock units (“RSUs”) were ~~92,857~~98,917 and 75,262, respectively, that are vested and do not expire.

~~On May 28,~~During 2020, we paid a special ~~dividend~~dividends of ~~$5.50~~$7.00 per share for an aggregate dividend amount of ~~$170.1 million.~~$216.5 million (see Note 2). 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 increased by ~~17,595 in the second quarter of~~23,655 during 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 ~~62.3%~~62.4%.

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


	Three Months Ended					Nine Months Ended
	September 30,					September 30,			Three Months Ended
	2020		2019		2020		2019		March 31, 2021
Net income — basic	$	51,172	$	6,247	$	3,395	$	82,990	$	30,716
Less: Adjustment for dilutive effect of Telesat stock options		(257)		(51)		(46)		(535)		(155)
Net income — diluted	$	50,915	$	6,196	$	3,349	$	82,455	$	30,561

~~Table~~Telesat stock options are excluded from the calculation of ~~Contents~~

~~LORAL SPACE & COMMUNICATIONS INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~diluted loss per share for the three months ended March 31, 2020 as the effect would 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,

2020

2019

2020

2019
Weighted average common shares outstanding

30,933

30,933

30,933

30,933
Unconverted restricted stock units

93

75

84

75
Common shares outstanding for diluted earnings per share

31,026

31,008

31,017

31,008


	Three Months Ended
	March 31, 2021
Weighted average common shares outstanding		30,933
Unconverted restricted stock units		99
Common shares outstanding for diluted earnings per share		31,032

For the three months ended March 31, 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 Months Ended
	March 31, 2020
Unconverted restricted stock units		75

Table of Contents

LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

11. Pensions and Other Employee Benefit Plans

The following ~~tables provide~~table provides the components of net periodic cost 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~~ months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ (in thousands):

Pension Benefits

Other Benefits

Three Months Ended

Three Months Ended

September 30,

September 30,

2020

2019

2020

2019
Service cost ⁽¹⁾
$
176

$
180

$
0

$
1
Interest cost ⁽²⁾

441

504

4

4
Expected return on plan assets ⁽²⁾

(663)

(608)

0

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

322

252

(1)

(1)
Net periodic cost
$
276

$
328

$
3

$
4


	Pension Benefits				Other Benefits				Pension Benefits				Other Benefits
	Nine Months Ended				Nine Months Ended				Three Months Ended				Three Months Ended
	September 30,				September 30,				March 31,				March 31,
	2020		2019		2020		2019		2021		2020		2021		2020
Service cost ⁽¹⁾	$	528	$	541	$	0	$	1	$	187	$	181	$	0	$	0
Interest cost ⁽²⁾		1,324		1,513		12		14		375		440		3		4
Expected return on plan assets ⁽²⁾		(1,989)		(1,824)		0		0		(688)		(669)		0		0
Amortization of net actuarial loss (gain) ⁽²⁾		966		755		(3)		(3)		399		303		0		(1)
Net periodic cost	$	829	$	985	$	9	$	12	$	273	$	255	$	3	$	3

⁽¹⁾

Included in general and administrative expenses.

⁽²⁾

Included in other expense.

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.

~~Table of Contents~~

~~LORAL SPACE & COMMUNICATIONS INC.~~

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

Derivatives and Hedging Transactions

There were 0 derivative instruments as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020.

13. Commitments and Contingencies

Financial Matters

In 2012, we sold our former subsidiary, SSL, to MDA 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, ~~for the sale,~~ we are obligated to indemnify MDA and its affiliates from liabilities with respect to certain pre-closing taxes. Our condensed consolidated balance sheets include an indemnification refund receivable of $0.6 million as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~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 ~~September 30, 2020~~March 31, 2021 represents ~~the excess of~~ payments to date over the estimated fair value of the remaining liability for our indemnification of SSL pre-closing taxes where the final amounts 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.

Table of Contents

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 $0.1 million as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~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.

Lease Arrangements

We lease a facility and certain equipment under agreements expiring at various dates. We may renew, extend or modify the 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 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.

~~We changed our method of accounting for leases in the first quarter of 2019 due to the adoption of ASC 842. We adopted ASC 842~~ ~~as of January 1, 2019 using the modified retrospective transition method and elected to apply the transition as of the beginning of the period of adoption.~~

~~Upon adoption of ASC 842, we recognized a~~ ~~right-of-use asset~~ and lease liability of $0.3 million for an operating lease on our consolidated balance sheet as of January 1, 2019. In March 2019, the operating lease was modified by extending the lease termination date from June 30, 2019 to June 30, 2020 and increasing the rent for the extension period. In December 2019, the operating lease was further modified by extending the lease termination date to June 30, 2021.

Lease costs expensed for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ were as follows (in thousands):


	Three Months Ended				Nine Months Ended				Lease Expense
	September 30,				September 30,
	2020		2019		2020		2019
Rent Expense	$	174	$	171	$	521	$	505
Three months ended March 31, 2021									$	174
Three months ended March 31, 2020										174

Lease payments for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 were ~~$0.5~~$0.2 million. The remaining lease term as of ~~September 30, 2020~~March 31, 2021 is 9nine months and we used a discount rate of 7.5% to 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 March 31, 2021 (in thousands):


Operating lease payments - (April 1, 2021 to December 31, 2021)	$	481
Less: Future interest		11
Operating lease liability	$	470

Amounts recognized in Balance Sheet
Other current liabilities	$	470

Legal Proceedings

Litigation Related to the Transaction

On May 5, 2021, Guy Coffman filed a complaint (Civil Action No. 1:21-cv-04007, the “Coffman Complaint”) in the United States District Court for the Southern District of New York against the Company and the members of our Board of Directors (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 the Company and the Individual Defendants. On May 7, 2021, Julia Marshall filed a complaint (Civil Action No. 1:21-cv-04128, the “Marshall Complaint” and, together with the Coffman Complaint and the Stein Complaint, the “Complaints”) in the United States District Court for the Southern District of New York against the Company, the Individual Defendants and Merger Sub (collectively, the “Loral Defendants”); the Marshall Complaint also names as defendants Telesat, Telesat Corporation, Telesat Partnership and 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 “Defendants”).

1920

Table of Contents

LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The ~~following is~~Complaints allege, among other things, that the Registration Statement on Form F-4 (the “Registration Statement”) filed in April 2021 with the SEC by Telesat Corporation and Telesat Partnership, which contained a ~~reconciliation~~preliminary proxy statement/prospectus of the ~~lease liability~~Company for use in connection with soliciting stockholder approval of the Transaction, contained materially incomplete and misleading information. Specifically, the Complaints allege (i) violation by the Loral Defendants of Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and SEC Rule 14(a)(9) in that the Registration Statement misrepresents or omits information concerning, among other things, financial projections of Loral and financial analyses of Loral’s financial advisor, LionTree Advisors LLC; and (ii) violation by the Individual Defendants, by virtue of their positions as controlling persons of the Company, of Section 20(a) of the Exchange Act in that they had the power to ~~future lease payments~~influence and control, and did influence and control, directly or indirectly, the decision making of the Company, including the content and dissemination of the various statements that plaintiffs contend are materially incomplete and misleading. In addition, the Coffman Complaint alleges a violation of Delaware law in that the Individual Defendants breached their fiduciary duty of candor/disclosure by approving and/or causing the alleged materially deficient Registration Statement to be disseminated. The Marshall Complaint also alleges violation by the Telesat Defendants and the PSP Defendants, by virtue of their positions as controlling persons, of ~~September 30, 2020 (in thousands):~~

2020 (October 1, 2020 to December 31, 2020)
$
175
2021 (January 1, 2021 to June 30, 2021)

350
Total operating lease payments

525
Less: Interest

(12)
Operating lease liability
$
513

Amounts recognized in Balance Sheet

Other current liabilities
$
513

~~Legal Proceedings~~Section 20(a) of the Exchange Act in that they had supervisory control over the composition of the Registration Statement and the information disclosed therein, as well as the information that they claim was omitted and/or misrepresented in the Registration Statement.

WeEach of the Complaints seeks, among other things, to enjoin Defendants from proceeding with, consummating or closing the Transaction, unless and until Defendants disclose the material information which plaintiffs claim has been omitted from the Registration Statement; awarding plaintiffs the costs and 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. In addition, the Coffman Complaint and the Stein Complaint seek that the Loral Defendants account to plaintiffs for all damages suffered as a result of their alleged wrongdoing. The Stein Complaint and the Marshall Complaint also seek rescission, to the extent already implemented, of the Transaction Agreement or any of the terms thereof, or granting to plaintiff rescissory damages. The Marshall Complaint also seeks a declaration that the Individual Defendants disseminate a Registration Statement that does not contain any untrue statements of material fact and that states all material facts required in it or necessary to make the statements contained therein not misleading and a declaration that Defendants violated Sections 14(a) and/or 20(a) of the Exchange Act, as well as Rule 14a-9 promulgated thereunder.

The Loral Defendants believe that they have, and intend vigorously to pursue, meritorious defenses to plaintiffs’ claims. There can be no assurance, however, that the Loral Defendants’ defenses will be successful with respect to all or some of plaintiffs’ claims, that resolution of the lawsuits will not result in additional unanticipated expense to the Company or that the lawsuits filed by plaintiffs will not cause a delay in consummation of the Transaction. Although no assurance can be provided, we do not believe that this matter will have a material adverse effect on Loral’s financial position or results of operations or on Loral’s ability to consummate the Transaction.

Other and Routine Litigation

Other 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.

Various funds affiliated with MHR and Dr. Rachesky held, as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~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.

Table of Contents

LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Transactions with Affiliates

Telesat

Recent Developments

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.

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 $6,550,000 or $22,910,000, or to pay to PSP a “breach” fee of $40,000,000, 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

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LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

Ownership Interest. As described in Note 5, we own a ~~62.7%~~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 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.

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~~LORAL SPACE & COMMUNICATIONS INC.~~

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

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. To date, we and PSP have not reached agreement on governance matters following a Telesat IPO. In the event a strategic transaction to combine Loral and Telesat into one public company that we are pursuing 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.

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 has a term of seven-years with an automatic renewal for an additional seven-year term if Loral is not then in material default under the Shareholders Agreement. Upon expiration of the initial term on October 31, 2014, the Consulting Agreement was automatically renewed for the additional seven-year ~~term.~~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 30, 2020~~March 31, 2021 and ~~2019 and $3.8 million for each of the nine-month periods ended September 30, 2020 and 2019.~~2020. For each of the ~~nine-month~~three-month periods ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ Loral received payments in cash from Telesat, net of withholding taxes, of ~~$3.6~~$1.2 million for consulting fees.

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LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 $0.6 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 March 31, 2021 and December 31, 2020 were 0.2 million and 0.1 million, respectively.

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 ~~agreements (the “Stock Option Grant Agreements”) and a restricted stock unit grant~~ agreement ~~(the “RSU Grant Agreement,” and, together with the Stock Option Grant Agreements, the “Grant Agreements”)~~dated November 18, 2013 with respect to shares in Telesat with ~~certain~~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 “2021 RSU Grant Agreements” and, together with the Goldberg RSU Grant Agreement, the “RSU Grant Agreements”) with 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 document grants~~Agreement documents a grant to ~~the Participants~~Mr. Goldberg of Telesat stock options (including tandem SAR rights) 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 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 common stock is acquired by an unaffiliated third party that does not also purchase all of PSP’s and its 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.

The Goldberg RSU Grant Agreement documents a grant to ~~the Participant~~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.

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LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

Other

We own 56%of the 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. On July 1, 2020, Loral, XTAR and Hisdesat restructured their relationship (see Note 5). As part of the restructuring, XTAR and Loral terminated the Loral 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. ~~As of December 31, 2019, amounts~~Amounts due to Loral at the time of the restructuring, primarily due to the Loral Management Agreement, were ~~$6.7~~$6.6 million, and we had an allowance of $6.6 million against these receivables. On July 2, 2020, Loral received from XTAR $5.9 million in full and final settlement of the past due receivable outstanding of $6.6 million under the Loral Management Agreement. As of ~~September 30,~~March 31, 2021 and December 31, 2020, Loral had a receivable of $0.1 million ~~receivable~~ 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 month~~three-month periods ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ Mr. Targoff earned $360,000 in consulting fees ~~of $360,000 and $1,080,000, respectively,~~ and reimbursed Loral net expenses of ~~$11,250 and $33,750, respectively.~~$11,250.

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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

Topic		Location
Overview		Page 2426
Consolidated Operating Results		Page 2832
Liquidity and Capital Resources:
Loral		Page 3435
Telesat		Page 3536
Statements of ~~Cash~~Cash` Flows		Page 3839
Affiliate Matters		Page 39
Commitments and Contingencies		Page 39
Other Matters		Page 39

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

As previously disclosed, 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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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, 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 the registration statement on Form F-4 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 third quarter of 2021.

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 $6,550,000 or $22,910,000, or to pay to PSP a “breach” fee of $40,000,000, in each case as provided in the Transaction Agreement.

In connection with the Transaction, on April 26, 2021, Telesat Corporation and Telesat Partnership filed a Registration Statement on Form F-4 with the SEC.

Description of Business

Loral has one operating segment consisting of satellite-based communications services. Loral participates in satellite services operations primarily through its ownership interest in Telesat, ~~Canada (“Telesat”),~~ a leading global satellite operator. Telesat provides its satellite and communication services from a fleet of geostationary satellites that occupy Canadian and other orbital locations. Telesat is also developing a planned global constellation of low earth orbit (“LEO”) satellites known as “Telesat Lightspeed.” Loral holds a ~~62.7%~~62.6% economic interest and a 32.6% voting interest in Telesat as of ~~September 30, 2020.~~March 31, 2021.

At September 30, 2020, Telesat, with approximately $2.1 billion of backlog, provided satellite services to customers from its fleet of 16 in-orbit geostationary satellites and the Canadian Ka-band payload on the ViaSat-1 satellite. Telesat is also developing a global constellation of low earth orbit (“LEO”) satellites. In January 2018, Telesat launched a Ka-band satellite into low earth orbit as part of its plans to deploy an advanced, global LEO constellation. This satellite is being used to perform testing and live demonstrations of certain features of Telesat’s LEO system design with existing Telesat customers and potential suppliers of Telesat LEO system hardware. These satellite leaders will be able to experience key advantages of Telesat’s LEO system — including ultra-low latency and high speeds — and assess the role Telesat’s constellation can play in their next-generation broadband networks.

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On July 24, 2019, Telesat announced that it had entered into a memorandum of understanding with the Government of Canada (“GoC”) regarding a partnership intended to ensure access to affordable high-speed internet connectivity across rural and remote areas of Canada through the development of the Telesat LEO constellation. The partnership is expected to generate CAD 1.2 billion in revenue for Telesat over 10 years, which includes a contribution of up to CAD 600 million from the GoC.

In May 2019, Telesat entered into an agreement with the GoC pursuant to which the GoC will contribute up to CAD 85 million through July 31, 2023 to support the development of the Telesat LEO constellation. For the nine months ended September 30, 2020, Telesat received CAD 10.2 million relating to the agreement from the GoC.Telesat’s GEO Satellite Business

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 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 March 31, 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 March 31, 2021, Telesat’s contracted backlog from its geostationary satellite business was approximately $2.0 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:

In February 2021, Telesat announced that it entered into an agreement with Thales Alenia Space (“TAS”) to be the prime manufacturer of the Telesat Lightspeed constellation and that TAS and its affiliate Telespazio have made a Lightspeed capacity commitment in connection with the agreement. Under the terms of the agreement, the parties provided for continued advancement of the program while Telesat progresses the financing for the project. The execution of the definitive manufacturing agreement, the commencement of full construction activities and the final constellation deployment schedule are subject to, and conditional upon, the progress of the financing of the program.

In February 2021, Telesat announced that it had selected MDA Communications Holdings, Inc. (“MDA”) to manufacture the phased array antennas to be incorporated into the Telesat Lightspeed satellites. Under the terms of the agreement Telesat executed with MDA, the parties provided for continued advancement of the program while Telesat progresses the financing for the project.

In February 2021, Telesat announced that it had entered into a Memorandum of Understanding (the “MOU”) with the government of Québec for an investment of CAD 400 million into Telesat Lightspeed. Under the terms of the MOU, the investment by the government of Québec will consist of CAD 200 million in preferred equity as well as a CAD 200 million loan. Telesat expects that a final agreement will be completed in the coming months.

The government of Quebec’s CAD 400 million investment is subject to a number of conditions, including financing and the entering into of a further definitive agreement. There are numerous risks and uncertainties associated with Telesat’s business, including its planned Telesat Lightspeed constellation.

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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 March 31, 2021, Telesat claimed CAD 18.6 million against the government grant and incurred CAD 231 million in connection with this program.

During the three months ended March 31, 2021, Telesat claimed CAD 1.6 million against the government grant and incurred CAD 41.2 million in connection with this program.

Repurposing of C-Band Spectrum

In a number of countries, regulators plan to adopt new spectrum allocations for terrestrial mobile broadband and 5G, including certain C-band spectrum currently allocated to satellite services. Telesat currently use C-band spectrum in a number of countries, including the U.S. and Canada. To the extent that Telesat is able to assist in making the C-band spectrum it uses available for use for terrestrial mobile broadband and 5G, Telesat may be entitled to certain compensation.

In February 2020, the FCC issued a final Report and Order on Expanding Flexible use of the 3.7 to 4.2 GHz Band. The Report and Order provided that Telesat would receive as much as $344.4 million from the repurposing of C-band spectrum in the U.S. provided that Telesat takes the necessary actions to move its services in the continental U.S. out of the 3700 — 4000 MHz spectrum band and into the 4000 — 4200 MHz band and takes the necessary steps to ensure that its end user antennas will not be subject to terrestrial interference. Telesat believes that it can meet all the requirements to receive the $344.4 million.

A similar repurposing of C-band spectrum is currently underway in Canada as well, with the government of Canada launching a public consultation on repurposing C-band spectrum in August 2020. In the consultation document, in addition to its own proposal, the government of Canada included a proposal put forward by Telesat whereby Telesat — the sole satellite operator licensed to use C-band in Canada — would accelerate, and be fully responsible for, the clearing of a portion of the C-band spectrum for 5G. In return, Telesat would be compensated for clearing and repurposing the spectrum. Comments were submitted to the government on October 26, 2020, and Reply Comments were submitted on November 30, 2020. Telesat anticipates a decision in 2021.

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. ~~In 2018,~~

After decades of developing and successfully operating its geosynchronous orbit-based satellite services business, Telesat ~~launched a Ka-band satellite into low earth orbit in furtherance~~is now poised to revolutionize the provision of ~~its plans to develop a state-of-the-art, high capacity~~global broadband connectivity by developing Telesat Lightspeed, which Telesat believes will be the world’s most advanced constellation of LEO ~~constellation that will deliver transformative, low latency, fiber-like broadband to commercial~~satellites and ~~government users worldwide.~~integrated terrestrial infrastructure.

Telesat believes that it is well positioned to serve its customers and the markets in which it participates. Telesat actively pursues opportunities to develop new satellites, particularly in conjunction with current or prospective customers who will commit to 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 ~~2020,~~2021, Telesat remains focused on increasing utilization of its existing satellites, the development of ~~its global LEO~~the Telesat Lightspeed constellation, identifying and pursuing opportunities to invest in other expansion of satellite capacity and leveraging the value of its spectrum rights, all while maintaining operating discipline.

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Telesat’s operating results are subject to fluctuations as a result of exchange rate variations. For the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, approximately ~~53.3%~~51.5% of Telesat’s revenues, ~~45.9%~~38.6% of its operating expenses, 100% of its interest expense and the majority 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 indebtedness and cash and ~~short term~~short-term investments. As of ~~September 30, 2020,~~March 31, 2021, Telesat’s U.S. dollar denominated debt totaled ~~$2.84~~$2.5 billion. As of ~~September 30, 2020,~~March 31, 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 ~~$121.6~~$122.5 million. This analysis assumes all other variables, in particular interest rates, remain constant.

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.

Telesat Subsequent Event

Debt Offering

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”).

Interest on the 5.625% Senior Secured Notes will be payable on June 1 and December 1 of each year, commencing on December 1, 2021, to holders of record on the immediately preceding May 15 or November 15, as the case may be.

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.

Other

We own 56% of the ordinary membership interests of XTAR, ~~LLC (“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~~(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”). ~~As of December 31, 2019, the amount due to Loral under the Loral Management Agreement was $6.6 million, and we had an allowance of $6.6 million against this receivable.~~

~~Table of Contents~~

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. ~~This option~~As of the date of this report, Hisdesat has not ~~yet been~~ exercised ~~by Hisdesat.~~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. As a result, the Company recorded a $5.9 million recovery of an affiliate doubtful receivable and a corresponding reduction in its allowance for doubtful accounts for the three and nine month periods ended September 30, 2020. ~~As of September 30, 2020, Loral had a $0.1 million receivable from XTAR.~~

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COVID-19

On March 11, 2020, the World Health Organization designated the ~~recent novel~~COVID-19 coronavirus ~~(“COVID-19”)~~ 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 ~~aeronautical~~ and ~~energy~~aeronautical markets have been significantly impacted by the pandemic. At the request of some of these customers, Telesat ~~has agreed to amend~~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 ~~will~~ 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 ~~has~~ experienced some increased demand for services as a result of COVID-19, primarily from ~~government, and government-sponsored~~rural broadband requirements. In addition, certain of Telesat’s maritime and aeronautical customers have commenced voluntary bankruptcy proceedings. As a result, Telesat has had to record a provision for bad debt expense for certain accounts receivable with these customers given the risk that Telesat may not receive payment for all, or substantially all, of the amounts owed to it. Further, bankruptcy laws permit these customers to choose to reject any existing contracts into which they have entered. To the extent they choose to reject their contracts with Telesat, their obligations under those contracts would be voided and Telesat’s revenues would be adversely impacted. ~~For additional details on risks associated with the current outbreak of COVID-19, refer to Part II, Other Information – Item 1A. Risk Factors.~~ 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 ~~provide a~~provided substantial stimulus and assistance ~~package~~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 months ended March 31, 2020 by approximately ~~$5.7 million for the nine months ended September 30, 2020.~~$3.1 million. We continue to monitor any other effects that may result from the COVID-19 Acts.

~~General~~

Our principal asset is our majority economic ownership interest in Telesat. In an effort to maximize shareholder value, we have been exploring, and are in advanced discussions with our Canadian co-owner in Telesat, Public Sector Pension Investment Board (“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. 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 that the combination transaction that we are pursuing 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.

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In 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. On April 30, 2020, our Board of Directors declared a special dividend of $5.50 per share for an aggregate dividend of $170.1 million, representing a significant portion of the proceeds that we received from Telesat. 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. We intend to make an additional distribution to our stockholders, net of reasonable reserves for working capital and other liabilities. The timing and amount of any such additional distribution will be determined in part by the status of the combination transaction that we are pursuing. There can be no assurance as to the amount and timing of any such additional distribution, and such additional 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 of its equity shares, 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. To date, we and PSP have not reached agreement on governance matters following a Telesat IPO. In the event a transaction to combine Loral and Telesat into one public company that we are pursuing 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.

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.

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Consolidated Operating Results

See Critical Accounting Matters in 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~~three months ended ~~September 30, 2020.~~March 31, 2021.

Three Months Ended ~~September 30, 2020~~March 31, 2021 Compared with Three Months Ended ~~September 30, 2019~~March 31, 2020

The following compares our consolidated results for the three months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ as presented in our financial statements:

~~Operating Income (Loss)~~General and Administrative Expenses


	Three Months Ended				Three Months Ended
	September 30,				March 31,
		2020		2019		2021		2020

	(In thousands)				(In thousands)
General and administrative expenses	$	(1,725)	$	(1,615)	$	1,729	$	1,648
Recovery of affiliate doubtful receivable		5,854		—
Operating income (loss)	$	4,129	$	(1,615)

~~For the three months ended September 30, 2020, we had operating income of $4.1 million primarily due to the receipt of $5.9 million from XTAR~~ ~~in full and final settlement of the past due receivable outstanding of $6.6 million under the Loral Management Agreement.~~ General and administrative expenses were comparable for the three months ended ~~September 30, 2020~~March 31, 2021 and ~~2019.~~2020.

Interest and Investment Income


	Three Months Ended				Three Months Ended
	September 30,				March 31,
		2020		2019		2021		2020

	(In thousands)				(In thousands)
Interest and investment income	$	16	$	1,406	$	2	$	937

Interest and investment income decreased by ~~$1.4~~$0.9 million for the three months ended ~~September 30, 2020~~March 31, 2021 as compared to the three months ended ~~September 30, 2019~~March 31, 2020 due to the lower cash balance resulting primarily from payment of a cash ~~dividend~~dividends of $170.1 million and $46.4 million in May 2020 and December 2020, respectively, and lower interest rates earned on the cash balance during the ~~third quarter of 2020~~three months ended March 31, 2021 as compared to ~~2019.~~

the three months ended March 31, 2020.

Other Expense


	Three Months Ended				Three Months Ended
	September 30,				March 31,
		2020		2019		2021		2020

	(In thousands)				(In thousands)
Other expense	$	2,300	$	1,048	$	2,375	$	1,437

~~Other expense for~~For the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019 was~~other expense primarily ~~composed of expenses~~includes Transaction related ~~to strategic initiatives.~~expenses.

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Income Tax ~~Provision~~Benefit (Provision)


	Three Months Ended				Three Months Ended
	September 30,				March 31,
		2020		2019		2021		2020

	(In thousands)				(In thousands)
Income tax provision	$	(309)	$	(1,275)
Income tax benefit (provision)					$	222	$	(2,116)

For the three months ended ~~September 30,~~March 31, our income tax ~~provision~~benefit (provision) is summarized as follows: (i) for ~~2020,~~2021, we recorded a current ~~provision of $0.3 million and a deferred~~income tax provision of ~~an insignificant amount, resulting in a net tax provision of~~ $0.3 ~~million, and (ii) for 2019, we recorded a current tax provision of $1.8~~ million and a deferred tax benefit of $0.5 million resulting in a net tax benefit of $0.2 million and (ii) for 2020, we recorded a current and deferred tax provision of ~~$1.3~~$0.5 million and $1.6 million, respectively, resulting in a total tax provision of $2.1 million. Our deferred income tax provision for 2020 included a benefit of $3.1 million from the COVID-19 Acts.

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 month~~three-month periods ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ (after adjusting for certain tax items that are discrete to each period). ~~This amount is then reduced by the tax benefit (provision) recorded for the six month periods ended June 30, 2020 and 2019.~~ 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 carryforwards and allowable tax credits, federal income tax on GILTI from Telesat was zero for each of the periods. The deferred income tax ~~provision~~benefit (provision) for each period includes the impact of equity in net income (loss) of affiliates from our condensed consolidated statement of operations and the periodic effect of our accounting for GILTI. ~~The~~Since our deferred tax assets related to the investment in Telesat will be realized from the future recognition of GILTI, the federal portion of these deferred tax assets was valued at zero as of March 31, 2021 and December 31, 2020.

During 2021, the statute of limitations for assessment of additional tax will expire with regard to certain UTPs, potentially resulting in a $19.3 million reduction to our income tax ~~provision for 2020 is net of a $2.2 million benefit from the~~ ~~Coronavirus Aid, Relief, and Economic Security Act which was signed into law on March 27, 2020.~~provision.

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, 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 (Loss) of Affiliates


	Three Months Ended				Three Months Ended
	September 30,				March 31,
		2020		2019		2021		2020

	(In thousands)				(In thousands)
Telesat	$	49,645	$	8,784	$	34,602	$	(117,074)

As of ~~September 30, 2020,~~March 31, 2021, we held a ~~62.7%~~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 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.

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The following is a reconciliation of the changes in our investment in Telesat for the three months ended March 31, 2021:


	Three Months Ended
	March 31, 2021
	(In thousands)
Balance, January 1, 2021			$	192,664
Components of equity in net income of Telesat:
Equity in net income of Telesat	$	33,517
Eliminations of affiliate transactions and related amortization		1,085		34,602
Proportionate share of Telesat other comprehensive loss				(2,133)
Balance, March 31, 2021			$	225,133

Summary financial information for Telesat in accordance with U.S. GAAP and in Canadian dollars and U.S. dollars as of March 31, 2021 and December 31, 2020 and for the three months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ follows (in thousands):

Three Months Ended

Three Months Ended

September 30,

September 30,

2020

2019

2020

2019

(In Canadian dollars)

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

Revenues
202,830

237,894

152,081

180,180
Operating expenses
(44,421)

(38,235)

(33,322)

(29,038)
Depreciation and amortization
(59,884)

(68,976)

(44,888)

(52,259)
Other operating expense
(34)

(60)

(26)

(45)
Operating income
98,491

130,623

73,845

98,838
Interest expense
(50,288)

(61,018)

(37,715)

(46,239)
Foreign exchange gain (loss)
66,909

(33,412)

48,943

(24,702)
Gain (loss) on financial instruments
419

(5,447)

246

(4,244)
Other income
2,011

5,939

1,524

4,497
Income tax provision
(12,140)

(20,628)

(9,053)

(15,548)
Net income
105,402

16,057

77,790

12,602
Average exchange rate for translating Canadian dollars

to U.S. dollars (1 U.S. dollar equals)
1.3345

1.3199


	March 31,	December 31,	March 31,	December 31,
	2021	2020	2021	2020

	(In Canadian dollars)		(In U.S. dollars)
Balance Sheet Data:
Current assets	954,395	894,835	759,747	703,210
Total assets	5,048,272	5,018,579	4,018,684	3,943,875
Current liabilities	197,371	165,233	157,117	129,849
Long-term debt	3,120,043	3,159,944	2,483,716	2,483,256
Total liabilities	3,967,239	3,996,600	3,158,126	3,140,747
Shareholders’ equity	1,081,033	1,021,979	860,558	803,128
Period end exchange rate for translating Canadian
dollars to U.S. dollars (1 U.S. dollar equals)	1.2562	1.2725


	Three Months Ended		Three Months Ended
	March 31,		March 31,
	2021	2020	2021	2020

	(In Canadian dollars)		(In U.S. dollars)
Statement of Operations Data:
Revenues	191,269	209,450	150,054	158,565
Operating expenses	(40,203)	(46,650)	(31,540)	(35,316)
Depreciation and amortization	(54,446)	(59,992)	(42,713)	(45,417)
Other operating expense	(631)	(221)	(495)	(167)
Operating income	95,989	102,587	75,306	77,665
Interest expense	(42,191)	(54,880)	(33,100)	(41,547)
Foreign exchange gain (loss)	34,960	(292,771)	27,427	(221,643)
Gain (loss) on financial instruments	2,020	(9,253)	1,585	(7,005)
Other (loss) income	(1,015)	4,676	(797)	3,539
Income tax (provision) benefit	(21,555)	900	(16,910)	682
Net income (loss)	68,208	(248,741)	53,511	(188,309)
Average exchange rate for translating Canadian dollars to U.S. dollars (1 U.S. dollar equals)	1.2747	1.3211

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Telesat’s revenue decreased by ~~$28.1~~$8.5 million for the three months ended ~~September 30, 2020~~March 31, 2021 as compared to the three months ended ~~September 30, 2019~~March 31, 2020 due primarily to ~~the~~a slight reduction of broadcast service for a North American DTH customer, revenue associated with short-term services provided to another satellite operator which did not recur in 2020, lower revenue due to the completion of an agreement that provided for a prepayment for enterprise services which was accounted for as having a significant financing component and lower revenue associated with the restructuring of certain contracts due to the impact of the COVID-19 pandemic on certain ~~customers.~~

of Telesat’s ~~operating expenses~~enterprise customers and the end of a significant consulting agreement. These decreases were partially offset by the 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 by ~~$4.3~~$2.6 million for the three months ended ~~September 30, 2020~~March 31, 2021 as compared to the three months ended ~~September 30, 2019 principally~~March 31, 2020.

Telesat’s operating expenses decreased by $3.8 million for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020 primarily due to ~~higher wages related to hiring of additional employees primarily to support the LEO program, higher professional fees and higher licensing and filing fees, partially offset by~~ lower expenses related to development of Telesat’s planned LEO constellation, net of amounts to be reimbursed under a grant from the Canadian government, ~~lower provision for~~higher capitalized engineering costs, reversal of bad debt expense ~~lower bonuses~~in the current quarter compared to a bad debt expense in the same quarter of the previous year and lower ~~consultancy related expenses.~~equipment cost of sales, partially offset by higher compensation cost and employee benefits due to the hiring of additional employees primarily to support the Telesat Lightspeed program and higher third party services. The foreign exchange rate change increased Telesat’s operating expenses by an insignificant amount for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

Telesat’s depreciation and amortization decreased by ~~$7.4~~$2.7 million for the three months ended ~~September 30, 2020~~March 31, 2021 as compared to the three months ended ~~September 30, 2019~~March 31, 2020 primarily due to the end of useful life, for accounting purposes, of the Anik F2F1R satellite in the fourth quarter of ~~2019.~~

~~Table of Contents~~

~~Nine Months Ended September 30, 2020 Compared with Nine Months Ended September 30, 2019~~

~~The following compares our consolidated results for the nine months ended September 30, 2020 and 2019 as presented in our financial statements:~~

~~Operating Income (Loss)~~

Nine Months Ended

September 30,

2020

2019

(In thousands)
General and administrative expenses
$
(5,174)

$
(5,115)
Recovery of affiliate doubtful receivable

5,854

—
Operating income (loss)
$
680

$
(5,115)

~~For the nine months ended September 30, 2020, we had operating income of $0.7 million primarily due to the receipt of $5.9 million from XTAR~~ in full and final settlement of the past due receivable outstanding of $6.6 million under the Loral Management Agreement, partially offset by general and administrative expenses. General and administrative expenses were comparable for the nine months ended September 30, 2020 and 2019.

~~Interest and Investment Income~~

Nine Months Ended

September 30,

2020

2019

(In thousands)
Interest and investment income
$
1,045

$
4,574

Interest and investment income decreased by $3.5 million for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019 due to the lower cash balance resulting primarily from payment of a cash dividend of $170.1 million in May 2020 and lower interest rates earned on the cash balance during the first nine months of 2020 as compared to 2019.

~~Other Expense~~

Nine Months Ended

September 30,

2020

2019

(In thousands)
Other expense
$
6,440

$
3,019

~~Other expense for the nine months ended September 30, 2020 and 2019 was primarily composed of expenses related to strategic initiatives.~~

~~Income Tax Provision~~

Nine Months Ended

September 30,

2020

2019

(In thousands)
Income tax provision
$
(956)

$
(5,501)

~~Table of Contents~~

For the nine months ended September 30, our income tax provision is summarized as follows: (i) for 2020, we recorded a current provision of $1.2 million and a deferred tax benefit of $0.2 million, resulting in a net tax provision of $1.0 million and (ii) for 2019, we recorded a current and deferred tax provision of $2.7 million and $2.8 million, respectively, resulting in a total tax provision of $5.5 million.

Our income tax provision for each period is computed by applying an expected effective annual tax rate against the pre-tax results for the nine month periods ended September 30, 2020 and 2019 (after adjusting for certain tax items that are discrete to each period). The current income tax provision for each period includes our anticipated income tax liability related to GILTI from Telesat and our provision for UTPs. The deferred income tax provision for each period includes the impact of equity in net income of affiliates from our condensed consolidated statement of operations and the periodic effect of our accounting for GILTI. The deferred income tax benefit for 2020 includes a benefit of $5.7 million from the ~~Coronavirus Aid, Relief, and Economic Security Act which was signed into law on March 27,~~ 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 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~~

Nine Months Ended

September 30,

2020

2019

(In thousands)
Telesat
$
9,086

$
92,066

~~The following is a reconciliation of the changes in our investment in Telesat for the nine months ended September 30, 2020:~~

Nine Months Ended

September 30, 2020

(In thousands)
Balance, January 1, 2020

$
90,184
Components of equity in net income of Telesat:

Equity in net income of Telesat
$
6,367

Eliminations of affiliate transactions and related amortization

2,719

9,086
Equity in Telesat-related other comprehensive income

6,132
Balance, September 30, 2020

$
105,402

Summary financial information for Telesat in accordance with U.S. GAAP and in Canadian dollars and U.S. dollars as of September 30, 2020 and December 31, 2019 and for the nine months ended September 30, 2020 and 2019 follows (in thousands):

September 30,

December 31,

September 30,

December 31,

2020

2019

2020

2019

(In Canadian dollars)

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

Current assets
1,319,893

1,139,605

990,985

877,294
Total assets
5,453,857

5,365,307

4,094,795

4,130,337
Current liabilities
201,976

161,357

151,645

124,217
Long-term debt, including current portion
3,762,402

3,684,873

2,824,838

2,836,700
Total liabilities
4,592,481

4,552,467

3,448,067

3,504,594
Shareholders’ equity
861,376

812,840

646,728

625,743
Period end exchange rate for translating Canadian

dollars to U.S. dollars (1 U.S. dollar equals)
1.3319

1.2990

~~Table of Contents~~

Nine Months Ended

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019

(In Canadian dollars)

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

Revenues
620,890

693,059

460,407

520,819
Operating expenses
(139,870)

(136,445)

(103,717)

(102,536)
Depreciation and amortization
(179,812)

(206,308)

(133,336)

(155,036)
Other operating expense
(246)

(147)

(182)

(110)
Operating income
300,962

350,159

223,172

263,137
Interest expense
(156,363)

(185,733)

(115,947)

(139,574)
Foreign exchange (loss) gain
(100,315)

98,091

(74,387)

73,713
Loss on financial instruments
(15,701)

(54,052)

(11,643)

(40,619)
Other income
10,081

16,771

7,476

12,603
Income tax provision
(24,961)

(35,375)

(18,509)

(26,584)
Net income
13,703

189,861

10,162

142,676
Average exchange rate for translating Canadian dollars

to U.S. dollars (1 U.S. dollar equals)
1.3495

1.3309

Telesat’s revenue decreased by $60.4 million for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019 due primarily to the reduction of service for a North American DTH customer, lower revenue due to the completion of an agreement that provided for a prepayment for enterprise services which was accounted for as having a significant financing component and lower revenue associated with short-term services provided to other satellite operators.

Telesat’s operating expenses increased by $1.2 million for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019 primarily due to higher wages related to hiring of additional employees primarily to support the LEO program, higher pension expense, higher professional fees, higher provision for bad debt expense and higher in-orbit insurance, partially offset by lower expenses related to development of Telesat’s planned LEO constellation, net of amounts to be reimbursed under a grant from the Canadian government and lower consultancy related expenses.

Telesat’s depreciation and amortization decreased by $21.7 million for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019 primarily due to the end of useful life, for accounting purposes, of the Anik F2 satellite in the fourth quarter of 2019.

In the third quarter of 2019, we recorded an out-of-period correction to decrease our investment in Telesat and increase other comprehensive loss by $22.1 million. This non-cash adjustment was made to record the cumulative translation adjustment on our investment in Telesat from November 2007, when we first acquired our ownership interest in Telesat, to December 31, 2018. The adjustment resulted from translating our share of Telesat’s equity from Canadian dollars to U.S. dollars at historical foreign exchange rates in accordance with ASC 830, ~~Foreign Currency Matters,~~ ~~as required by ASC 323,~~ ~~Investments~~ – ~~Equity Method and Joint Ventures~~. Previously, we translated our share of Telesat’s equity from Canadian dollars to U.S. dollars at current foreign exchange rates at each balance sheet date. This adjustment had no effect on our equity in net income (loss) of Telesat for any current or prior reporting period. The Company has not revised its financial statements for prior periods for this adjustment, including for the three and nine months ended September 30, 2019, based on its belief that the effect of such adjustment is not material to the financial statements taken as a whole.

~~Table of Contents~~

~~On January 1, 2019, Telesat adopted Accounting Standards Codification (“ASC”) 842,~~ ~~Leases,~~ for its U.S. GAAP reporting which we use to record our equity income in Telesat. Telesat adopted the new guidance using the modified retrospective approach with the cumulative effect of initially applying the standard being recorded on the balance sheet. As a result, on January 1, 2019, Telesat recognized a right-of-use asset of $19.6 million and lease liability of $20.0 million on its condensed consolidated balance sheet.

Backlog

Telesat’s backlog as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 was ~~$2.1~~$2.0 billion and ~~$2.5~~$2.1 billion, respectively.

Liquidity and Capital Resources

Loral

As described above, Loral’s principal asset is a ~~62.7%~~62.6% economic interest in Telesat. The operations of Telesat are not consolidated but are presented using the equity method of accounting. Loral has no debt. Telesat has third party debt with financial institutions. Cash is maintained at Loral and 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.

Cash and Available Credit

At ~~September 30, 2020,~~March 31, 2021, Loral had ~~$83.4~~$25.5 million of cash and cash equivalents and no debt. The Company’s cash and cash equivalents as of ~~September 30, 2020~~March 31, 2021 decreased by ~~$175.7~~$6.2 million from December 31, ~~2019~~2020 due primarily to ~~payment of a cash dividend of $170.1 million in May 2020,~~ corporate expenses of ~~$5.0~~$3.5 million adjusted for changes in working capital and net of consulting fees from Telesat, payments of ~~$6.1~~$2.4 million related to strategic initiatives and pension and other post-retirement funding of ~~$1.7 million, partially offset by $5.9 million received from XTAR for a past due receivable and $1.4 million of interest and investment income.~~$0.3 million. A discussion of cash changes by activity is set forth in the sections “Net Cash ~~(Used in) Provided by Operating Activities” and “Net Cash~~ Used in ~~Financing~~Operating Activities.”

Loral did not have a credit facility as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020.

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Cash Management

We have a cash management investment program that seeks a competitive return while maintaining a conservative risk profile. Our cash management investment policy establishes what we believe to be conservative guidelines relating to the investment of surplus cash. The policy allows us to invest in commercial paper, money market funds and other similar short-term investments but does not permit us to engage in speculative or leveraged transactions, nor does it permit us to hold or issue financial instruments for trading purposes. The cash management investment policy was designed to preserve capital and safeguard principal, to meet all of our liquidity requirements and to provide a competitive rate of return for similar risk categories of investment. The policy addresses dealer qualifications, lists approved securities, establishes minimum acceptable credit ratings, sets concentration limits, defines a maturity structure, requires all firms to safe keep securities on our behalf, requires certain mandatory reporting activity and discusses review of the portfolio. We operate the cash management investment program under the guidelines of our investment policy and continuously monitor the investments to avoid risks.

We currently invest our cash primarily in two ~~Government~~liquid 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.~~

~~Table of Contents~~

Inmonths or until 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 paid a special dividend of $170.1 million on May 28, 2020 to holders of record of Loral voting and non-voting common stock asClosing of the close of business on May 14, 2020. We intend to make an additional distribution to our stockholders, net of reasonable reserves for working capital and other liabilities. The timing and amount of any such additional distribution will be determined in part by the status of the combination transaction that we are pursuing. There can be no assurance as to the amount and timing of any such additional distribution, and such additional distribution may be impacted by the outcome of our discussions regarding, and the structure of, the strategic combination transaction with respect to our interest in Telesat that we are pursuing.

~~On July 2, 2020, we received $5.9 million from XTAR in full and final settlement of its past due outstanding liability of $6.6 million under the Loral Management Agreement.~~

Transaction, if sooner. We expect that our major cash outlays ~~for~~during the next 12 months will include general corporate expenses net of consulting fees from Telesat and ~~an additional distribution~~costs associated with completing the Transaction, including employee severance costs and professional fees. Loral receives consulting fees from Telesat of $1.25 million per quarter under a consulting agreement which expires on October 31, 2021.

Under the terms of the Transaction Agreement, Loral is required to ~~our stockholders~~make a $7 million payment to Red Isle at Closing. Telesat Corporation is obligated to make this payment as ~~mentioned above.~~well as costs associated with completing the Transaction if Loral does not have sufficient cash at Closing.

Risks to Cash Flow

In 2012, we sold our former subsidiary, SSL, to ~~MDA Communications Holdings, Inc., a subsidiary of Maxar~~ ~~Technologies Inc.~~ ~~(formerly known as MacDonald, Dettwiler and Associates Ltd.) (“MDA”).~~MDA. Under the terms of the purchase agreement, ~~for the sale,~~ 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.

Telesat

Cash and Available Credit

As of ~~September 30, 2020,~~March 31, 2021, Telesat had CAD ~~1.2 billion~~883.1 million 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 30, 2020,~~March 31, 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.

Table of Contents

The construction of any satellite replacement or expansion ~~programs, including the~~program will require significant capital expenditures, and in particular Telesat currently estimates that its planned ~~LEO~~Telesat Lightspeed constellation will require ~~signiﬁcant~~a capital ~~expenditures.~~investment of approximately $5 billion for satellites, launch vehicles, insurance and related ground systems. Cash required for any future satellite programs may be funded ~~by Telesat~~ from a range of sources including: cash and short-term investments; cash ~~ﬂows~~flow from operating activities; cash ~~ﬂows~~flow from customer prepayments; through borrowings on the revolving credit facility under Telesat’s senior secured credit facilities; vendor ~~ﬁnancing;~~financing; equity ~~investments;~~investments, including through the issuance of public equity; export credit agency ~~ﬁnancing;~~financing; additional secured or unsecured ~~ﬁnancing;~~debt financing; proceeds received from repurposing C-band ~~spectrum;~~spectrum, and from government sources. In addition, Telesat may sell certain satellite assets and, in accordance with the terms and conditions of ~~its~~Telesat’s senior secured credit facilities, reinvest the proceeds in ~~new or~~ replacement ~~satellite programs~~satellites or pay down indebtedness under ~~the~~Telesat’s senior secured credit facilities. 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 programs. ~~Telesat may seek to complete the development of, fund, and operate its planned LEO constellation through a current or future unrestricted subsidiary.~~

~~Table of Contents~~

Debt

Telesat’s debt as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 was as follows:

September 30,

December 31,

Maturity

Currency

2020

2019

(In thousands)
Senior Secured Credit Facilities:

Revolving credit facility
December 2024

USD or CAD equivalent

$
—

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

USD

1,894,186

1,908,500
4.875% Senior secured notes
June 2027

USD

400,000

400,000
6.5% Senior notes
October 2027

USD

550,000

550,000

2,844,186

2,858,500
Less: Deferred financing costs and

prepayment options

(59)

(302)
Total debt under international financial

reporting standards

2,844,127

2,858,198
U.S. GAAP adjustments

(19,289)

(21,498)
Total debt under U.S. GAAP

2,824,838

2,836,700
Current portion

16,400

16,480
Long-term portion

$
2,808,438

$
2,820,220

On October 11, 2019, Telesat issued $550.0 million of 6.5% senior notes maturing in October 2027. The 6.5% senior notes are effectively subordinated to Telesat’s secured indebtedness, including the obligations under its senior secured credit facilities and its 4.875% senior secured notes.

On December 6, 2019, Telesat entered into amended senior secured credit facilities which provide for term loan borrowings of $1,908.5 million which mature in December 2026 and revolving credit facilities of up to $200 million (or Canadian dollar equivalent) which mature in December 2024. Telesat also issued, through a private placement, $400 million of 4.875% senior secured notes which mature in June 2027.

~~On December 6, 2019, Telesat repaid all outstanding amounts, including related fees and expenses, under its former senior secured credit facilities.~~


				March 31,		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
				2,502,815		2,502,815
Less: Deferred financing costs and
prepayment options				1,869		1,824
Total debt under international financial
reporting standards				2,504,684		2,504,639
U.S. GAAP adjustments				(20,968)		(21,383)
Total debt under U.S. GAAP				2,483,716		2,483,256
Current portion				—		—
Long-term portion			$	2,483,716	$	2,483,256

Senior Secured Credit Facilities

The obligations under Telesat’s 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”). 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.

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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 in December 2024. Loans under the Revolving Facility bear interest at a floating interest rate. For Canadian Prime Rate and Alternative Base Rate (“ABR”) loans, an applicable margin ranging from 0.75% to 1.25% is applied to the Prime Rate and 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 1.75% to 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. 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 the total leverage ratio. As of ~~September 30, 2020,~~March 31, 2021, other than approximately CAD ~~0.2~~0.3 million in drawings related to letters of credit, there were no borrowings under this facility.

ii— Term Loan B — U.S. Facility

Telesat’s term loan B — U.S. facility (“U.S. TLB Facility”) is a $1,908.5 million facility maturing in December 2026. As of ~~September 30, 2020, $1,894.2~~March 31, 2021, $1,552.8 million of this facility was outstanding, which represents the full amount available. The borrowings under Telesat’s U.S. TLB Facility bear interest at a floating rate of either: (i) LIBOR as periodically determined for interest rate periods selected by Telesat in accordance with the terms of the senior secured credit facilities plus an applicable margin 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 its outstanding term loans under its U.S. TLB Facility. The mandatory principal repayments on Telesat’s U.S. TLB Facility are one quarter of 1.00% of the value of the loan, 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 Notes

Telesat’s senior notes, in the amount of $550 million, bear interest at an annual rate of 6.5% and are due 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 its satellite insurance, effect mergers with another entity, and redeem its senior notes, without penalty, before October 15, 2024, in each case subject to exceptions provided in the senior notes indenture.

As of March 31, 2021, Telesat was in compliance with the financial covenants of its senior secured credit facilities, the indenture governing its senior secured notes and the indenture governing its senior notes.

Senior Secured Notes

Telesat’s senior secured notes, in the amount of $400.0 million, bear interest at an annual rate of 4.875% and are due in June 2027. The 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 senior secured notes, without penalty, before December 1, 2024, in each case subject to exceptions provided in the ~~indenture.~~

~~Senior Notes~~

~~As of September 30, 2020, Telesat was in compliance with the financial covenants of its senior secured credit facilities, the indenture governing its~~ senior secured notes ~~and the indenture governing its senior notes.~~indenture.

Debt Service Cost

~~Telesat’s~~

The interest expense on Telesat’s senior secured credit facilities, senior notes, senior secured notes and interest rate swaps, excluding the impact of the amortization of deferred financing costs, prepayment options and loss on repayment for the year ~~ending~~ended December 31, ~~2020~~2021, is expected to be approximately CAD ~~175.5~~140.1 million. ~~The interest expense excludes the amortization of Telesat’s deferred financing costs and prepayment options.~~

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Table of Contents

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.

As of ~~September 30, 2020,~~March 31, 2021, Telesat had two outstanding interest rate swaps which hedge the interest rate risk associated with the variable interest rate on $900 million of U.S. denominated Term Loan B borrowings. These contracts, which mature in September 2021 and September 2022, are at fixed interest rates of 1.95% and 2.04%, respectively, excluding applicable margin. As of ~~September 30, 2020,~~March 31, 2021, the fair value of the interest rate swaps was a liability of ~~$16.7~~$11.4 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 30, 2020~~March 31, 2021 was a net liability of ~~$1.7~~$7.3 million.

~~Development Costs and~~ Capital Expenditures

Telesat has entered into contracts for the development of ~~its LEO~~Telesat Lightspeed constellation and other capital expenditures. The outstanding commitments associated with these contracts were approximately CAD ~~177.4~~237.1 million as of ~~September 30, 2020.~~March 31, 2021. These expenditures may be funded from some or all of the following: cash and short-term investments; cash flow from operating activities; cash flow from customer ~~prepayments~~prepayments; or funds available under the revolving credit facility.

Statements of Cash Flows

Net Cash ~~(Used in) Provided by~~Used in Operating Activities

Net cash used in operating activities was ~~$5.6~~$6.2 million for the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, consisting primarily of a ~~$10.8~~$4.1 million cash use attributable to net income adjusted for non-cash operating items, a $0.9 million decrease in income taxes payable, net of refunds receivable, and a $1.8 million decrease in pension and other post-retirement liabilities, partially offset by a receipt of $5.9 million from XTAR for a past due receivable and a $2.2 million increase in other liabilities.

~~Net cash provided by operating activities was $0.4 million for the nine months ended September 30, 2019.~~

~~Net cash used by operating activities from continuing operations was~~ $1.4 ~~million for the nine months ended September 30, 2019, consisting primarily of a $5.5 million cash use attributable to net income adjusted for non-cash operating items, a $0.6~~ million decrease in accrued employment costs and other current liabilities, a $0.4 million decrease in pension and other ~~postretirement~~post-retirement liabilities and a $0.6 million increase in other current assets, partially offset by a $0.2 million increase in other liabilities.

Net cash used in operating activities was $3.9 million for the three months ended March 31, 2020, consisting primarily of a $2.4 million cash use attributable to net loss adjusted for non-cash operating items, a $1.5 million decrease in accrued employment costs and other current liabilities, a $0.9 million increase in income tax refund receivable, a $0.4 million decrease in pension and other post-retirement liabilities and a $0.3 million increase in other current assets, partially offset by a ~~$3.0 million decrease in income tax refund receivable, primarily due to the receipt of refunds, and a $2.5~~$1.6 million increase in other liabilities.

Net cash provided by operating activities from discontinued operations was $1.8 million for the nine months ended September 30, 2019 attributable to a tax indemnification recovery related to the sale of SSL.

~~Net Cash Used in Financing Activities~~

~~Net cash used in financing activities was $170.1 million for the nine months ended September 30, 2020 attributable to the payment of a cash dividend to common shareholders in May 2020.~~

~~Table of Contents~~

Affiliate Matters

Loral has made certain investments in joint ventures in the satellite services business that are accounted for under the equity method of accounting (see Note 5 to 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.

Table of Contents

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 Exchange Act of 1934, as amended (the “Exchange Act”)) as of ~~September 30, 2020,~~March 31, 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 ~~the Securities and~~ Exchange Act ~~of 1934~~ 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.

Table of Contents

PART II.

OTHER INFORMATION

Item 1. Legal Proceedings

We ~~are not currently subject to any~~discuss certain legal proceedings ~~that, if decided adversely, could have a material adverse effect on~~pending against the Company in the notes to our financial ~~position or results of operations. In the future, however, we may become subject~~statements and refer you to that discussion for important information concerning those legal proceedings, including the basis for such actions and ~~claims, either asserted or unasserted, that may arise in the ordinary course of business or otherwise.~~relief sought. See Note 13 to our financial statements for this discussion.

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 our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 in “Item 1A. Risk Factors.” There are no material changes to those risk factors.

In that Annual Report, however, under ~~“Financial and Telesat Investment Risk Factors,”~~ “Risk Factors Associated with Satellite ~~Services” and “Other Risks” the risks~~Services,” we identify ~~include:~~

one such risk as “Some of Telesat’s ~~profitability~~satellites have experienced in-orbit anomalies and may ~~be adversely affected by swings~~ in the ~~global financial markets, such as those~~future experience further anomalies that ~~have occurred and are occurring as~~may affect their performance.” As previously reported, Telstar 19 VANTAGE has suffered a ~~result~~number of ~~uncertainty relating to~~failures of heaters that support the ~~COVID-19 coronavirus. Swings in~~operation of two of the ~~global financial markets may have~~three batteries on the satellite. The satellite manufacturer is currently investigating the root cause of the anomaly. There is a ~~material adverse effect on Telesat’s customers and suppliers.”;~~

“Telesat derives a substantial amount of its revenues from only a few of its customers. A loss of, or default by, one or more of these major customers, or a material adverse change in any such customer’s business or financial condition, could materially reduce Telesat’s future revenues and contracted backlog.”;

~~“Telesat’s dependence on outside contractors could result in delays related to~~risk that the design, manufacture and launch of its new satellites, or could limit its ability to sell its services to the U.S. Department of Defense, which could adversely affect Telesat’s operating results and prospects.”;

~~“Telesat~~satellite may experience ~~a failure~~additional heater failures. Thus far, the functionality of ~~ground operations infrastructure or interference with its satellite signals that impairs~~ the ~~commercial performance of, or the~~batteries and services ~~delivered over, its satellites or the satellites of other operators for whom its provides ground services, which could result in a material loss of revenue.”;~~ ~~and~~

~~“Interruption or failure of, or cyber-attacks~~ on Telesat’s or our information technology and communication systems could hurt Telesat’s or our ability to operate our respective businesses effectively, which could harm Telesat’s or our business and operating results.”

~~The risk factor set forth below updates, and should be read together with, the aforementioned and other risk factors described in our Annual Report.~~

~~Threats to public health, and measures taken in response to them, may~~Telstar 19 VANTAGE have ~~an adverse effect on Telesat’s or our business and results of operations.~~

~~Telesat’s or our business and results of operations have~~not been and may continue to be adversely affected by the current outbreak of COVID-19, and by measures taken to prevent its spread, including restrictions on travel, imposition of quarantines, cancellation of events, remote working, and closure of workplaces and other businesses. Telesat’s or our business and results of operations may also be negatively impacted by the ~~adverse effect~~failures. Tests performed in orbit and on the ground have validated operational workarounds that ~~COVID-19 has had and may continue~~Telesat can implement to have on global economic activity, which may include a period of prolonged global or regional economic slowdowns or recessions. The extent of the impact of COVID-19 is subject to change and dependent on many factors, including, among others, the duration of the pandemic and the measures that may be implemented by, or that may be imposed upon, us, Telesat and Telesat’s customers and suppliers in response to the pandemic, and is therefore difficult to predict. COVID-19 could also impact Telesat’s or our ability to attract capital to finance business strategies, such as the development of Telesat’s LEO constellation and related network, and also could increase Telesat’s cost of borrowing.

~~Table of Contents~~

Some of Telesat’s customers have experienced or may experience operational challenges, temporary shut downs, severe financial hardship or bankruptcy due, in whole or in part, to the COVID-19 pandemic or measures implemented in response to it. Telesat’s customersmaintain battery function in the maritime, aeronautical and energy markets have been significantly impacted by the COVID-19 pandemic and measures implemented in response to it. At the request of some of these customers, Telesat has agreed to amend the terms of certain of their contracts to mitigate the adverse financial impact that COVID-19 is having on their respective businesses. Other Telesat customers may make similar request in the future and Telesat may enter into similar agreements. The arrangements into which Telesat has entered, and into which Telesat may enter in the future, will have an adverse impact on Telesat’s revenues in the near term. In addition, certain of Telesat’s maritime and aeronautical customers have commenced voluntary bankruptcy proceedings. As a result, Telesat has had to record a provision for bad debt expense for certain accounts receivable with these customers given the risk that Telesat may not receive payment for all, or substantially all, of the amounts owed to it. Further, bankruptcy laws permit these customers to choose to reject any existing contracts into which they have entered. To the extent they choose to reject their contracts with Telesat, their obligations under those contracts would be voided and Telesat’s revenues would be adversely impacted. Moreover, Telesat may not be able to sell the resulting capacity on favorable terms, if at all. The adverse effects of the COVID-19 pandemic could result in some of Telesat’s other customers, including customers to whom Telesat has provided contractual relief, entering into bankruptcy in the future, or otherwise defaulting on their obligations to pay for services. In any of these circumstances, Telesat’s revenues, operating income and cash flows would be negatively impacted.

Telesat purchases equipment from third party suppliers and depends on those suppliers to deliver, maintain and support these products to the contracted specifications in order for Telesat to meet its service commitments to its customers. Additionally, Telesat is currently developing an advanced, global LEO constellation consisting of over one hundred, and potentially several hundred, satellites in non-geostationary orbit. There are a limited number of manufacturers that are able to design and build satellites and ground terminals according to the technical specifications and standards of quality that Telesat requires and a limited number of launch providers that are able to launch Telesat’s satellites. If Telesat’s suppliers do not meet their obligations to deliver and support their equipment due to operational challenges, temporary or permanent shut downs, severe financial hardship or bankruptcy due to the COVID-19 pandemic, or disruptions in their own supply chains, Telesat’s ability to meet its service commitments to its customers may be adversely affected and the design, construction or launch of Telesat’s LEO constellation or components of the network that support it may be delayed.

Telesat’s and our corporate headquarters and many of Telesat’s other offices and facilities, are located in jurisdictions that instituted work from home and social distancing requirements. These restrictions adversely impacted the ability of Telesat’s and our employees to travel to their places of work, and, in the case of Telesat employees, to customer locations and to supplier facilities. Telesat and we enacted work from home policies for our respective employees effective March 16, 2020, which in the case of Telesat are ongoing; in our case, although we have adopted a plan for re-opening of our office in accordance with local regulations and guidance, our employees are nevertheless encouraged to work, and are generally still working, remotely. Telesat has also implemented processes that allow for a minimum number of its employees to be present at Telesat’s facilities, primarily in an attempt to further ensure that its satellite control and network operations are not impacted. To date, Telesat and we have maintained our respective operations without any known adverse impact on operations. The future effects of the COVID-19 pandemic on Telesat and us are dependent on many factors, including, among others, the duration and severity of the pandemic, whether a significant number of Telesat’s or our respective employees supporting critical operationsevent Telstar 19 VANTAGE were to ~~contract COVID-19, whether~~suffer additional heater failures on the current measures to prevent the spread of COVID-19 continue, and whether new restrictions are imposed; the extent of the continuing impact of the COVID-19 pandemic on Telesat’s or our business and results of operations is, therefore, difficult to predict. In the event that Telesat’s or our ability to operate our respective businesses is adversely impacted by the COVID-19 pandemic or by measures taken to prevent its spread, Telesat’s revenue and Telesat’s or our financial performance could be adversely affected.batteries.

The risks described in our Annual Report on Form 10-K 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.

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 Nasdaq notice is only a notification of deficiency, not of imminent delisting, and has no current effect on the listing or trading of the Company’s securities on the Nasdaq Global Select Market.

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. The Company plans to hold its annual meeting of stockholders for 2020 on or before June 30, 2021.

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Item 6. Exhibits

The following exhibits are filed as part of this report:

Exhibit Number		Description

3.1	—	Amendment No. 2 to Amended and Restated Bylaws of Loral Space & Communications dated April 22, 2021(1)

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(1)*

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(1)*

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(1)*

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(1)*

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

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

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

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

99.1	—	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(2)

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101.INS	—	Inline XBRL Instance Document
101.SCH	—	Inline XBRL Taxonomy Extension Schema Document
101.CAL	—	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	—	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	—	Inline XBRL Taxonomy Extension Label Linkbase Document
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 ~~September 30, 2020~~March 31, 2021 has been formatted in Inline XBRL.

(1)

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

(2)

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

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

4243

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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 & COMMUNICATIONS INC.

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

Date: ~~November 5, 2020~~May 14, 2021

4344


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

For the quarterly period ended ~~September 30,~~ ~~2020~~March 31, 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
~~(State or other jurisdiction of incorporation)~~			~~(I.R.S. Employer Identification No.)~~
	600 Fifth Avenue,

~~600 Fifth Avenue~~, New York, New York			10020
~~(Address of principal executive offices)~~	~~(Zip Code)~~


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	☒☐
Non-accelerated filer ◻☒	Smaller reporting company	☒
	Emerging growth company	☐



PART I — FINANCIAL INFORMATION

Item 1: Financial Statements (Unaudited)	Page No.

Condensed Consolidated Balance Sheets as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020	3

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and March 31, 2020 ~~and September 30, 2019~~	4

Condensed Consolidated Statements of Shareholders’ Equity for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and the year ended December 31, 2020 ~~and September 30, 2019~~	5

Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and March 31, 2020 ~~and September 30, 2019~~	6

Notes to Condensed Consolidated Financial Statements	7

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations	2426

Item 4: Disclosure Controls and Procedures	3940

PART II — OTHER INFORMATION

Item 1: Legal Proceedings	4041

Item 1A: Risk Factors	4041

Item 5: Other Information	41

Item 6: Exhibits	42

Signatures	4344


	Common Stock								Treasury Stock					Accumulated				Common Stock								Treasury Stock					Accumulated
	Voting			Non-Voting					Voting					Other				Voting			Non-Voting					Voting					Other
	Shares			Shares			Paid-In					Accumulated		Comprehensive		Shareholders'		Shares			Shares			Paid-In					Accumulated		Comprehensive		Shareholders'
	Issued	Amount		Issued	Amount		Capital		Shares	Amount		Deficit		Loss		Equity		Issued	Amount		Issued	Amount		Capital		Shares	Amount		Deficit		Loss		Equity
Balance, January 1, 2019	21,582	$	216	9,506	$	95	$	1,019,988	154	$	(9,592)	$	(695,521)	$	(17,620)	$	297,566
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													76,743																	214,436
Other comprehensive loss															(13,052)																	(48,348)
Comprehensive income																	63,691																	166,088
Balance, June 30, 2019	21,582		216	9,506		95		1,019,988	154		(9,592)		(618,778)		(30,672)		361,257
Net income													6,247
Other comprehensive loss															(16,261)
Comprehensive loss																	(10,014)
Balance, September 30, 2019	21,582		216	9,506		95		1,019,988	154		(9,592)		(612,531)		(46,933)		351,243
Net income													6,765
Other comprehensive loss															(7,981)
Comprehensive loss																	(1,216)
Balance, December 31, 2019	21,582		216	9,506		95		1,019,988	154		(9,592)		(605,766)		(54,914)		350,027
Net loss													(47,777)
Other comprehensive income															14,111
Comprehensive loss																	(33,666)
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
Common dividend paid ($7.00 per share)																														(216,529)				(216,529)
Balance, December 31, 2020																		21,582		216	9,506		95		1,019,988	154		(9,592)		(729,202)		(71,972)		209,533
Net income													51,172																	30,716
Other comprehensive loss															(7,220)																	(1,816)
Comprehensive income																	43,952																	28,900
Balance, September 30, 2020	21,582	$	216	9,506	$	95	$	1,019,988	154	$	(9,592)	$	(772,501)	$	(48,023)	$	190,183
Balance, March 31, 2021																		21,582	$	216	9,506	$	95	$	1,019,988	154	$	(9,592)	$	(698,486)	$	(73,788)	$	238,433


	Three Months Ended September 30,
	2020							2019
	Before-Tax			Tax (Provision)		Net-of-Tax		Before-Tax			Tax (Provision)		Net-of-Tax
	Amount			Benefit		Amount		Amount			Benefit		Amount
Amortization of prior service credits
and net actuarial loss	$	321	^(a)	$	(68)	$	253	$	251	^(a)	$	(52)	$	199
Equity in Telesat-related other
comprehensive loss		(7,477)			4		(7,473)		(16,465)			5		(16,460)
Other comprehensive loss	$	(7,156)		$	(64)	$	(7,220)	$	(16,214)		$	(47)	$	(16,261)


2020 (October 1, 2020 to December 31, 2020)	$	175
2021 (January 1, 2021 to June 30, 2021)		350
Total operating lease payments		525
Less: Interest		(12)
Operating lease liability	$	513

Amounts recognized in Balance Sheet
Other current liabilities	$	513